Gap nixes plan to spin off Old Navy amid cost, complexity

How Gap's reversal impacts its digital transformation efforts remains to be seen.

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Gap said it won't spin off Old Navy as digital transformation and separating into two companies doesn't work due to "the cost and complexity."

The company in February 2019 announced that it would split Old Navy from Gap and its other brands such as Banana Republic and Athleta. In September, it followed up with detailed plans as well as a series of technology changes that would make the company more data driven and nimble.

But then Old Navy sales began to stumble, and CEO Arthur Peck departed just a month after the company outlined detailed separation plans and a technology roadmap. On Thursday, Gap reversed plans. Evercore ISI analyst Westcott Rochette summed up Gap's dreadful 2019.

Gap is looking for a do over in 2020 after suffering through a fairly eventful 2019. Over the course of the last year the company announced it was going to separate Old Navy from GPS, issued three different profit warnings, had its shares fall by more than a third under high investor scrutiny of its separation plan and finally saw its CEO suddenly leave in October. The new interim leadership is looking to instill a little more stability and direction into the company.

Robert Fisher, Gap's interim CEO, said the work done to prepare for the split with Old Navy "shone a bright light on operational inefficiencies and areas for improvement." Gap is looking for a new CEO. Neil Fiske, CEO of Gap brand, will leave the company. Old Navy CEO Sonia Syngal will remain. Gap added that 2019 sales will be at the higher end of its previous guidance and adjusted earnings will be above its previous guidance of $1.70 to $1.75.

Also: Gap picks Microsoft Azure as preferred cloud vendor: Here's a look at the digital transformation plan  

Gap didn't outline how the decision to scrap the Old Navy spinoff affects its technology plan. The company has already spent a year in planning. Either way, Gap will have a laundry list of projects including:

  • Data analytics and data science infrastructure.
  • Machine learning efforts to improve marketing and supply chain.
  • Customer targeting.
  • Executing a mobile-first strategy.