Gap, Old Navy splitting into 2 public companies

04 March, 2019, 04:28 | Author: Kevin Carter
  • Gap to split off Old Navy 230 stores to close

The plan calls for the creation of two independent publicly traded companies - low-cost juggernaut Old Navy and a yet-to-be named company, NewCo, which will consist of the iconic Gap brand, Banana Republic and Athleta as well as the smaller fashion chain, Intermix.

Richard Fisher, Gap chairman, said Old Navy's business model and customers "have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward".

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Gap said the new company, which it's now referring to as "NewCo", should have roughly $9 billion in annual sales.

With the spinoff, Gap would lose a brand that accounted for $8 billion in sales, or 47% of company-wide sales, in 2018.

Mark Cohen, director of retail studies at Columbia Business School, said Old Navy became a direct competitor for Gap, rather than a companion, as stores popped up within the same malls.

Wall Street cheered the decision:Gap stock was up 25% in after-hours trading.

More news: Pakistan Hands Over Captured Indian Pilot at Border

But some analysts questioned why promising brands such as Athleta and Hill City were included in NewCo with the struggling Gap brand.

Just a day after Victoria's Secret announced it would be closing more than 50 stores across North America, Gap Inc announced its own major shutterings. In the latest quarter - the critical holiday period - Old Navy's same-store sales were flat, while Gap and Banana Republic sales were both negative.

Gap says it hope the closures and moves it is making to modernize its marketing will help it develop future growth in its stores, outlets and online offerings. Sonia Syngal, who is now President and Chief Executive Officer of Old Navy and who has led it since 2016, will continue to lead the brand as a standalone company.

For years, Peck tried to apply the practices that led Old Navy to such success to other brands, but to no avail.

In addition, the company plans to close 230 Gap-brand stores over the next two years, but it's now unknown how many closures will impact Canada. The retailer has tested partnerships with Lilly Pulitzer, Toms Shoes and Hunter Rain Boots and saw mixed results.

The "NewCo", what's left after Old Navy will have approximately $9 billion in annual revenue, a strong balance sheet, and a multi-store portfolio. Gap expects to effect the separation through a spin-off that is meant to generally be tax-free to its shareholders. And we think the best way for each company to grow and meet the evolving needs of our customers is to allow them to pursue tailored strategies separately.

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