Gap to create 2 independently publicly traded companies

Dwayne Harmon
March 4, 2019

According to Gap Inc., this will lead to an estimated 40% of purchases made on the GAP website, allowing the company to save on store operation costs.

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 retailer's San Francisco-based parent company, Gap Inc, is splitting into two companies, one of which will consist of the eponymous brand and others including Banana Republic.

As one of the fastest growing apparel brands in the United States with approximately $8 billion in annual revenue, Old Navy will be able to capitalise on its scale, broad customer awareness and unique positioning to extend its category leadership and deliver profitable growth as an independent company.

Through this separation, Old Navy will have the flexibility, focus and control needed to increase customer access by further applying its strategic real estate strategy, evolving its omni-channel model and expanding its product categories to continue to successfully resonate with value-focused customers.

The news comes two years after Gap Inc. started to dump 200 Gap and Banana Republic outposts while adding 270 Old Navy and Athleta shops, as Commercial Observer previously reported. More than 230 Gap stores will be closed. Gap expects to effect the separation through a spin-off that is meant to generally be tax-free to its shareholders.

The company has struggled with contrasting performances of its brands. It will include the namesake Gap brand, Banana Republic, Intermix, and athleisure lines Athleta and Hill City. Art Peck, Gap's current president and CEO, will remain in charge.

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"Let's remember these are both US$8 and US$9 billion companies, so it's not like they're small", Peck said in an interview Thursday.

Old Navy had a strong two-year stretch of sales as it got back to basics in offering affordable, yet stylish clothing.

Sonia Syngal, now CEO of Old Navy, will keep leading Old Navy when it becomes a standalone company.

However she cautioned that spinning off Old Navy "reduces the diversification the brand provides to the overall entity".

After the separation, NewCo and Old Navy are expected to be appropriately capitalised with sufficient cash to support planned operating and investment plans.

"More and more often, you're coming up with different answers", List-Stoll said. The results were mixed, but the market didn't care because that wasn't Gap's main announcement of the evening.

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