Over the next two months, the company will complete anassessment of its 40 million sf of US real estate and create astrategic plan around what Murphy dubbed the "Four R's":repositioning, relocating, remodeling and right-sizing. Manystores, he said, are too large, and separating some of Gap'svarious brands, including Body and Kids into separate units is nolonger strategically smart.

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"Our fleet is older than we would like and not reflective ofwhat the brands once were," Murphy said. "And with 3,100 stores, wehave not put in the time to create a strategy. Great retailersstrategically define where they want to get to."

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The result means reducing the size and number of stores in theUnited States, and combining Gap adult, Baby, Body and Kids intoone large superstore in some locations.

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The age of some stores, however, has one advantage forlandlords, he said. Many are in prime locations in A malls, whichstill have value.

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"One of the advantages of being a 40-year-old company is that wewere going into malls early, taking the 40 or 50-yard-line space,"Murphy said.

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Meanwhile, the Gap will expand to Russia, its 18th country, andBanana Republic will expand to other U.K. cities beyond its Londonflagship. The outlet business will expand to Canada. As of May 3,Gap operates 3,177 stores worldwide.

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