Gap Finishes Closing 350 Stores, but Old Navy Weighs on the Retailer

Few retail chains that filled malls in the 1980s and 1990s still exist today. A teenage shopper of that era could have visited Chess King for shiny shirts, Gadzooks for baggy pants, or Structure for dressier clothes. Each of those chains enjoyed at least a measure of popularity, and none of them survives today. The broader decline of enclosed malls — once the anchor of American apparel retail — has forced surviving chains to rethink where and how they operate physical stores.

Former Tory Burch Chief Client Officer Francesca Danzi told Forbes that remaining relevant across decades is a major challenge for any brand.

"Enhancing retail experience is key and goes beyond adding omnichannel capabilities that boost convenience. We are witnessing the rise of experiential retail that is reshaping the store of the future," she said.

Danzi does not view the so-called retail apocalypse as a crisis of store closures, but as an opportunity to right-size store portfolios.

"Actually, what I see is the continuous integration and convergence of physical stores, e-commerce websites and digital content/marketing platforms. Relevancy and personalization are key," she added.

Against that shifting backdrop, the ongoing survival of Gap Inc. stands out. The Gap, the company's flagship brand, was a hip mall chain in the 1980s and held that status through the 1990s. The company has now completed its process of closing 350 stores, yet it still faces a difficult cost equation.

The Gap delivers mixed results

"In the second quarter, while the company exceeded our profit expectations, we delivered a net sales decline of 2% with mixed performance on the top line across the portfolio. While not the revenue outcome we wanted, continued operational and financial rigor contributed to gross margin strength," Gap CEO Richard Dickson said during the chain's second-quarter earnings call.

The Gap brand was the clear standout.

"The Gap brand delivered another exceptional quarter with comparable sales increasing 10%, and Banana Republic continued to build momentum, posting its fifth consecutive quarter of positive comps. Athleta's top line remained pressured, though we saw encouraging improvements in inventory productivity," he added.

Old Navy, which served as the company's strength in the 2000s and 2010s while the namesake brand lagged, has been dragging the company down. That reversal matters for the broader business because Old Navy is Gap Inc.'s largest brand by revenue, so weakness there offsets gains at Gap and Banana Republic across the whole portfolio.

"At Old Navy, as we previewed on last quarter's call, seasonal categories continued to weigh on performance. While we took actions to address this as the quarter progressed, we also experienced a slowdown in traffic, which led to a modest miss versus our expectations," the CEO shared.

Gap needs to cut costs

In a process that began in 2020, Gap Inc. closed 220 Gap and 130 Banana Republic stores. At the time, the company made clear that it was mostly exiting mall locations in favor of cheaper strip malls, open-air city centers, and outlet malls — a shift many apparel retailers have made as mall traffic has declined relative to other formats.

"We've been overly reliant on low-productivity, high-rent stores," former Gap brand CEO Mark Breitbard told Boston 25 News. "We've used the past six months to address the real estate issues and accelerate our shift to a true omni-model."

The long-term goal was to reduce ROD — rent, occupancy, and depreciation — the fixed or semi-fixed costs associated with store operations. That strategy worked, according to CFO Katrina O'Connell, but more work remains.

"We have previewed that ROD deleverages this year. It is a new dynamic for us. I think it represents 2 things. First of all, we've largely concluded closing our underperforming stores. The pace of the closures that we were doing when we were closing 350 stores had provided meaningful benefit to ROD," she said.

Now the retailer has shifted to opening stores, which has created a negative effect on expenses.

"And now we're modestly opening stores. So that does impact the ROD line as the closures abate, and we end up with not that ROD favorability," she added.

Opening new stores, she noted, "does help us on the sales line," but it leaves the company needing to cut costs without the lever of closing high-cost, low-profit stores.

Old Navy, which once carried the company, has been dragging it down, and the company has responded with a leadership change. It appointed Michael Francis as Chief Executive Officer of Old Navy, effective November 2, 2026, announcing that Francis will succeed Haio Barbeito, who will move from his operating role into an advisory capacity.

"As strategic advisor to Walmart's C-suite and board for a decade, Francis supported the world's largest retailer in growing nearly $200 billion in revenue through its evolution into an omni-channel, e-commerce, membership and advertising business," the company said in a press release.

Gap reported mixed results

Gap Inc. saw sales decline but increased its profitability in the second quarter, returning $262 million of cash to shareholders through share repurchases and dividends during the quarter.

Financial highlights included:

• Net sales of $3.7 billion, down 2% compared to last year.
• Comparable sales were down 1%.
• Store sales decreased 3% compared to last year.
• Online sales decreased 1% compared to last year and represented 35% of total net sales.
• The company ended the quarter with nearly 3,500 store locations in about 35 countries, of which 2,471 were company-operated.
• Adjusted net income was $190 million and adjusted diluted earnings per share were $0.52, excluding the net IEEPA tariff recovery and related interest income.

The Gap brand itself was the clear leader for the company.

"Second quarter net sales of $844 million were up 9% compared to last year. Comparable sales were up 10%, with the brand's focus on big ideas and culturally relevant storytelling continuing to drive strong performance in destination categories including denim, fleece, and kids and baby," the company shared.

Experts and analysts have mixed opinions on Gap

GlobalData Managing Director Neil Saunders acknowledged that Dickson has shifted the culture at the company.

"I stand by that view, mostly because I think it's important to give due recognition to positive changes — especially in an area where a retailer has traditionally struggled. However, as I also mentioned, this is only one piece in the jigsaw puzzle of change that needs to occur for Gap to get back on track," he wrote on LinkedIn.

He was critical of the company's merchandise, however, after visiting a local store.

"In menswear, the assortment is still incredibly bland. There is very little, if any, newness. None of the products are innovative. Few have those little twists or styling embellishments that make them 'must-have' items. Everything is just very flat," he added.

Saunders made that assessment after a prior visit to a Gap store, and his comments offer a counterpoint to the brand's much stronger Q2 results.

Some analysts also remain concerned about Old Navy. Ahead of the report, Jefferies analyst Corey Tarlowe downgraded Gap (GAP) to Hold from Buy with a price target of $23, down from $29, TipRanks reported.

"The firm is 'increasingly concerned' about softer trends at Old Navy, with its data pointing to higher promotions. Gap's Q2 offers the easiest comparison of the year, yet trends have lagged, and the comps get tougher in the second half of the year, the analyst tells investors in a research note. Jefferies downgraded the shares to reflect its weakening survey metrics for Gap," the website reported.

How the new Old Navy leadership settles in, and whether Gap brand's momentum can carry through the tougher second-half comparisons flagged by Jefferies, will be key signals to watch in the coming quarters.

This story was originally published by TheStreet on Sep 6, 2026, where it first appeared in the Retail section.