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Gap plans to reopen 800 stores by the end of May

Originally published on CNBC by Lauren Thomas

Credit: Lea Suzuki | San Francisco Chronicle | Getty Images

Gap Inc. is preparing to reopen 800 of its apparel shops by the end of May, as states such as Texas and South Carolina slowly begin to lift lockdown restrictions that were put into place due to the coronavirus pandemic.

The San Francisco-headquartered company, which owns Banana Republic, Old Navy and Athleta, joins a growing list of retailers — including Macy’s, Nordstrom, Abercrombie & Fitch and Chico’s — that are taking steps to get back to business, albeit with plenty of precautionary measures.

“Our whole goal is to be the gold standard when it comes to safe retailing,” Chief Executive Sonia Syngal told CNBC in a phone interview. “Being trusted in this process is paramount for us.”

For Gap, getting the lights back on in its stores likely needs to happen sooner rather than later, as its financial situation appears dire.

On April 23, the company warned investors it might not have enough cash to sufficiently fund operations, with its shops temporarily shut to try to help curb the spread of Covid-19. A day later, Gap issued $2.25 billion of new secured bonds to help it repay existing debt. At the end of March, Gap drew down its entire $500 million credit line and said it was suspending dividend payments.

Looking for ways to cut costs, Gap also said last month it stopped paying rent to its landlords, with monthly rent expenses amounting to roughly $115 million in North America.

“We are fully engaged in conversations with landlords regarding these decisions and plans to reopen,” Syngal said.

Meantime, only about 20% of Gap Inc.’s revenue comes from indoor shopping malls, she went on to say. Gap’s net sales totaled $16.4 billion in fiscal 2019.

Mall-based retailers, including apparel companies and department stores, have been some of the hardest hit during the pandemic that has kept families holed up at home. Even as lockdown restrictions lift, analysts say malls could be one of the venues consumers look to avoid, longer term, because of their enclosed nature. Nordstrom said Tuesday evening it plans to permanently shut 16 of its department stores, after assessing the market.

The biggest U.S. mall owner, Simon Property Group, notably has 412 Gap stores, including Banana Republic and Old Navy, at its malls and outlet centers. This makes Gap Simon’s biggest in-line tenant at its properties in terms of rent. Simon started opening some of its malls in the South last Friday.

“We feel confident that our online composition and street, strip, outlet and lifestyle [outdoor] malls give us an advantage,” Syngal said about Gap’s positioning away from enclosed malls. “That is exciting for us.”

As Gap reopens its doors to customers again, the changes will be noticeable. And it is unclear how long some of them will be in place. Some could become permanent.

Among them: Gap will be placing plexiglass dividers at registers to protect workers from shoppers. It will place signs in stores encouraging customers to wear face coverings and to follow social distancing protocols. Restrooms and fitting rooms will be temporarily closed. Hand sanitizer will be positioned at store entrances, and store hours will be reduced for the foreseeable future.

Gap will also be holding any returned merchandise for 24 hours before placing it back on the sales floor, a practice Syngal said the retailer agreed upon based on conversations with industry peers and the trade group Retail Industry Leaders Association. It remains unclear how long the Covid-19 virus lingers on materials such as clothing.

Gap operated 3,345 stores globally, with an additional 574 franchise locations, as of Feb. 1.

To meet online demand and to try to utilize inventory sitting in dark stores, the company currently is fulfilling and shipping online orders from 1,000 locations. And it has curbside pickup available at 75 shops.

Gap plans to double the number of locations where it is shipping from the store, as well as add additional curbside pickup options, according to Syngal. “When Covid hit, we saw a meaningful acceleration in our online performance.”

When it warned about its financial situation last month, Gap also said it is possible that some of its stores never reopen.

Syngal, who became CEO effective March 23 after leading the Old Navy brand, said the retailer is still “thoughtfully” evaluating its real estate.

Gap shares have fallen more than 58% this year. The retailer has a market cap of $2.7 billion.