Stagflation Victim: Gap, Inc. (GPS)
20 May 2011
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Prime stagflation victim is Gap, Inc. (GPS) which operates retail clothing stores like Gap and Old Navy. The lower end clothing lines have been victim of higher input costs such as cotton (and of course fuel for transport) which has squeezed margins. Meanwhile, consumers are tight because of no wage growth and higher food & energy costs. Hello stagflation.
This is no surprise and is a story that we should continue to see play out. Who are the companies doing well? The multinationals that have pricing power and a global reach. The companies struggling are the ones dependent on the US consumer, minimal pricing power and impacted heavily by higher costs.
Gap is down something like 17% as of writing this article. Ouch.
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It's always seemed to me that Gap hasn't really changed with the times. They are pretty much still the same store as they were in their heyday in the 90's. I think that has as much to do with their current problems as does the issues you're describing.
That must be why Old Navy clothing has gotten much cheaper and less durable. I used to LOVE Old Navy, but have noticed that while they are still trendy, the clothes are of much less quality than in years past.
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Stagflation is real problem for the economies. This problem can damage the economies to the extent that it is very hard to recover. So, we have to deal this matter carefully.
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