Updated on 06.25.07

A Personal Finance Lesson From The Gap

Trent Hamm

PagAbout a week ago, I had a fairly interesting experience at The Gap. I stopped there on a spur of the moment as I was looking for gift ideas, and I was about to leave when I realized that there was only one noticeable employee in the store. That employee was running the only checkout, which had about twelve people in line, and she made no effort to ask for more help, she just kept charging ahead. For a store that previously marketed a rather boutique-like appearance, this lack of customer service was almost shocking.

This morning, I stumbled across a similar sentiment on Seth Godin’s excellent marketing blog (I added my own emphasis):

Today, I visited a Gap store for the first time in a while. We all know that they’ve been having trouble, and it was interesting to see how they’re responding.

They’re closing about 50 stores net this year, trying to make their business match the market. At the same time, it was pretty obvious from my visit that they’re working hard to save money on sales staff, store designers and other expenses. It took me twenty minutes to check out. In the old days, it would have been two minutes. My reading of the Dip is that nickel and diming is a dumb strategy.

They should close 200 or even 500 stores and keep the very best people from each store, redeploying them to their best stores. They should invest in those great stores, invest in design, in targeted marketing. In other words, instead of shrinking themselves back to greatness, they ought to avoid the nickel and diming and go back to what made them great in the first place.

When your current strategy isn’t working, doing the same thing, but just a little less of it, doesn’t make a lot of sense, imo.

I think there’s a lot of useful meat in this situation that one can apply to their own finances.

First of all, individual bits of frugality (i.e., nickel and diming) don’t really help; it only really works if you switch to that mindset. One of the regular criticisms I hear about articles on clipping coupons and such is that, in the end, you’re not saving that much for the effort involved. What is often not seen is that the coupons are just one small piece in a larger philosophy and set of behaviors: using a shopping list, buying items in bulk if the price per unit is cheaper, not being afraid to buy generics, studying the fliers and maximizing sales, and so on. Cutting coupons alone isn’t that cost-effective, but as a part of a more general strategy, it can really help.

Second, it’s often the 800 pound gorilla in our budget that makes things so tight. If you’re racking up huge credit card bills and you realize it’s not working, don’t just resolve to spend a little less with the plastic – rethink your situation and chuck ’em. If you spend $25 a month on premium cable channels that you never watch, don’t tell yourself “Well, I might watch them…” – get rid of the waste. If you have a third car that is rarely driven, look at the situation and ask if you really need it – you probably don’t. Maybe you’re barely making your house payments – maybe it’s time to move to another area. Don’t just take the big things for granted – look at everything when you’re in trouble.

Third, keeping up appearances is a dangerous game. The Gap has a certain appearance that they’re no longer able to maintain because they’ve expanded too much. The same thing happens when you buy too much stuff to keep up with the Joneses; the bills start coming in and you realize that you’re really in a fix. Instead of following that strategy…

Focusing on your core values is always a winning strategy. What’s really important to you? Perhaps you spend most of your time watching television, so it might make sense to buy a huge LCD television, but then does it make sense to spend a ton of money on other things that are far less important to you? Probably not – it just takes space and creates debt (or at least lost investments).

In the end, Seth sums it up well, so I’ll repeat it again: when your current strategy isn’t working, doing the same thing, but just a little less of it, doesn’t make a lot of sense.

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  1. bret says:

    After reading this post, I couldn’t help bu think of this quote:

    Insanity: doing the same thing over and over again and expecting different results.

    -Albert Einstein

  2. Julie says:

    Almost every major retail chain subscribes to the awful business practice of cutting staff and running on a skeleton crew. None of them have realized yet that having more staff will in turn increase sales and thus improve profits.

    Years ago I worked for Joann Fabrics & Crafts. We were only given enough payroll hours to have two people working in the store at any given time. Those two people were expected to unload and put away 50+ cases of inventory weekly, perform customer service and sales duties, clean the store, run the cash registers, and keep an eye on both store entrances. The district only gave us enough hours to have people working during the times the store was open. So no working before or after business hours. Needless to say, that store is now out of business along with other Joann stores.

    Home Depot has been lambasted lately also about their staff reductions. But they kept raising the pay for the CEO while their stock prices kept dropping.

    I know that payroll costs are a large part of doing business. But in a retail environment, your business simply will not prosper unless you provide good customer service with live human employees. Maybe GAP will be able to turn their business around.

  3. C. Duncan says:

    A friend recommended me to your site because I have just heard about Dave Ramsey. Okay. Okay. Don’t point at the dim-witted guy who is just waking up to the financial future of my life. Hey! I’m here. The article seems to be an homage to “Dave”.

    I completely like your site. It is extremely informative and I intend to go through it further. I’ve referred five more people to it.

  4. Janette says:

    I too had an unbelievable experience at the Gap recently. I was in the checkout purchasing a suit, and as the sales clerk was removing the suit from its hangers, I asked if she would just leave it on the hangers. I had some more errands to run after leaving the Gap, and didn’t want the suit (which was linen) thrown in a bag to wrinkle. The sales clerk said that they weren’t supposed to allow customers to keep hangers. I explained the situation – that I had more errands to run and didn’t want the linen to get wrinkles. I would only need two hangers (its not like I was asking for a box of hangers), and the other items I was purchasing could go in a bag. She refused again, and finally a Gap manager came up to assess the situation. She too refused to let me leave with the 2 plastic hangers. I could not believe it. The suit was such a good deal that I did end up purchasing it, and HAD TO DRYCLEAN it before wearing it due to the wrinkles it got for laying in the bag for the remainder of my errands. Unbelievable!

  5. Matt says:

    Few things come to mind, not in any real order..

    1. On the GAP closing 200-500 stores and redeploying their staff: The GAP isn’t the US Army. If I’m a GAP employee and management tells me that they’re closing my store and the nearest one is 50 miles away, I’m going to probably take a job at the pretzel peddler rather than make the 50 mile commute just to maintain my $9 an hour.

    2. While I agree that nickel and diming is not always the answer, it’s very easy to “armchair CEO” it and say “Based on my 20 minutes I spent at the GAP this month, they should close 500 stores and not 50!” Wow. Let’s not forget that Gap, Banana Republic, Old Navy (and Piperlime) are all part of the same company and just because their middle of the road clothing store isn’t getting it done in Seth’s mind doesn’t mean Gap’s executive management is clueless.

    3. On the other hand, I can’t remember the last time I bought clothes at Gap. Not because the service was bad, just because I didn’t care for the selection. There is quite a bit of overlap in the products and I prefer their dressier clothes from Banana Republic and more casual clothes from Old Navy.

  6. Dave M says:

    Janette – I would have loved to tell them “Two hangers is going to cost you this entire sale,” dropped everything and walked out. If the only language they understand is nickel-and-diming, then maybe management would get the message.

  7. Kathryn says:

    I’m interested in this question of “nickel & diming” as a strategy for dealing with a tight budget. I really believe that frugality is a good mindset to get into, but how do you decide when pinching pennies really isn’t going to be enough to save you? When is it time to “close 500 stores” (make the big change) in order to concentrate on doing it right…rather than continue to work to slowly and steadily (tortoises winning the race?) to make it better.

  8. laura k says:

    @ Janette and Dave M – even better, run around and do your errands, then go back to the store and return the suit…full of wrinkles. That would be worth the extra gas to me!

  9. You bring up an interesting point about keeping up appearances, concentrating on core values and the 800 pound gorilla on your budget. But it’s the lack of frugality that causes the 800 pound gorillas – a trend I’m especially noticing amongst younger people today.

    Outside of student debt for some, young people don’t have the 800 pound gorillas to worry about (at least they don’t start out that way). They are throwing frugality out the door completely and are turning to consumption at an alarming rate. Their need for instant gratification is translating into massive credit card debt, and hence their own personal 800 pound gorillas.

    So your comment about the mindset of frugality is alot more significant than you may think. Because there’s trouble in them there [debt] hills and younger peope just don’t seem to see it.

  10. Rachel says:

    I work at Sears, I’m a cashier. Recently my supervisor told me that she is supposed to “cut” our hours. She was told this by the store manager. Now, there are 5 cashier stations in the store, and they all have to have a cashier in them when the store is open, 9a.m. to 9p.m. But what they did was hire more people and give us shorter work hours. For instance, instead of working 8:30 to 4 or 5, I now work a lot of 8:30 to 1 shifts. My question, how does that cut hours or payroll? You are still having the same 5 stations covered during those 12 hours. Granted , some cashiers make a little less than others, but it is not a significant amount, the difference of a few cents. I told my supervisor that I prefer to work whole days, I can accomplish more of my frugal projects with a whole day off, but she said that is not how she was told to schedule. I do like my job, and I live close enough that the shorter shifts are not too much of a burden gas wise, but some of the people live 25-30 miles away. Just seems silly to me. Also, we give customers all the hangers they want. When I first started I asked why Sears does not recycle and was told that the cost of recycling was more than the cost of buying them new, so we “recycle” by giving them to the customers, rather than throwing them away.

  11. Michiko says:

    I completely agree with frugality being a state of mind rather than a set of practices. All of these tips on how to slash your costs are completely ineffective if the fundamental idea is not in place.

    Wandering in a local mall, I looked around at what I percieve to be poor quality clothing. And I asked myself, what would be the smarter thing to do; buy a lot of cheap clothing that will get wrecked after so many wears, or buying something a little more expensive but that will last me (almost)forever?

    I do think about my purchases, so it’s not just about coupons and buying cheap meats. That to me is the most important part.

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