Gap to close 21% of North American stores

Go to any mall in a decent-sized city, and you'll find a Gap store, maybe a Banana Republic or Old Navy.

Well, maybe you won't. Gap (GPS) said Thursday it plans to cut its North American store count from 889 to 700 by the end of 2013, a decline of 21.3%. From the end of 2007, it represents a 34% decline in store count.

The company said it is not going under. "We are focusing on a smaller and healthier fleet in North America," Chief Financial Officer Sabrina Simmons told a New York investment conference Thursday. It does $14 billion to $15 billion a year in sales.

Gap is expanding outside the United States and wants to generate 30% of revenue by the end of its 2013 fiscal year. It expects to triple its store count in China to 45 from 15 now. Its first Banana Republic will open in Paris later this year.

The North American market isn't delivering the sales growth Gap wants. So, it's looking elsewhere for growth. The savings from operating fewer stores should help finance the overseas business.

At least that's the hope. Wall Street wasn't too excited. Shares closed up 0.4% to $17.92. But they're down 24.5% from their April high.

Gap's problem is that it is, well, middle-brow, as The Wall Street Journal noted Thursday. (Registration may be required.) If you like khakis and nice but not spectacular duds, Gap and its sister stores are for you. The problem is that you can get those clothes cheaper elsewhere, and, if you want something with glamour, there's Macy's (M) or Nordstrom (JWN).

So, its North American business has struggled. September same-store sales were down 4% from a year ago. The flagship Gap stores saw sales drop 4% from a year ago. Old Navy and Banana Republic sales were off 1% each. Sales in September 2010 were flat to up 1% from 2009.

International sales were off 13%, compared with a year ago's gain of 4%.

In the second quarter, its gross profit margin had shrunk to 9.9% from 12.8%. Smarter store operations and a big cut in the cost of cotton should help matters. Cotton is down 30% from a year ago.

This spring, the Journal said, Gap parted ways with the top designer for its Gap clothes. CEO Glenn Murphy conceded the store's offerings had become dull.

If you're a Gap aficionado, the closings won't be the end of the world.

If you're a mall operator, it's a different story. Gap has been closing stores for three years. Cutting 189 stores between now and 2013 means putting more than 1 million square feet of space on the market nationally at a time when malls are struggling.