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Gap Closing 230 Stores, Spinning Off From Old Navy

Gap Inc. is planning to close about 230 of its Gap-branded stores over the next two years and divide into two separate publicly traded companies in the near future. 


Apparel purveyor Old Navy will be the basis of one of the successor entities, while a yet-to-be-named entity will consist of the Gap brand, Athleta, Banana Republic, Intermix and Hill City.

The company hasn't detailed which Gap stores will be shuttered, though it will not be its first round of closures. Starting in 2017, the company closed about 200 Gap and Banana Republic stores. Currently there are about 775 Gap stores worldwide. 

The reorganization comes on the heels of disappointing quarterly numbers for Gap Inc. The company’s fiscal Q4 comparable-store sales were down 1% compared with a 5% increase last year.

Old Navy's comp-store sales were flat this year compared with a gain of 9% last year. Gap-branded stores suffered a 5% drop in comp-store sales this year compared with last, and Banana Republic's comps edged down 1% this year compared with a 1% gain last year.

Gap Inc. reported that net sales in the fourth quarter fell from $4.8B to $4.6B year over year, though net income rose from $205M to $276M over the same period.

The question now is how the new Gap-based company will do without Old Navy's relative strength. 

"After this spinoff, Old Navy will be fine ... The brand resonates with a very broad market and it has a redeeming value proposition for its customers and shoppers," RetailNext's Ray Hartjen told Retail Dive.

Indeed, Gap Inc. actually opened about 60 new Old Navy locations last year and plans to open more this year, along with Athleta locations, though it hasn't specified a number for either. Athleta is a women's activewear specialist.

"So why are we doing this? And why now?" Gap Inc. CEO Art Peck asked on the company's conference call Thursday. "Our customers' preferences and shopping habits continue to evolve, which is challenging the traditional retail model."

And that evolution is different within Gap Inc.'s different brands.

"Over time, Old Navy's value creation levers, business model and customers have increasingly diverged from our specialty brands," Peck said. "That divergence to me is now clear. And we think the best way for each company to grow and meet the evolving needs of our customers is to allow them to pursue tailored strategies separately." 

Late last year, Peck emphasized separating the wheat from the chaff when it come to the Gap brand.

"There are hundreds of other stores that likely don't fit our vision for the future of Gap brand specialty store, whether in terms of profitability, customer experience, traffic trends," Peck said at the time. "The range from the very best to the very worst stores is extremely broad."

Following the separation, Peck will become CEO of the Gap-based entity. Sonia Syngal, who has led the Old Navy brand since 2016, will continue as the CEO of the Old Navy-based company.