Gap closing roughly 230 stores and spinning Old Navy into its own company
Gap Inc. will spin Old Navy off into its own company, as it also prepares to close roughly 230 of its namesake stores.
The retailer said Thursday that Old Navy, which has consistently bested its sister companies Gap and Banana Republic when it comes to sales, will stand on its own as a publicly traded company.
Gap meanwhile will continue as a separate business, dubbed NewCo, along with Banana Republic, Athleta, Intermix and Hill City.
“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,” Robert Fisher, Gap Inc.’s Board Chairman said in a statement. “Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands.''
The move comes as the company also said that it would be shuttering roughly 230 Gap stores worldwide over the next two years – about 50 percent of locations.
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Most of those closures will be in the U.S. And while the stores that are left will need work, including being reduced in size, "we’re confident these closures will play an important role in revitalizing the brand,’’ Gap Inc. CEO Art Peck said in an earnings call with investors.
Gap stores that are struggling the most are expected to be closed by the end of 2019, said Gap Inc.'s executive vice president and chief financial officer Teri List-Stoll. But roughly 150 locations will be shuttered as their leases expire.
The closing of underperforming stores should lead to almost 40 percent of purchases being made through the website, with remaining sales coming from mainline stores and off-price locations, Gap Inc. said.
Like many retailers, Old Navy had a less than stellar fourth quarter, with worldwide sales at stores open at least a year flat as compared to a 9 percent uptick during that period the year before.
But it still outperformed Gap, which reported a 5 percent drop in sales during the three-month period that includes the all-important holiday season, and Banana Republic, which experienced a 1 percent sales decline.
“Overall, the quarter did not live up to what I know our brands can deliver,’’ Peck said.
Peck will continue as CEO of NewCo, while Old Navy's current CEO, Sonia Syngal, will retain that title with the company as it spins off.
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