Gap Open to Selling on Amazon

The rise of Amazon.com Inc. as a new destination for apparel shoppers hasn't gone unnoticed at the headquarters of Gap Inc.

The struggling apparel chain's chief executive, Art Peck, told shareholders that Gap is open to selling its merchandise on Amazon or other third parties in the U.S.

"To not be considering Amazon and others would be in my view delusional," Mr. Peck said Tuesday in response to an investor's question at the annual shareholder meeting. "We are always considering all of our opportunities beyond our traditional mix of channels and stores."

Amazon has courted apparel brands for years and has started to lure some department store staples to its site, including Calvin Klein, Lacoste and Levi Strauss. But Gap is among the chains that have shunned the online retailer and it has largely focused on selling jeans, khakis and button-downs through a fleet of more than 3,500 stores and its own websites.

Mr. Peck noted that Amazon now accounts for one-third of all e-commerce sales in the U.S. and is projected to become the largest U.S. apparel retailer. "To not acknowledge that and what it means to our strategy would be to have our head in the sand, and we do not have our head in the sand," he said.

It's unclear if the two companies are in discussions. Representatives for Gap and Amazon declined to comment.

Gap has reported four consecutive quarters of declining same-store sales. The retailer recently warned that sales at stores open at least a year fell about 5% in the first quarter. The company, which also owns Banana Republic and Old Navy, is scheduled to post quarterly results after market close on Thursday.

Gap's business is at risk since sales of basic items "typically migrate to the lowest priced and most convenient channel," according to analysts at Morgan Stanley. They forecast an overall deceleration of growth in the specialty retail channel over the next few years as a result of likely share loss to Amazon.

As early as 2014, Amazon was in discussions with about 10 well-known retailers, including Abercrombie & Fitch Co., to list their products on its online marketplace. The listings would have directed shoppers to the retailers' own sites rather than having them make purchases on Amazon.com.

Some retailers are distrustful of how the Internet company uses customer data. Amazon tests pricing strategies on its marketplace and has also been known to change pricing on products many times during a single day. With its trove of data, the Internet giant can also detect items to sell in competition with retailers.

Selling on Amazon presents a double-edged sword for specialty retailers with store fleets as large as Gap's. While they can tap into the online marketplace's growing shopper base, the listings might also disincentive shoppers from visiting stores, where brick-and-mortar retailers tend to have better luck converting traffic to sales.

Gap has used third-party vendors to capture markets outside the U.S. The company sells its merchandise on TMall, a Chinese e-commerce marketplace owned by Alibaba Group Holding Ltd., and Zalando SE, a European website. But Gap operates significantly fewer stores outside the U.S. As of Jan. 30, Gap had 185 company-owned stores in Europe and 136 in China, constituting a much smaller footprint than its fleet of more than 2,400 U.S. stores.

Analysts say Gap's brands have lost their relevance with millennials and the company's fleet of stores is weighing it down. Gap's businesses are "simply too large in the new normal where physical distribution has become a liability and uniformity is no longer cool," Nomura analyst Simeon Siegel wrote in a research note.

Gap management spent last year revamping its merchandise offering after attributing weak performance in previous quarters to style and quality missteps. Late last year, Mr. Peck rested hopes for a turnaround on a new product assortment hitting shelves in the spring.

But the changes haven't translated into sales growth yet. At Tuesday's meeting, Mr. Peck said that retailers are seeing "almost unexplainable traffic patterns."

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

May 18, 2016 11:35 ET (15:35 GMT)

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