Fashion business Liz Claiborne (NYSE: LIZ) reported second-quarter results on Wednesday. Upfront warning: they're not for the faint of heart.

Sales declined 29%. The adjusted loss from continuing operations came in at 48 cents per share. The company made 11 cents in last year's Q2 on the same basis. According to Reuters, the market was expecting a loss of only 39 cents per share. Same-store sales were down double digits across Liz Claiborne's portfolio.

Okay, it's probably a massive overstatement to argue that Gap Inc. (NYSE: GPS) is going down in flames. However, there is little doubt that the once-ubiquitous brand is experiencing some serious problems. Between brand confusion, the decline of narrow-focus retailers, and increasing competition from other companies, Gap will either have to massively tighten up, or 2009 is going to be a rocky year.

The first problem lies with brand identity. Gap, Inc. owns three major retail chains: Gap, Old Navy, and Banana Republic. Although the Gap was, historically, a relatively inexpensive brand, it has forged out a mid-level space for itself. At this point, its customers expect well-constructed, durable, relatively classic styles. By comparison, Banana Republic focuses on more upscale clothing, and Old Navy sells cheap, relatively disposable clothes. To put it another way, Old Navy markets itself toward high school and college students, Gap markets towards college and young professional, and Banana Republic skews more toward young professional.

Obviously, these aren't hard and fast delineations, and there is considerable overlap among Gap's target demographics; however, this is basically the way that Gap splits up its customer demographic. The trouble is that the high prices that one may expect of Banana Republic have found their way down to the Gap, while the questionable construction that is perfectly acceptable at Old Navy somehow has migrated into many of Gap's garments. This brand confusion has resulted in overpriced clothing items that quickly fall apart. Not surprisingly, it has also led to some major irritation on the part of Gap's loyal customers.