Things are pretty bad at The Gap Inc. (GPS), and that’s not just because the San Francisco retailer saw its share price tumble almost 14% Friday following more poor sales results.
Sure, the numbers were bad. Now even Old Navy, once its crown jewel, is having trouble growing sales. But what’s really alarming investors is management’s lethargy and sheer ineptitude.
Case in point: the blazer sleeve debacle that recently bruised its Banana Republic chain. Designers, apparently oblivious to their clienteles’ dimensions, had the armholes cut so small that customers found it impossible to fit their arms into the sleeves. Unsold inventory ballooned and deep discounting ensued.
At the time, executives promised to improve quality and nix the fashion misses responsible for all of the profit crippling “40% off everything” sales. But Friday’s results show that is not happening nearly fast enough. As a result, deep discounts have become the norm at Banana Republic, The Gap and even Old Navy.
And when The Gap is not suffering execution failures, it’s getting killed by “fast fashion.” That’s when nimble brands — like H&M, Uniqlo, Zara and Forever 21 — wait for designer trends to hit the catwalk and then knock them off faster than the wink of a model’s eye.
Regardless of how hard executives try, no matter how many times design teams are upended, Gap is just not built to move quickly. So yeah, things are pretty bad at Gap. Maybe this month’s results will finally be the catalyst for change.
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You may have heard this week that the secretive Panamanian law firm Mossack Fonseca suffered a massive document leak that spilled the beans on hundreds of unsavory deals and dealmakers worldwide. The leaked docs, immediately given the alliterative sobriquet the Panama Papers, cast a light on a popular practice among celebrities, politicians, rogues and the super rich: setting up shell companies to hide cash and to avoid taxation.
Even if you have already read media descriptions of the leak, you may wish to check out the law firm’s website outlining its defense. It’s kind of a fun read that sounds in parts like a Ludlum novel.
— Excerpt re Zimbabwe strongman Robert Mugabe: “Mossack Fonseca sold a company to a professional client in the United Kingdom who in turn sold that same company to an associate of Robert Mugabe, unbeknownst to us. As soon as we discovered that the company had been resold to an associate of Robert Mugabe we resigned as registered agent.”
— Excerpt re Syrian power broker Rami Makhlouf: “We did not know this individual until his name and association were reported in the media. While we were the registered agent for a company that, as we later discovered, was resold to him, we did not deal with him directly. Due to the banking secrecy laws in Switzerland, we did not have access to information regarding the final beneficiary of the company in question. Our client was a bank in Geneva, Switzerland, which we cannot name due to a strict confidentiality agreement, and it is they who were responsible for dealing with the final beneficiary. Immediately upon learning that he was related to nefarious persons and activities we resigned as registered agent.”
As the Dow Doubles
We are on the cusp of the most profitable bull market of our lifetime.
Now what you may not know is that the United States is itself fast becoming a tax haven in its own right. At least that’s what is being reported by the Associated Press:
“There’s a big neon sign saying the U.S. is open to tax cheats,” said John Christensen, executive director of the Tax Justice Network, to an AP reporter. He adds: “Many of their tax-dodging clients are talking about moving to the U.S. You go to Switzerland, and that’s all they’re talking about.”
It turns out that Delaware, Wyoming, South Dakota and Nevada — hardly locales one would associate with the demimonde — have been particularly egregious in their zeal to attract tax cheats. Nevada collects almost no information about ownership for new companies, and in 2001 the state legislature made it extremely difficult to bring lawsuits against shell corporations. South Dakota has trust laws that allow families to park and grow wealth without ever being subject to taxes.
Perversely, all of this comes in the wake of past revelations that UBS, a Swiss bank, was actively helping U.S. citizens evade U.S. taxes. A law was passed in 2010 demanding full disclosure. In 2014, some 90 countries signed a bank-info sharing pact. But the U.S., influenced by the powerful banking lobby, refused to join in. Sometimes things need to get worse before they get better. It almost (almost) makes you think Bernie Sanders has picked the right dark forces to demonize.
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OTHER DEVELOPMENTS OF THE DAY
— Physical gold and the gold miners are perking up again. The SPDR Gold Shares (GLD) fund, which is the best way to track prices of the yellow metal, hit its year-to-date high in early March and has been ebbing slowly lower and sideways since. It has essentially made a bull flag, which means it should move up and over its high at some point in the near future. This is being driven in part by the weakness of the dollar and the fear of eurozone financial collapse. The stocks in the group are cheap. Newmont Mining (NEM) may have made a new one-year high Thursday, but it is still down more than 50% from its 2012 high. Other big gold miners finally stirring from abject lows are Barrick Gold (ABX), Yamana Gold (AUY) and Kinross Gold (KGC). … However after four years of pain, African miners are not high-fiving, reports Reuters.
— The mood has swung against stocks in part due to the recent intervention into free markets by U.S. regulators. First you had the Treasury Department’s crackdown on tax inversions. Then the Department of Justice announced a lawsuit to block the proposed merger between Halliburton (HAL) and Baker Hughes (BHI). And on Thursday afternoon, Reuters reported that the Treasury is working on additional steps to counter the sort of tax avoidance by companies and individuals seen in the Panama Papers case. Any one of these by themselves is not that big a deal, but overall they increase the level of uncertainty about the companies’ interaction with the federal government, and investors are prone to shoot first and ask questions later when they are confused.
— Eurozone officials remain in denial. A European Central Bank official said the organization could add new quantitative easing measures if further shocks emerge. Another official said the ECB will continue to do whatever is needed to pursue its price stability objective — including pushing interest rates farther into negative territory to incentivize loan-making. Yeah, I mean it is working just great so far, guys — great idea.