Are Gap Inc. and Old Navy better off together?

Discussion
Photos: Gap, Inc.
Jan 17, 2020
George Anderson

What a difference 10-and-a-half months make. Less than a year after Gap Inc. announced plans to spin off its Old Navy business as a standalone public company, it has reversed course.

“The plan to separate was rooted in our commitment to value creation from our portfolio of iconic brands,” said Robert Fisher, Gap Inc. interim president and chief executive officer, in a statement. “While the objectives of the separation remain relevant, our board of directors has concluded that the cost and complexity of splitting into two companies, combined with softer business performance, limited our ability to create appropriate value from separation.”

“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” added Mr. Fisher. “We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner that empowers our growth brands, Old Navy and Athleta, and appropriately focuses on profitability for Banana Republic and Gap brand. Our board is focused on supporting this work and appointing new leadership with the appropriate experience necessary to lead a portfolio of retail brands and to support our transformation efforts.”

In an email to RetailWire, Moody’s vice president Christina Boni, echoed the challenges laid out by Gap in making its decision.

“Gap Inc.’s plan to terminate its spin of Old Navy reflects the challenges presented by the cost and complexity of splitting the business in the face of weaker operating results,” she said. “The significant dis-synergies related to the transaction, as well as most of its separation costs, will be avoided.  A larger diversified platform is instrumental to Gap, Inc., not only in managing risk, but leveraging investments in technology and logistics.”

Shares of Old Navy were up nine percent in after-market trading, CNBC reports.

When Gap first announced its plans to spin off Old Navy last year, most industry watchers saw it as a positive for the chain, while at the same time questioning whether it could have a negative effect on its parent company post-separation.

Old Navy reported same-store sales for its third quarter were down four percent. Gap Inc. continues to look for a new chief executive after Art Peck stepped down in November. 

DISCUSSION QUESTIONS: What do you think of Gap’s decision to call off its separation from Old Navy? How will this move affect Old Navy and its parent company?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Together they face a daunting set of challenges. Separately? They’re too small to have a chance of beating the challenges."
"There are far more fundamental challenges ahead for Gap Inc., and separating out the Old Navy brand is not the right move at all."
"Make no mistake – Gap has more issues and challenges to resolve than just deciding to keep or spin-off Old Navy. Smart move by Gap, now they can focus on real issues..."

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14 Comments on "Are Gap Inc. and Old Navy better off together?"


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Mark Ryski
BrainTrust

It’s going to get worse before it gets better at Gap – if it ever does get better. While the decision to not split off Old Navy into a separate company makes sense, the bigger issue is everything else going on in and around the company. Gap is in a serious state of tumult. Major executive leadership changes, negative sales trends across all banners and product offerings that clearly don’t resonate with consumers. None of these issues can be fixed easily or quickly.

Richard Hernandez
BrainTrust

I understood the separation – two different clienteles, two different ways of communicating value. Many years ago Gap was pretty cool and pretty relevant. They haven’t been that in a long time. Old Navy is about sales and selling throwaway clothing … I don’t know the value of keeping then together unless you look at a SWOT really closely for each side of the business.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
8 months 2 days ago

Makes total sense that Gap has decided against carving out Old Navy. They saved themselves from a huge distraction not to mention the costs of separation. I must say they dodged a bullet.

A whole army of M&A consultants, business transformation consultants, system integration companies and investment bankers will be disappointed though. 🙂

Jeff Sward
BrainTrust
The problem was never about Gap and Old Navy being “together” and the solution was never about “separation.” The company did not have a balance sheet problem or operating efficiency problem. Nobody ever walked by a Gap store and said, “I don’t think I’ll shop there today. Their operating inefficiencies drive me crazy.” The problem was relying on a decades old merchandising strategy. The customer that related to that strategy is now a parent or a grandparent. There is a whole new generation of shoppers that view the mall and the shopping experience differently. The Gap division never took a lot of product risks. Brilliant marketing drove the business. Today’s environment requires some risk and cleverness and the Gap retreated into safe and comfortable. And promotional. They embraced department store thinking versus specialty store thinking. Separation was never going to solve any of that. So I am thrilled to hear that proposal has been shelved. Time to once again focus on content and how customers shop today versus a couple of decades ago.
Bob Phibbs
BrainTrust

An article in the New York Times wrote that an Old Navy store manager had to use seven apps to do her job. She seemed to be little more than a task manager. No one over there at Gap seems to know how or what to do; reminds me of Sears in the late ’90s. Time is running out.

Doug Garnett
BrainTrust

I’m quite relieved. The idea of the separation seemed quite ill considered. Together they face a daunting set of challenges. Separately? They’re too small to have a chance of beating the challenges.

Gene Detroyer
BrainTrust

Here is how you approach this question. If the two companies were separate, should Old Navy buy Gap? The answer is clearly a resounding NO! If there is no reason to buy it, there is no reason to keep it.

Brandon Rael
BrainTrust

There are far more fundamental challenges ahead for Gap Inc., and separating out the Old Navy brand is not the right move at all. The customer and marketplace have evolved and changed, and Gap, along with their brands, has some catching up to do.

Gap and Old Navy once had the “it factor” and were on the edge of what is cool and trendy. There are significant changes that have to be made to recapture that magic in a bottle. At this point, it may be too little too late.

Cynthia Holcomb
BrainTrust

The flip flop reflects the sad reality. Gap Inc. has truly lost itself in a quagmire of internal strife and has experienced a complete loss of direction, which is very sad. Gap Inc. has a history of good product execution, the only problem is that the products Gap Inc is producing today do not excite nor do they inspire shoppers to think of Gap. A tremendous failure of leadership.

Lee Peterson
BrainTrust

This is for Gap’s namesake brand, no doubt. Gap stock by itself would be devalued to junk in about five minutes if they would’ve split. If they’re ever going to save the mothership, keeping some value would be key to re-investing — after they close another 500 stores of course.

Ryan Mathews
BrainTrust

I assume it was made after better heads than mine decided the economics didn’t work. As to how it will affect either or both brands — the combination of the brands was never the problem and the separation of them was never the solution. The only things that will help are systems modernization and brand repositioning.

Ricardo Belmar
BrainTrust
Make no mistake – Gap has more issues and challenges to resolve than just deciding to keep or spin-off Old Navy. This is a smart move by Gap, now they can focus on real issues around quality of merchandise, product appeal, brand differentiation, and so on. Spinning off Old Navy was going to be a distraction at best, and a financial trainwreck at worst for Gap. Now they must look at what works at Old Navy, and see how to replicate that across other brands. Whether these brands stay together or become separate was never the problem (or the solution). Solve product issues, in-store merchandising, make the in-store experience interesting – these are areas that Gap should focus on. They need better creative direction – consumers have lost interest in the products they sell. I also repeatedly hear from people that their sizing is a mess across brands. Gap should be able to capitalize on cross-channel sales across their various brands, but they have so many obstacles to that today that shoppers are just giving… Read more »
Craig Sundstrom
Guest

What the?! It’s true that it’s better to admit a mistake and move on than continue it, but of course it’s best not to make it in the first place. And “best” is what Gap needs right now. Whatever the merits of the separation idea may be on their own — and they’ve been discussed here (a lot) — this reversal is going to give (reinforce?) the idea that management doesn’t know what it’s doing.

Peter Charness
BrainTrust

It’s not like the Gap is the first multi brand, multi chain operation in the world. This isn’t binary in terms of it’s either all together, or totally separated. While there is a lot of work that strategists, marketeers, financiers and consultants can do to determine the right configuration for each entity, it’s not exactly brain surgery to determine what should be shared services, brand owned functionality and right sizing. This on top of a SWOT review for each business, tells the tale. Could take 3 weeks and come out 90% right, or could take months and months and probably not end up with a much higher percentage of being on target as a go forward model.

wpDiscuz
Braintrust
"Together they face a daunting set of challenges. Separately? They’re too small to have a chance of beating the challenges."
"There are far more fundamental challenges ahead for Gap Inc., and separating out the Old Navy brand is not the right move at all."
"Make no mistake – Gap has more issues and challenges to resolve than just deciding to keep or spin-off Old Navy. Smart move by Gap, now they can focus on real issues..."

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