Gap's (NYSE:GPS) Underperformance Might Actually Get Worse

While objectively, we know that retail is still a fairly solid institution all things considered—only about 11 percent of all sales are made online, according to Statista figures—it's not hard to look at Sears continuing to shutter stores, the ruins of K-Mart, or any of a thousand “dead mall” videos on YouTube to know that things have been brighter for brick-and-mortar. New reports suggest that the downside already spotted at The Gap NYSE: GPS locations may well continue.

The Gap Widens Between “Right Now” and “Profitability”

It's already one of the worst performers in retail stocks, and in a market that's perhaps best described as “up”, that carries a little extra ominous meaning. Right now, Gap shares are down about 35 percent on the year, and that's in a market where a retail exchange-traded fund (ETF), XRT, is up eight percent for the same time period.

Worse, the Gap also lost its CEO, Art Peck, just a few days ago in a move that sent shares careening downward to lose seven percent of their total value at the time.

Can It Actually Get Worse for The Gap?

Adding these facts together doesn't make a good overall picture. Being one of a few retail stocks that are in decline in an upmarket is bad enough, but being one of a few retail stocks in decline when retail ETFs are up is even worse.

Word from Piper Jaffray chief market technician Craig Johnson, meanwhile, suggests that the Gap may have seen nothing yet.

While talking to CNBC's “Trading Nation” on Friday, Johnson noted “Gap shares are just purely out of fashion at this point in time. You're back to levels you were at in 2016 and 2011, and it doesn't look like there's any indication that a bottom has been made.” Valid point; not only is Gap down about 35 percent on the year, but it's also down better than 50 percent of its highs seen back in March. All it takes to be considered as in a “bear market” is a difference of 20 percent off 52-week highs, which puts Gap somewhere in Jellystone Park chasing picnic baskets.

Johnson further noted that he was not inclined to go “bottom-fishing” until there was “...clear evidence of some sort of trend change starting to unfold with the shares and at this point in time, you don't have that.”

Can The Gap Be Bridged?

Most objective indicators right now suggest that the Gap is looking a lot more like The Endless Crevasse of Horror and Penury. It's selling clothes in a market where there are a growing number of online alternatives geared to do just that. Worse, the Gap is pretty much a mall fixture, and we know what's been going on with malls for some time now. Plans that emerged back in March to spin-off Old Navy and shutter 230 stores—primarily in North America—may have lent the brand some help back then, but don't seem to be doing much good now.

For the Gap to recover, some possibilities emerge. There are a growing number of technological solutions that may help, including augmented reality systems in dressing rooms that allow customers to see what a potential buy looks like on them in a dressing room mirror without having to actually put the item on. That can help augment the customer experience and improve return customer rates, giving the Gap a crucial leg up in the market. Improvements to the loyalty programs can also be helpful here, including building them directly into an app and coordinating them with mobile payment tools. This is a strategy Starbucks has used to great effect in recent months, and retailers, in general, may find that adding convenience and extra value at the same time is a winning formula.

However, with Gap shares plummeting in an overall-up market, and no real signs of the solution in sight, the Gap may ultimately prove too wide to cross. This may leave one more retail store poised to go the way of Sears, K-Mart, and many others before it.