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Suppliers in a bind over Gap

Gap’s decision to bifurcate may prove challenging for suppliers. Companies that sell to both Old Navy and Gap might find themselves in a more competitive environment. The different directions being taken by the chains, with Gap closing stores and Old Navy expanding, could pose advantages and disadvantages. But suppliers can benefit from Old Navy’s independence and growth because they will have better order streams.

Gap has decided to create two independent publicly traded companies. One is Old Navy and the other is a yet-to-be-named company that will consist of the Gap brand, Athleta, Banana Republic, Intermix and Hill City. The spin-off is intended to enable each company to maximize focus and flexibility, align investments and incentives to meet its unique business needs and optimize its cost structure to deliver profitable growth. There are real benefits for both companies in sourcing, which have contributed to the reason they decided on the split. Old Navy’s business model and customers had increasingly diverged from the company’s specialty brands over time. So, Gap decided to create two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies. Old Navy is Gap’s leading brand comprising 47 per cent of sales.