Old Navy Parts Ways With Gap Brand

The Gap is parting ways with Old Navy, deciding to create two publicly-traded companies.

Gap Inc. CEO Art Peck will still be in charge of the parent company, which includes the Gap brand, Banana Republic, Athleta, Intermix and new athletic brand Hill City. The company will be renamed, with about $9 billion in annual revenue. And Old Navy CEO Sonia Syngal will head up the newly-separated company, which makes around $8 billion annually.

“The other brands overlap each other but overlap Old Navy less,” Peck said on a conference call with analysts on Thursday (February 28), according to The Wall Street Journal. He added that the change would enable both companies to make faster decisions, as well as focus on their own investments.

One thing Peck isn’t sure about is how the company will split each of the brands’ customer data. “We do have customer overlap,” he said. “That’s something we need to sort out.”

Robert Fisher, chairman of Gap Inc.’s board and the son of the company’s founder, added that the transaction, which is expected to be completed in 2020, comes after a review by the company’s board.

“It’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time,” he said in a statement.

Gap shares went up 25 percent to $31.80 in after-hours trading.

Old Navy has outperformed its sister brands Gap and Banana Republic for the past several years. In fact, the discount retail store now exceeds the Gap brand in sales, making up nearly half of its parent company’s $16.6 billion of sales in 2018. In the meantime, the Gap’s market value has fallen to under $10 billion.

Some analysts have even said that Old Navy’s success has hastened the Gap brand’s fall. “When your prices are lower and it’s essentially the same merchandise, you’re going to cannibalize the sales at the higher-end brands,” said Sucharita Kodali, a retail analyst at Forrester. “There’s no differentiation.”