Gap Inc. is Spinning off Old Navy into a Separate Company

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Gap Inc. recently announced that it will be spinning off Old Navy into a separate Company. Many analysts are calling this decision a very smart move which Gap should have made a while back. Seeing as the parent company Gap has been struggling. Old Navy is the company’s most successful brand earning an annual revenue of about $9 billion, while the newly separated parent company earns about $8 billion. Once Old navy is separated from Gap Inc., the company will consist of the Gap brand, Athleta and Banana Republic and other smaller brands.

Gap Inc. is Spinning off Old Navy into a Separate Company

Why did Gap Decide to Spinoff Old Navy as a Separate Company?

According to a statement by Gap Inc. Chairman of the board Robert Fisher, the decision came after they realized that Old Navy’s customers and business have increasingly diverged from the parent company’s other businesses. He explained that Old Navy and Gap Inc. now each require different strategies to move forward.  Fisher explained how the company came to the realization it was best to separate companies. Giving each company a distinct financial profile tailored operating priorities and unique capital allocation strategies. The Gap team believes that this decision will position each company to achieve its strategic goal. It will also help create significant value for their customers, employees and shareholders.

The statement also explained that the company hopes that Old Navy as a standalone company will be able to capitalize on its scale, broad customer awareness and unique positioning. By capitalizing on all this, they believe that the brand will be able to extend its category leadership and deliver profitable growth. As for Gap Inc., they believe that their focus on the Gap brand, Banana Republic, Intermix, Athleta and Hill City will drive profitability.

What the Reorganization will Look Like

The whole separating transaction is expected to be completed in 2020. The reorganization will see the company slash the store count of the Gap brand. They will close stores in over 230 locations over the next two years. It is reported that the closure of these stores will erase $625 million in sales.

The top leadership won’t change, the CEO and President of Old Navy Sonia Syngal will remain.  Art Peck Gap’s Chief executive will also remain. The two companies will remain at their present headquarters in San Francisco, and both will be publicly traded.

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