Gap Inc says it will split in 2 companies, close 230 stores

An Old Navy store in New York’s Herald Square district

An Old Navy store in New York’s Herald Square district

The move is created to allow old navy to expand on its own.

The company plans 230 more Gap store closures globally over the next two years as the company works "to revitalize the Gap brand by re-engaging with customers and expanding its loyal customer base, leveraging the multigenerational, democratic appeal of the brand", Gap said in a press release.

One of the companies will contain Old Navy, while the other yet-to-be-named business, now called NewCo, will comprise Gap, Banana Republic and other brands, including Athleta and Hill City. According to The Wall Street Journal, Old Navy accounted for almost half of Gap Inc.'s total 2018 sales of $16.6 billion.

The news comes two years after Gap Inc. started to dump 200 Gap and Banana Republic outposts while adding 270 Old Navy and Athleta shops, as Commercial Observer previously reported. "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", said Robert Fisher, Gap Inc.'s Board Chairman.

The closures amount to almost a fifth of its total estate of Gap shops although the company has not said where stores will shut or how many jobs will be affected.

According to List-Stoll, the retailer expects the Gap brand's online channel to evolve to more than 40% of its business as it restructures.

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Gap's stock was up 18.6 percent in after-hours trading at $30.13 per share. In the latest quarter - the critical holiday period - Old Navy's same-store sales were flat, while Gap and Banana Republic sales were both negative.

The remaining company - which still needs a name - will consist of the namesake Gap brand, Athleta and Banana Republic, plus a couple of lesser known brands.

The Old Navy spin-off could pave the way for other retailers to make similar moves, analyst Dana Telsey told Markets Insider on Friday.

Said Peck, "NewCo will have approximately $9 billion in annual revenue, a strong balance sheet and a significant opportunity to innovate, explore new ways to serve the customer and quite frankly what's on my mind is to write the next chapter for specialty retail". CEO said during a call with investors, USA Today reports. Meanwhile, Sonia Syngal, the CEO of Old Navy, will lead the separate Old Navy company.

At the start of 2018, the Gap brand had 725 stores worldwide. Old Navy posted sales that were unchanged from a year ago.

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