Gap Canada stores to be included in North American closures

Jeannie Matthews
March 2, 2019

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. In November, Peck described Gap's store count as unprofitable. After the closures, which also include the 68 stores it shut this year, the chain will be down to roughly 427 stores. "There will be a healthier channel mix after the restructuring, with almost 40% of sales coming from online, and the remainder split fairly evenly between the specialty and value channels".

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.

He sees the split allowing Gap to focus on strengthening its core brand.

Investors will now likely pay more for Old Navy's stock-the point of the spinoff.

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.

Gap Inc closed all eight of its Banana Republic stores in the United Kingdom in 2016.

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"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", Gap Chairman Robert Fisher said Thursday.

After the separation, Art Peck, now the president and CEO of Gap Inc., will hold the same position with "NewCo", and Sonia Syngal, current president and CEO of Old Navy, will continue to lead the brand as a standalone company.

In explaining their reasoning behind the split, company leaders cited a growing divergence between the customer bases, operating strategies and value-creation mechanisms of Gap and Old Navy, with the latter outperforming the former.

"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. "Brand health is good", Peck told Wall Street analysts on a conference call.

Upon separation, Gap Inc. shareholders are expected to receive a pro-rata stock distribution and as a result will own shares in both the new company and Old Navy in equal proportion.

Gap reported full-year comparable sales of positive three per cent at Old Navy versus a decline of five per cent at Gap and a gain of one per cent at Banana Republic. That explains why shares of Gap spiked 24% in pre-market trading and is up 19% in early morning trading Friday.

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