Gap closing hundreds of stores in shift toward Old Navy

[NEW YORK] Gap Inc's latest strategy shift involves pivoting away from ... the Gap.

The apparel seller plans to refocus its efforts on the Old Navy and Athleta brands, a shake-up that will involve closing hundreds of stores that carry its namesake and Banana Republic names. Investors applauded the move, sending the shares on their biggest rally since October.

The idea is to concentrate on the most promising growth drivers for the company: e-commerce, value-priced products and activewear. Those are all areas where the Gap and Banana Republic brands have struggled. As a result, the company plans to shutter 200 poor-performing locations of those two chains, while opening 270 new Old Navy and Athleta stores.

As part of the push, Gap expects Old Navy's sales to top US$10 billion in the coming years, with Athleta exceeding US$1 billion.

The announcement sent shares up 7.4 per cent to US$25.82 on Wednesday. That brought the stock's year-to-date gain to 15 per cent.

Old Navy, founded in 1994, has outpaced the company's flagship chain and become its biggest source of revenue. That division focuses on lower-cost clothing and rode the wave of so-called athleisure - the blending of sportswear with casual apparel. Athleta, meanwhile, concentrates on yogawear, a growing category where it competes with Lululemon Athletica Inc.

"We're now shifting our focus to growth," Chief Executive Officer Art Peck said in a statement on Wednesday.

The store closures extend an effort to winnow Gap's fleet in recent years, part of a turnaround bid that's been long and frustrating for investors. The San Francisco-based company signaled last month that Old Navy was its best hope for fueling sales growth. The chain's performance helped earnings top analysts' estimates in the second quarter.

"We are seeing our investments in product, customer experience and brand equity begin to pay off," Mr Peck said at the time.

BLOOMBERG