By Jonathan Birchall
Updated: 3:11 p.m. ET Feb. 26, 2007
Gap, the US troubled clothing retailer, is to close down a fledgling line of stores aimed at older women, in a change of strategic direction following the depature last month of Paul Pressler, its former chief executive.
The move comes amid speculation that Gap's management might consider the sale of all or part of the company, following two years of poor sales at its Gap and Old Navy brands.
The company's Forth & Towne stores, unveiled just 18 months ago, had sought to focus on baby-boomer women aged 35 and over, who represent an increasingly important segment of the US clothing market.
Gap said that despite an encouraging start "a thorough analysis revealed the concept was not demonstrating enough potential to deliver an acceptable long-term return on investment".
It will take a $40m pre-tax charge in its first and second quarters due to the closure of the brand's 19 existing stores, most of which opened just last autumn.
The new brand was a central element in the company's growth strategy under Mr Pressler, who has now been replaced as interim president and CEO by Bob Fisher, the son of Gap's founders.
While the stores represented a new attempt to focus on a well-defined market segment, they also took adopted a merchandising strategy that left some customers confused, with four different fashion "selections" in each store, that were supposed to target different life-styles.
Todd Slater, analyst at Lazard Capital Markets, welcomed the move, saying the brand "never gained much traction, suffered from fit, style, and image problems, and became a big distraction".
Mr Fisher described the experience with the format as "an illustration of the innovative risks you need to take in our business" and added that Gap wanted to "focus our efforts on stabilising the existing businesses".
Forth & Towne was developed and headed by Gary Muto, a company veteran who was formerly president of the Gap brand, before being moved to the project by Mr Pressler.
The decision is the latest in a series of changes made since Mr Fisher took over from Mr Pressler, including replacing Cynthia Harriss as president of the Gap brand with Marka Hansen, formerly president of the more successful Banana Republic stores.
Gap subsequently announced the departure of Charlotte Neuville, the head designer hired by the Gap brand in 2005 as part of a bid to reverse falling sales.
Some analysts have argued that the moves undertaken since Mr Pressler left, and ahead of the naming of a new CEO, indicate that the members of the Fisher family, who control over 30 per cent of Gap's shares, are committed to turning Gap around, rather than a sale.
Analysts at Merrill Lynch recently argued that there was only a 25 per cent chance of a leveraged buy-out of the company, noting that the Fishers had continued to back the previous management through several failed turnaround bids.
Gap's shares were largely unchanged by the news, trading at $19.71 at lunchtime in New York.