Commentary

Old Navy Plans To Launch 800 Ships On Retail's Rough Waters

Don’t tell Old Navy that brick-and-mortar’s ship has sailed. The soon-to-be-spun-off Gap Inc. brand is planning to open about 800 stores as it pursues an annual sales goal of $10 billion a year, it told  investors at its Meet the Management Investor Event and webcast  in New York City yesterday.

advertisement

advertisement

“For several years, Old Navy has outperformed its sister brands Gap and Banana Republic with its lower price points and catchy marketing. Old Navy now exceeds the original brand in sales, making up nearly half of Gap Inc.’s $16.6 billion of sales in 2018,” Patrick Thomas writes for The Wall Street Journal.

“At its investor event on Thursday, Old Navy, which has about 1,200 stores, said it wants to reach 2,000 locations by opening stores, mostly in smaller, underserved markets. The company didn’t specify a timeline and said it aims to eventually hit $10 billion in annual sales. Old Navy opened 145 stores between 2016 and 2018, the company said,” Thomas continues.

“So how does Old Navy plan to accomplish this?” asks Vicki M. Young for Sourcing Journal.

Sonia Syngal, CEO of Old Navy, “believes Old Navy’s proven, scaled supply chain provides an advantage versus competitors, helping the retail chain offer quality, on-trend product that is innovative and fits well at value pricing. Old Navy produces 700 million units annually, and strong vendor relationships allow the company to optimize unit cost and inventory flexibility to drive profits. The top 20 vendors produce about 60% of the volume, she noted, and across a geographically diverse base, only Vietnam accounts for more than 15% of the production,” Young explains.

“Old Navy, which has outperformed Gap’s other brands but also saw its own growth fade in its latest quarter, sees an opportunity by expanding its selection of products to include plus sizes, lingerie and beauty products. … It also plans to expand store pick-up service for online orders, make it easier to return items and remodel locations,” writeBloomberg’s Jonathan Roeder and Kim Bhasin.

Gap announced in February that it was going to separate into two independent companies in 2020 to “maximize long-term value creation.” (This was before the Business Roundtable redefined the purpose of a corporation -- but we suspect Gap's financial ambitions remain the same.)

“Old Navy, born in 1994, reached $1 billion in annual sales in its first four years by hawking trendy, low-priced clothes. The brand has thrived in recent years. Sales at stores open at least a year grew 3% in 2018,” Nathaniel Meyersohn writes for CNN Business.

“We’re an $8 billion start-up,” Syngal told analysts. “The sky’s the limit.”

Talk about optimism.

“Old Navy will open stores at a moment when most of the industry is doing the opposite. So far this year, retailers in the United States have announced more than 8,200 store closings, already exceeding last year's total of 5,589, according to Coresight Research,” Meyersohn observes.

“Shoe brand Payless and kids clothing chain Gymboree both filed for bankruptcy this year. Forever 21 is reportedly  on the verge of bankruptcy too,” Tim Balk reminds us  in the New York Daily News.

“For the Gap brand, the company said it plans to focus on the denim category, while also working towards improving margins,” Reuters’ Aishwarya Venugopal writes.

“We're going to gain share in denim and that is going to be the fuel that powers (a) turnaround,” Gap Inc. CEO Art Peck said on the investor call.

“Gap also expects $400 million to $450 million in one-time separation expenses and $300 million to $350 million in capital-related costs between 2019 and 2021,” Venugopal continues.

“The spinoff plan, announced earlier this year, initially caused Gap’s shares to jump -- shares surged 16% the next day -- but some of the luster has worn off since. Gap shares have lost about a quarter of their value this year as investors have broadly sold off apparel stocks,” Bloomberg’s  Roeder and Bhasin point out.

Kelly Faircloth had a fanciful take on yesterday’s developments in her lede for Jezebel.

“Like Zeus overthrowing  his father Chronos, Old Navy is gathering strength in preparation to spin off from its ailing parent, the Gap. The plan is coming to fruition! The great and terrible giant rises!!!”

Yes, but Zeus didn’t have Amazon and Google to deal with.

Next story loading loading..