Old Navy to Split From Gap Inc.

Yesterday, Gap Inc. announced plans for two publicly traded companies: Old Navy (formerly known as “NewCo”) and an unnamed company (“NewCo”), which will include the Gap brand and Athleta and Banana Republic brands, Intermix, Hill City, and Intermix. Gap stated that the spin-off will allow each company to focus and be flexible, align investments with its business needs and optimize its cost structure in order to achieve profitable growth. Robert Fisher, Chairman of the Gap Board of Directors, stated in a statement, that Old Navy’s business model has changed over time and customers have diverged from the specialty brands. Each company needs a unique strategy to succeed moving forward. We recognized this and decided that separation was the best path forward for our brands. This meant creating two distinct companies with different financial profiles, operating priorities, and unique capital allocation strategies. Both are well-positioned to achieve their strategic goals, create significant value for shareholders, customers, and employees.

Art Peck, the current president and CEO at Gap Inc., will lead NewCo. The company has $9 billion annually in revenue and a strong balance. Sonia Syngal, currently the president and CEO for Old Navy with $8 billion revenue, will lead Old Navy. NewCo will be located at Gap’s existing headquarters. Old Navy will continue to remain at its headquarters in San Francisco. It plans to complete the split of the companies by 2020.

Gap Inc. also announced on Thursday that it will close 230 Gap shops in the next two-years as part of its plan “revitalize” Gap. Around 130 of these closures will occur this year. It plans to open Old Navy, Athleta stores. According to a securities filing, Gap Inc. estimates it will save between $250m and $300m before taxes in the next two-years due to its closing plans.

Total Retail’s Consideration: Yesterday’s announcement reflects the stories of two very different businesses. Old Navy has been a shining spot for Gap Inc. because its affordable apparel has made it more appealing to a wider base of customers. However, the Gap brand has been struggling in the face competition from fast-fashion retailers as well as changing trends. It lost popularity with baby boomers, who grew up with the brand, and failed to attract millennials who are driving fashion trends today. Although it makes sense for Old Navy, because of its size, customer awareness, and positioning, to grow as an independent company, retailers analysts are questioning NewCo’s future. The risk of combining promising brands such as Athleta or Hill City with the struggling Gap brand is real. This will ultimately lead to profitability for Gap by relying on them. Peck believes that integrating the capabilities Gap Inc. has focused on for years — increasing its omnichannel customer experience and building its digital capabilities — into two separate companies with a sharpened strategy focus and tailored operating structures will allow both companies to “capitalize on their respective opportunities” and “act decisively in an ever-changing retail environment.”

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Source: https://www.mytotalretail.com/article/old-navy-to-split-from-gap-inc/

L Brands to Shutter 53 Victoria’s Secret Stores

L Brands, the owner of the lingerie chain announced Wednesday that it will close 53 Victoria’s Secrets shops in North America this fiscal year. This is more than three times as many as the 15 stores it had previously closed each year. With this latest round, Victoria’s Secret’s square footage in North America will decrease by approximately 3 percent. Victoria’s Secret’s problems have been exacerbated by a weak holiday quarter. Comparable sales at the retailer fell 3 percent, due to a 7 percent drop in in-store sales. The retailer’s PINK brand, which was once a popular choice with younger shoppers, suffered a double-digit drop in same-store sales in the fourth quarter. Lingerie, on the other hand, was flat during a period that is usually a large gifting period. Margins suffered across all categories due to increased traffic-generating discounting.

Total Retail’s View: With more competition entering the market — Rihanna’s lingerie brand Savage X Fenty and American Eagle Outfitters Inc.’s Aerie and ThirdLove and Target’s plans for three new private-label brands specializing low-cost underwear/sleepers — Victoria’s Secret has seen a rise in its position at the top of the category. Inability to communicate with customers on themes such as female empowerment and diversity has been criticised by the brand in recent years. Victoria’s Secret customers have lost out due to image problems and pricing concerns. As more options for women (including those at lower prices) became available, so has the size and pricing. Victoria’s Secret will close unprofitable stores first. The next steps are still being determined. John Mehas, the former Tory Burch CEO, was appointed Victoria’s Secret CEO last autumn. Perhaps a brand revamp could help Victoria’s Secret regain lost market share.

Source: https://www.mytotalretail.com/article/l-brands-to-shutter-53-victorias-secret-stores/

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