Gap, Old Navy to split into separate companies

Gap, Old Navy to split into separate companies

Gap Inc.is dividing itself into two separate, publicly traded companies - Old Navy, and an unnamed new company comprising the Gap brand, Athleta, Banana Republic, Intermix and Hill City. The market liked the news, sending shares soaring in Friday trading.

Gap announced yesterday it will break into two companies.

"This is great news for Old Navy, no longer having its success consistently outweighed by sluggish performance by Gap", said Tiffany Hogan, senior analyst at Kantar Consulting.

"We're confident these closures will play an important role in revitalizing the brand", the Gap Inc.

The Gap brand has struggled as part of a broader slump for brick and mortar retailers, even as the lower-priced Old Navy brand has resonated with discount shoppers.

The move is created to allow Old Navy - which has grown to $8 billion in annual sales since it opened its first store in 1994 - to expand on its own.

Gap Inc said the closures would mainly be in North America. It will have annual revenue of about US$9 billion, compared to Old Navy's US$8 billion, the company said.

"As we look ahead to 2019 and beyond, we know what we need to do to win and, combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth", Peck said.

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Hugh Tallents, a partner at management consultancy cg42, said that when companies spin off certain franchises, they "either spin off the star brand or the brand that is dragging down the star".

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.

FILE PHOTO: Customers arrive to shop at an Old Navy store in the Brooklyn borough of New York June 15, 2015.

There's also been a sense that the Gap brand lost its fashion sense, falling out touch with its core customers.

Plus, closing 230 stores signals that Gap "must have seen that there was too much waste in its business model".

The question for Gap will be how it rebounds and reorganizes after the split, Cohen said. The company also plans to open Old Navy and Athleta locations.

"It'll work out for Old Navy", Cohen said, "because Gap has been an albatross around Old Navy's neck".

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