After a walk down memory lane... '90s hoodie legend Gap decided yesterday that it won't spin off Old Navy into a separate company. Gap shares spiked 9% on news of the breakup reversal (awkward, because the stock also jumped on the breakup announcement last Feb). Looks like investors changed their minds about this relationship (and sometimes stock moves don't make sense).
The initial idea... was that Gap and Old Navy would be better able to serve their distinct customers and business needs by operating as separate companies (i.e., break up to fulfill their own unique growth paths). It changed course for two main reasons:
- Cost: Breaking up is hard, and sometimes expensive – Gap said that the costs/complexity involved in the split wasn't worth it.
- Revelation: While Gap was prepping for the breakup, it noticed areas for improvement and inefficiencies in Old Navy's biz that they can now work on.
- FYI, reality: Gap is the slowest growing and least profitable of all its brands (Banana Republic, Athleta, Hill City...), so it can still piggyback off Old Navy — but now Gap shareholders won't earn a payout from selling off their top brand.
2020 could be the year of relationship re-evaluation... Big clothing retailers were looking to split off their best/worst brands throughout 2019 — Gap's move could change that trend.