Gap and Old Navy are splitting up


NEW YORK, NY – MAY 12: A woman carries her shopping bag as she exits an Old Navy store, May 12, 2017 in the Herald Square neighborhood in New York City. The U.S. Commerce Department says retail sales rose 0.4 percent in April from March. (Photo by Drew Angerer/Getty Images)

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Gap and Old Navy are splitting into two publicly traded companies.

Gap Inc. said Thursday that one of the companies will contain Old Navy. The other yet-to-be-named business will comprise Gap, Banana Republic and other brands, including Athleta.

“It’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time,” said Gap board chairman Robert Fisher in a statement. He said each company “now requires a different strategy to thrive moving forward.”

Gap stock was up 22% in after hours trading.

Gap said Thursday that Sonia Syngal, CEO of Old Navy, will keep running that brand. Art Peck, the Gap’s CEO, will lead the other company.

The separation is a tale of two vastly different businesses: Old Navy has thrived in recent years, and sales at stores open at least a year grew 3% in 2018. A Jeffries analyst described the retailer as a “machine” last fall.

Meanwhile, the Gap has struggled — its sales fell 5% last year.

The Gap used to be the coolest brand in retail: It rode the mall boom in the back half of the 20th century, and its logoed sweatshirts and turtlenecks won over everyone from teens to moms and celebrities like Sharon Stone.

But the brand fell out of touch with the Baby Boomers who grew up on the brand, and it failed to attract the Millennials who drive fashion trends today.

The company has been talking for a while about how to make the Gap a healthy part of the business again. In November, Peck described Gap’s store count as unprofitable. As of the end of last quarter, there were 1,242 Gap stores worldwide. 758 of them were in North America.

On Thursday, the company said it will close 230 Gap stores over the next two years as part of its plan to “revitalize” the Gap brand. The closures will affect “specialty” Gap stores, which includes mall-based stores.

Most of those stores will be in North America, Peck told analysts on a call Thursday. Chief financial officer Teri Stoll added that the company focused on stores that were not delivering, were in the “wrong locations” or were not a “strategic fit.”

About 130 of those closures will happen this year, according to Gap. The company also plans to open Old Navy and Athleta locations. Athleta, which will be part of the new Gap company, is a women’s athleisure chain that has been a success.

Gap thinks it will save between $250 million and $300 million before taxes over the next two years because of its closure plans, according to a securities filing. It expects to finish splitting the companies in 2020.


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