Gap sent shockwaves through retail last night when it announced that it would split from its better half, Old Navy. The company plans to divide itself into two public entities. One will consist solely of Old Navy led by current CEO Sonia Syngal. The other (dubbed NewCo for the time being) will contain Gap, Banana Republic, Athleta, Hill City, and Intermix and be led by Gap CEO Art Peck.
In the short term, the move raises many questions. How will the two handle cross-branded loyalty and credit cards? How will the site and apps change? What legacy systems, such as Gap’s collective buying power, will impact Old Navy as it separates from the mothership? The transition period will not be short, and Old Navy will have a more significant interest in executing it smoothly.
In the long term, this is great news for Old Navy whose success will no longer be consistently outweighed by Gap’s sluggish performance. While the pressure will be on to continue its strong performance as a solo act, Old Navy will now reap all the benefits of its success with investors and be able to directly reinvest in its own growth.
But for Gap, this could be a last significant effort to find its place in a market where it has lost relevance. If this reinvention does not work, it could likely signal the beginning of the end because an overhaul of the size it needs could cause a cash shortage.
To succeed on its own, Gap will need to take several steps:
- Redefine its USP as a brand in a crowded marketplace. Affordable basics are no longer an assortment differentiator, and the brand ethos is often unclear, even to its remaining loyalists.
- Hone in on its true shoppers and who they want it to be. This will be the first step in creating a brand that resonates with any shopper group. And the answer may not be the same shoppers it has always targeted or courted.
- Pick a lane on price. Gap literally falls into the pricing “gap.” Shoppers can find similar quality for lower prices and better quality for similar prices. It will need to take a stand on the kind of value its product provides to shoppers.
- Pick a lane on fashion. While it started as a basics company, Gap has since dabbled in fashion and beyond. It will need to find the right mix of style and staples that are relevant to its target shopper.
Stay tuned for continued coverage of Gap’s and Old Navy’s performance and strategies.
For more information, please contact:
Tiffany Hogan, Senior Analyst