Gap Halts Old Navy Spinoff, Citing High Costs, Poor Business Performance

  • January 16, 2020 at 5:55 PM EST
  • By Glenn Taylor
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Nearly 11 months after deciding to spin off Old Navy into its own public company, Gap Inc. has opted not to pursue a separation after all. The decision comes as the company’s board of directors concluded that “the cost and complexity of splitting into two companies, combined with softer business performance, limited our ability to create appropriate value from separation,” said Robert Fisher, Interim President and CEO at Gap Inc. in a statement.

Old Navy, once the strongest branch of Gap. Inc., saw same-store sales declines of 5% and 4% in the previous two quarters, casting doubt about whether it made sense to turn it into a standalone company. Nevertheless, Old Navy has long-term plans to nearly double its store count, from 1,140 to approximately 2,000, as part of the retailer’s attempts to reach $10 billion in sales. Shareholders were fans of the news in the short term, with company stock rising more than 10% 30 minutes after the market close on Jan. 16.

“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” Fisher said. “We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner that empowers our growth brands, Old Navy and Athleta, and appropriately focuses on profitability for Banana Republic and Gap brand. Our board is focused on supporting this work and appointing new leadership with the appropriate experience necessary to lead a portfolio of retail brands and to support our transformation efforts.”

Gap Inc. plans to appoint a new CEO who will oversee all its brands. Former CEO Art Peck, who engineered the initial spinoff plan, stepped down from the position in November. Peck had been positioned to serve as the CEO of NewCo, which would have retained the Gap, Athleta, Banana Republic, Intermix and Hill City brands while Old Navy operated on its own.

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Along with the announcement of the terminated spinoff, Gap Inc. has promoted three of the company’s senior leaders, all of whom will report to Fisher:

  • Mark Breitbard, President and CEO of Banana Republic, will now lead Gap Inc.’s collection of specialty brands, including Gap, Banana Republic, Athleta, Janie and Jack, Intermix and Hill City;
  • Teri List-Stoll, EVP and CFO, will lead corporate operations related to finance, supply chain, technology and real estate; and
  • Julie Gruber, EVP, global general counsel, corporate secretary and Chief Compliance Officer, will lead corporate administrative functions such as legal, HR/communications, loss prevention and sustainability.

Sonia Syngal, President and CEO of Old Navy, will continue to lead the Old Navy business, while Neil Fiske, President and CEO of Gap brand, will leave the company.

“The significant dis-synergies related to the transaction, as well as most of its separation costs will be avoided,” said Christina Boni, VP at Moody’s Investors Service in commentary provided to Retail TouchPoints. “A larger diversified platform is instrumental to Gap, Inc. not only in managing risk, but leveraging investments in technology and logistics.”

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