Gap Will Need to Paddle When Old Navy Sets Sail

(Bloomberg Opinion) -- For a long time, Gap Inc.'s struggling namesake stores and its Banana Republic chain have been riding the coattails of Old Navy, their healthier sister retailer. Now, the beleaguered brands have to figure out how to go it alone.

Gap announced Thursday that it will split into two public companies. One will consist only of Old Navy, and will be helmed by its current brand leader, Sonia Syngal. The other, which is yet to be named but is being temporarily dubbed NewCo, will consist of Gap's other properties, including smaller stores such as Athleta and Intermix. The entity will be run by Gap's current CEO Art Peck, who has led the parent company since 2015.

At this point, the separation probably makes sense. Executives had for some time been managing Gap and Banana Republic as mature brands, rather than high-growth ones. Old Navy, meanwhile, still shows plenty of opportunity for expansion. Perhaps Peck and his team can be more focused on healing the troubled labels when it is their sole mission. Meanwhile, Old Navy has always courted a value-oriented customer; perhaps it can better sharpen its overtures to that group when it is no longer part of a company that's also trying to appeal to more affluent shoppers.

As it announced the separation, the company also said it would shutter 230 Gap stores over the coming two years, a move it says will result in an annualized sales loss of about $625 million. This is a drastic and prudent move. I had written earlier this year that Gap badly needed to adopt an aggressive store-closure program, and this fits the bill.

All in all, the split-up of Gap is a fine idea given the current conditions at this business. But I can't help feeling that it's something of a failure for things to end up this way.

Old Navy is doing so many things right, from its stylish assortment to its well-chosen store locations. It seems like this competence should have permeated the broader Gap organization, that they should've cross-pollinated talent and best practices in a way that helped Gap and Banana Republic return to relevance. These businesses seem like they should all be complementary.

With that in mind, I'm a bit puzzled about why Art Peck will continue to lead “NewCo." Peck has been leading Gap for about four years now. And while a number of other now-departed senior leaders have been blamed for the retailer's struggles in recent years, including Jeff Kirwan, former head of the Gap brand, and Marissa Webb, former creative director of Banana Republic, Peck ultimately bears responsibility for the mess.

The company's fourth-quarter results, also released Thursday, underscored how bleak things are. Comparable sales fell 5 percent from a year earlier at the Gap chain and fell 1 percent at Banana Republic. What gives the board confidence Peck can fix it now?

This has the potential to be an important turning point in Gap's long fight to restore its luster. For better or for worse, it's up to Peck to make it so.

--With assistance from Brooke Sutherland.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.