By CultureBanx Team
The Gap is spinning off Old Navy into its own company
Black millennials drive fashion trends
The Gap (GPS +16.18%) used to be the coolest brand in retail with its logoed sweatshirts and signature denim, but has failed to attract black millennials who drive fashion trends today. Due to irreconcilable differences between Gap and Old Navy they are splitting into two independent publicly traded companies.
Why This Matters: Time is up for the retail brand once synonymous with casual wear, promoted by high profile advertising campaigns fronted by the likes of Missy Elliott and Lenny Kravitz. Unfortunately, the Gap's popularity among the young and fashionable has waned, even though they’ve tried to use millennials like Sza, Janelle Monae and Metro Boomin in ads to revive sales and appease investors. Shares are down nearly 20% in the past year and Gap plans to buy back about $200 million of its own stock.
The great divide between Gap and Old Navy has been widening for years. Old Navy will become its own company while the other brands like Gap, Banana Republic and Athleta form their own business. The latter is currently being referred to as “NewCo,” and should have roughly $9 billion in annual sales. It is part of a strategy to "revitalize" the overall brand, and generate more of its sales online, in hopes it will reach 40% of total revenues, according to the company.
On the other hand Old Navy which opened its first store in 1994 brings in about $8 billion in annual sales by itself. The brand has been successful in targeting shoppers on a budget. Jefferies’ analyst Randal Konik agrees with the decision to spin off Old Navy and wrote “doing so allows the market to properly value Old Navy for its high margins and strong cash flows.”
What’s Next: At the end of the last quarter, there were 1,242 Gap stores worldwide, 758 of them were in North America. Gap plans to shut 230 of the namesake brand’s locations over the next two years, as it works to restructure the business. The company also plans to open additional Old Navy and Athleta locations.
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