On Thursday, American clothing giant Gap Inc announced that the company is going to be split into two separate entities and both of those entities are going to be publicly traded companies in their own right. One of the newly listed companies is going to be comprised entirely of the Old Navy line while the other will be an amalgamation of a range of brands, including the best-known ones like Banana Republic. It seems this is a part of Gap’s larger focus on reorganizing the company in a big way and more importantly, this split has the potential of unlocking a lot of untapped value. The move was welcomed by the markets as well as the Gap stock soared by as much as 20% in afterhours trading.
The fact that Old Navy is going to be one separate entity altogether is down to the fact that it has been one of Gap’s most important brands in the affordable segment. While other Gap labels have generally found it tough to grow their sales figures, Old Navy has surged ahead at a breakneck pace and on an average; the brand alone generates around $8 billion in sales every year.
Hence, it is not really a surprise that this brand is going to be listed separately in the stock market. It will no longer be pulled down by the non-performance of other brands in Gap’s portfolio. Chairman of Gap’s board, Robert Fisher echoed these sentiments as well. He stated, “it’s clear that Old Navy’s business model and customers have increasingly diverged from our speciality brands over time, and each company now requires a different strategy to thrive moving forward.”
The other entity, which is now loosely being referred to as NewCo within the company, is going to include the other brands like Intermix, Hill City and Banana Republic among others. The company projects that this particular entity should be able to generate $9 billion in yearly sales. A Moody’s analyst said, “Old Navy is Gap Inc.’s leading brand comprising 47 percent of sales in 2018 with margins that lead its portfolio. Old Navy continues to outpace Gap Brand and Banana Republic and is one the fastest-growing major apparel brands with comparable stores of 3 percent in 2018 growing to over $7.8 billion in 2018.” Although, it is true that the split will help Gap focus on the businesses in a far more concerted manner, it also endangers the company from becoming complacent and no longer trying to come up with newer brands.