Summary
Highlights
Gap Inc., the parent company of Gap, Athleta, Banana Republic, Intermix, Hill City, and Old Navy, is separating into two distinct companies. Old Navy will operate independently, while the other brands will form a new entity provisionally named 'NewCo'. This decision comes after years of struggle for the Gap and Banana Republic brands, with Old Navy and Athleta driving recent growth and investor applause for the separation.
The first Gap store opened in San Francisco in 1969, named to reflect the 'generation gap'. Initially selling only Levi's jeans, The Gap quickly capitalized on the casualization of American fashion. Under Mickey Drexler's leadership starting in 1983, Gap experienced explosive growth, expanding with Gap Kids, Baby Gap, Gap Outlet, and acquiring Banana Republic. The launch of Old Navy in 1994, targeting discount shoppers, was a massive success, reaching $1 billion in sales by 1997.
Around the turn of the 21st century, Gap's sales growth slowed dramatically. The brand lost its 'cool' as fashion trends shifted, and the design-driven leadership of Mickey Drexler faltered, leading to his retirement in 2002. Subsequent leadership changes and economic downturns, including the Great Recession, further impacted Gap's performance. Despite attempts to re-strategize and expand internationally, the Gap and Banana Republic brands continued to struggle.
During its struggles, Gap Inc. acquired Athleta in 2008, which capitalized on the booming athleisure market and consistently showed strong sales growth. Old Navy also remained a powerhouse, contributing over 40% of the company's sales since 2014 due to its family-friendly prices and shopping experience. These two brands have been instrumental in carrying the company through difficult times, leading to the decision to split Gap Inc.
The separation, expected to be complete by 2020, will leave Old Navy as an independent entity. 'NewCo' will consist of the struggling Gap and Banana Republic brands, along with smaller, more promising brands like Intermix, Athleta, Hill City, and Janie and Jack. Analysts see Athleta as the key driver of future growth for 'NewCo'. The split is an acknowledgment that the core Gap brand may not recover its former stature and aims to give each company a more focused strategic and operational structure.