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Gap announced that it will close 175 (nearly 26 percent) of its North American stores. It...

Gap announced that it will close 175 (nearly 26 percent) of its North American stores. It will terminate an unknown number of workers and cut 250 headquarters jobs. Thinking of a Gap store as a unit of capital, explain why Gap is reducing the number of stores and workers. Is Gap making a long-run decision or a short-run decision? Is Gap taking advantage of economies of scale?

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Gap announced that it will close 175 (nearly 26 percent) of its North American stores. It will terminate an unknown number of workers and cut 250 headquarters jobs. Thinking of a Gap store as a unit of capital, explain why Gap is reducing the number of stores and workers. Is Gap making a long-run decision or a short-run decision? Is Gap taking advantage of economies of scale?

Covid 19 has impacted almost all industries however some of the industries have been hit seriously like tourism, aviation, apparel and Gap is no exception. A COVID recession will impact the company’s revenues, cash flows, and ability to pay dividends. Analysts predict that the company’s revenues by 40% from $16.4 billion in 2019 to $10 billion in 2020.

In order to prevent a further dent on the company's profitability and its Financial Statements, the company has taken a string of measures to preserve its profitability and cash reserves, including reducing capital expenditures theough closing 175 of ots North American stores, suspending/delaying payments of dividends, and laying off unknown number its employees. It has also suspended rent payments for its stores that have been closed because of the COVID-19 pandemic. Gap’s cash flows have been adversely impacted, and the company could be headed for a cash crunch if the condition deteriorates.Thus, the above decisions have been made keeping in mind long term prospects of the company and the economy. Gap is taking advantage of its economies of scale by leveraging its vast footprint and still survive the pandemic. Many small apparel companies will be shut down due to huge financial loss caused by Pandemic.

jeff jeffy answered 1 year ago
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