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Banana Republic Makes Its ‘Brexit.’ Will More Fashion Brands Follow?

Staples isn’t the only retailer experiencing brick-and-mortar malaise in the UK. Gap will shutter all eight of its UK Banana Republic stores as early as the end of 2016, according to a new report from Bloomberg.

Gap representatives reported in May 2016 that the company would shutter 75 Old Navy and Banana Republic stores overseas, so it was only a matter of time before stores started to hit the chopping block. Beyond the UK store closures, Gap appears to be cutting its losses in other international markets so it can focus more on U.S. operations. In fact, the brand closed 57 Old Navy stores in Japan alone.

In a blog post, Honor Strachan, Lead Analyst of Clothing and Footwear at UK-based consultancy Verdict Retail, cited poor product design, pricing and promotional strategies as the primary reasons for Banana Republic’s UK departure.

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“Much like its sister brand Gap, frequent promotions on selected ranges such as knitwear or blanket discounts across the full offer have eroded respect for the original ticket price, with consumers holding off making a purchase until at least a 30% discount has been applied,” Strachan noted. “This strategy does not work in the UK and is detrimental to margins if price cuts are reactionary, desperate and unplanned.”

Banana Republic may be the first of many brands to make their own “Brexit.” Strachan predicts that J.Crew and Forever 21 will close their UK stores within the next few years — mainly because both companies failed to provide any differentiation points from British competitors such as Reiss and Ted Baker.

Despite its overall struggles in Europe, Banana Republic will keep its stores in France and Italy open, according to the Bloomberg report. Net sales at Banana Republic’s European division fell 15% to $17 million in Q2 2016, with the brand’s global comparable store sales dropping 9%.

The relatively large dip in comparable sales likely had a hand in Gap’s reported decision to transition at least three full-price Banana Republic stores into factory outlets. While it is unconfirmed how many stores may be converted in the long run, or whether the shift will be successful, the change reflects both the downfall of the Banana Republic brand as well as the growing attractiveness of off-price retail. With Banana Republic weighing down Gap’s finances by the quarter, it’s clear the retailer is trying anything it can to turn things around.

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