What will going separate ways mean for Gap and Old Navy?
Gap and Old Navy are splitting up. Yesterday, parent company Gap Inc. announced plans to create two separate publicly traded companies. Old Navy will operate on its own and Gap, Athleta, Banana Republic, Hill City and Intermix will comprise another business currently being referred to as NewCo.
“Following a comprehensive review by the Gap Inc. Board of Directors, it’s clear that 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,” said Robert Fisher, chairman of Gap Inc.’s board, in a statement.
“Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands — creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders,” he added.
Art Peck, president and CEO of Gap Inc., will hold the same title with NewCo going forward. Sonia Syngal, president and CEO of Old Navy, will continue to lead the retailer in its new standalone status.
Reactions to the announcement have shown enthusiasm for Old Navy’s prospects but less certainty about those of the Gap banner.
“Old Navy is Gap Inc.’s leading brand comprising 47 percent of sales in 2018 with margins that lead its portfolio,” said Christina Boni, vice president at Moody’s, in an emailed statement to RetailWire. “Old Navy continues to outpace Gap Brand and Banana Republic and is one the fastest-growing major apparel brands with comparable stores of three percent in 2018 growing to over $7.8 billion.”
For the Gap brand, however, there is a different story. The retailer saw its same-store sales fall five percent in the last fiscal year. Yesterday, Gap announced it would close 230 stores, about 20 percent of its total, over the next two years. The company expects its mix of Gap brand specialty stores, outlets and online will help reboot its business, projecting that 40 percent of total sales will be generated online with the balance being evenly split between its specialty and outlet locations.
- Gap Inc. Reports Fourth Quarter and Fiscal Year 2018 Results – Gap Inc.
- Gap Inc. Announces Plan to Separate into Two Independent Publicly Traded Companies – Gap Inc.
DISCUSSION QUESTIONS: Will operating as a standalone company help or hurt Old Navy moving forward? How do you expect Gap and the other brands under the NewCo umbrella to fare?