Published: Mon, March 04, 2019
Business | By Pearl Harrison

Gap Inc. to Close 230 Stores, Spin Off Old Navy

Gap Inc. to Close 230 Stores, Spin Off Old Navy

The company also said it would boost spending on marketing and developing new products for the Gap brand, but Chief Executive Officer Art Peck stopped short of saying that the brand was in a turnaround.

The yet-to-be-named company, now dubbed "NewCo", will encompass Gap, Banana Republic, Intermix, Hill City and the thriving Athleta brand while the other eponymously named one will be dedicated exclusively to Old Navy, which had a 3 percent increase in sales previous year and about $8 billion in revenues.

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"Each company now requires a different strategy to thrive moving forward", Fisher said. Meanwhile, Sonia Syngal, the CEO of Old Navy, will lead the separate Old Navy company.

The news doesn't come as a complete shock, as Old Navy has thrived in recent years, while sales at Gap and Banana Republic have sagged - for reference, Old Navy reported approximately $8 billion United States dollars in revenue for 2018, while all other Gap brands had a combined revenue of $9 billion USD over the same time.

Randal Konik, an analyst at Jefferies, has been arguing for an Old Navy separation for years.

Old Navy has annual sales of about $8 billion, while the other brands have combined revenue of $9 billion. Gap intends that the Old Navy spin-off is meant to be a tax-free event to existing Gap shareholders.

What's new. Gap released earnings for the fourth quarter of 2018 on Thursday after the market closed. 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. Originally launched by Gap in 1994, Old Navy offers apparel that generally comes in at a lower price point than at Gap or Banana Republic.

The split-up is expected to be complete in 2020. Old Navy has been a bright spot as its wide range of budget apparel made it more attractive to a broader base of customers, while its speciality Gap brand struggled in the face of competition from fast-fashion retailers and changing trends.

Meanwhile, the Gap has struggled - its sales fell 5% past year.

Gap will also close 230 stores across the country over the next two years, a decision expected to cost roughly $625 million, as well as some Banana Republic stores.

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. The retailer has tested partnerships with Lilly Pulitzer, Toms Shoes and Hunter Rain Boots and saw mixed results.

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