What's Wrong with the Gap?

Sales figures released today show that December '06 sales at the Gap fell 9% from last year, and they also fell 10% between December '04 and '05. So what's the problem?

I'm wondering if the company is caught in the deadly middle, too plain compared to luxury goods, and too expensive compared to discount goods. This is the middle market, the niche that Sears occupied so well for so many decades, until Wal-Mart blew out their business model by selling equivalent goods for lower prices.

No doubt, at Gap HQ this week they're sweating it out, combing desperately through the analysts' figures trying to understand why their business model seems to be going into the tank. I hope they also figure out that they need to go and talk directly with their customers, to find out what shoppers really think.

It wouldn't be at all surprising if they learn that they have to reinvent the brand - but will they have the courage to do that? It's a risky move, but that would be better than becoming the incredible shrinking company ....