Old Navy sails in smartly Retailer: With two stores now in Maryland and more to come, Old Navy Clothing Co. is trying to establish itself as the place to go for trendy clothes at bargain prices.


Call it a chic J. C. Penney or Sears.

But it is really the Gap Inc.'s answer to attracting customers who don't want to pay Gap prices for their casual clothing.

Old Navy Clothing Co., the clothing chain that grew to 230 stores in 41 states in three years, has just entered Maryland this summer with stores in Wheaton and Ellicott City. Three more are expected to open this year in the Baltimore suburbs.

The chain, owned by Gap Inc., opened its first stores in San Francisco in 1994 and has succeeded in delivering profits to its parent company that it wasn't collecting with its two other chains, Banana Republic and the Gap. Unlike those chains, Old Navy is located in strip malls or large shopping centers where the rents aren't as high as those in malls. The stores are about 16,500 square feet -- larger than the usual mall store -- and they offer shopping carts with grocery store-like checkout lanes. As at the Gap, the merchandise is clearly organized, but customers will rarely find Gap clothing there.

This is not an outlet to get rid of clothing that didn't sell at Banana Republic or the Gap. Rather, the T-shirts may not be as quite as thick, the corduroys as plush or the stitching as fine as at the Gap.

About 80 percent of the merchandise is manufactured for Old Navy exclusively.

"It is providing apparel that is fashion-oriented. It has that punch, but it is more value-oriented," said Maria Medaris O'Shea, an analyst with BT Alex. Brown Inc. While discount department stores from Kmart to Target sell clothing at lower prices than many apparel retailers, few chains have targeted budget customers who want trendy clothes, according to O'Shea. "It has been enormously successful for the Gap," said Richard E. Jaffe at Schroder & Co. in New York.

The biggest question in the minds of investors, according to analysts, is whether Old Navy will be able to maintain its operating margin long term. The parent company has one of the best margins in the apparel business -- 13.8 percent last year compared with an industrywide average of about 8 percent. Gap Inc.'s profit has grown steadily over the past several years, to $452.9 million in the last fiscal year on sales of $5.3 billion. Same-store sales, reported last week, were up 16 percent for the month, 3 percent for the year. But Banana Republic and the Gap will soon approach the limit of growth. The Gap, for instance, already has about 800 stores. So Old Navy has provided a means of continuing its expansion. "Old Navy represents Gap's growth vehicle for the future," O'Shea said.

The blue and white Old Navy signs are up in Ellicott City and Wheaton.

Three more locations are to open by the end of the year, at Annapolis Harbour Center in Annapolis, the Avenues at White Marsh and Columbia Crossing in Columbia.

Pub Date: 9/08/97

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