Gap’s $100 Million Kanye West Deal May Not Save The Fledgling Brand

CBx Vibe:Spaceship” Kanye West

By CultureBanx Team

  • Kanye’s deal with The Gap could be worth more than $100M at the current share price
  • Sales at The Gap’s namesake brand were down 43% in the first quarter of 2020

Kanye West landed his spaceship at The Gap (GPS +18.80%) with a 10-year deal to create an iteration of his Yeezy branded clothing line for the retailer. The Gap’s threads are still out of fashion with Black millennials, though this could be an opportunity to change that while boosting sales. For West, his total stake should be worth more than $100 million at the current share price, and the Yeezy brand could reach more price-conscious customers at The Gap, as recession pressures mount.

Why This Matters: Kanye has taken the line from his song, “let’s go back, back to The Gap,” to new heights. The deal was reportedly already underway before the pandemic struck and will be very lucrative for West. Yeezy Supply is guaranteed the first third of shares if annual net sales of The Gap-Yeezy line hit $250 million and if the pursuant thirds sales reach $450 million and $700 million annually, according to CNBC. Those warrants expire 20 days after the company confirms its sales for fiscal 2025. In all, Ye’s Yeezy Supply could have up to a 2% ownership in The Gap, based on the company’s current share count.

Yeezy Supply is guaranteed the first third of shares if annual net sales of The Gap-Yeezy line hit $250 million

“Bears will likely point out that an additional $700 million in sales (in the best case scenario) is not material to Gap’s $15 billion sales base,” wrote Wells Fargo analysts Ike Boruchow.

Let’s remember that The Gap was struggling to resonate with younger customers before the pandemic. Not to mention, shuttered stores during stay-at-home orders dealt the ailing brand another blow. Sales at The Gap’s namesake brand were down 43% in the first quarter of 2020. E-commerce sales were up 13% year over year during the quarter, with stores shut for much of the period.  Unfortunately, The Gap did not provide a 2020 financial outlook, and even with the Yeezy deal sending shares up nearly 40% on the news, the fact remains that the company stock is still down more than 33% year to date.

What’s Next: In order to increase sales The Gap’s best bet is this Yeezy partnership. When you consider Yeezy’s shoes with Adidas are basically the equivalent of the housing market, prices may fluctuate but they’re always worth more than you spent for them. One could easily argue that West has possibly found a way to get people to “Go back, back to The Gap.” The multi-year Yeezy collaboration will be headed by Nigerian-British design director Mowalola Ogunlesi and will hit the market in 2021.

CBx Vibe:Spaceship” Kanye West

CONTRIBUTOR

CultureBanx Team

Welcome to CultureBanx, where we bring you fresh business news curated for hip hop culture!