Gap Inc. Cancels Summer and Fall Orders As Covid-19 Bites

LONDON, United Kingdom — US clothing giant Gap Inc has paused all production for next season's items and asked suppliers not to ship products already completed unless they are for the company's online platform, leaving its manufacturers in a limbo.

The company, whose brands include Gap, Banana Republic and Old Navy, had already cancelled or delayed a series of orders, but in an email sent to vendors Monday, its executive vice president for global sourcing asked suppliers to more-or-less stop everything.

With sales that topped $16 billion last year, it's one of the world's largest apparel retailers and its decision will have repercussions for an already struggling supply chain, with manufacturers spread across countries including Bangladesh, Vietnam, Cambodia and Indonesia.

“Stores are the lifeblood of our business and while we are still operating our e-commerce channels, they simply cannot make up for having our stores closed,” read the email, which was viewed by BoF. “As much as we want to minimise the impacts to our supply chain, the situation is fluid and we need to remain responsive.”

The email asked vendors to hold off on shipping all summer product not intended for online sales and to stop all production for fall items. Its fabric manufacturers were instructed to cease production and hold all fabrics in their facilities. Gap Inc. said it would update its vendors with further information by April 14.

“We are making decisions based on the best interest of our employees, customers and partners, as well as the long-term health of our business,” a Gap Inc. spokesperson said in an emailed statement, adding that the company remains committed to working with long-standing suppliers to find ways to work together through the crisis.

The notice comes as global brands are coming under scrutiny for pulling orders and refusing payment to suppliers in countries heavily dependent on apparel exports. The Bangladesh Garment Manufacturers and Exporters Association estimates that more than $3 billion worth of orders have now been cancelled or suspended, affecting more than 2 million workers. The slash and burn approach to suppliers has attracted criticism for failing to protect vulnerable garment workers and exploiting structural imbalances within the supply chain.

Other companies including H&M group and Zara-owner Inditex have committed to continue to pay for orders that have already been made.

But Gap Inc. was in a more precarious position than some of its fast-fashion competitors before the crisis hit. Once a linchpin of the American mall, the US retailer has struggled to maintain relevance in an increasingly competitive and digital environment. Its products and advertising no longer resonate with consumers as they did in the 1990s, and its stores look increasingly dated. Sales have been sliding at its core Gap brand for years (the lower-priced Old Navy has proven more resilient), while reliance on discounts has eroded profits.

Longtime Chief Executive Art Peck left the company late last year, with a successor only named last month. The company's new chief, former head of Old Navy Sonia Syngal, had hoped to lead a turnaround effort at the struggling high-street retailer.

As recently as early March, Gap Inc. had forecast that its profits would come in above expectations this year, despite signs of a substantial sales hit in Europe and Asia as a result of measures already in place to contain the pandemic. Less than a week later, the company closed all of its North American stores. By the end of the month, it had withdrawn its earlier optimistic guidance.

On March 30, Gap Inc. said it would furlough the majority of its store employees in the US and Canada, pausing pay but allowing them to continue to receive benefits until stores reopen. It’s also cut corporate staff globally. Its entire leadership team and board of directors have agreed to take a temporary pay cut.

“We are now in a position where we must take deeper actions,” Syngal said in a statement last month. In addition to measures to reduce payroll, the company has deferred dividend payments for the first quarter and suspended payouts for the rest of the year. It has reduced capital expenditure by around $300 million for the year and implemented a review of operating expenses.

The move to cancel orders suggests the company is anticipating a slow and painful recovery.

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