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Event Coverage

Gap Investor Day 2019: Athleta Opening First Outlet Store; Activewear Fastest Growing Category at Old Navy

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Coresight Research

Key Points

On September 12, 2019, Gap hosted its investor day in New York City. The company provided an overview of its brands: Athleta, Old Navy, Gap, Banana Republic, and its direct-to-consumer brands, Hill City and Intermix. Highlights include:

  • Old Navy’s active lifestyle category is its fastest growing, and has hit $1 billion in sales.
  • Old Navy and Athleta are expanding inclusive sizing.
  • Athleta has grown at a 23% CAGR over the past 7 years and will open its first outlet store.
  • 20 Old Navy suppliers account for 60% of sourcing spending.
  • Banana Republic is focusing on appealing to younger consumers.
  • Splitting Gap and Old Navy into two brands is expected to create “dis-synergies.”

Gap hosted its investor day in New York City. The day featured management presentations, including those by: Art Peck, President, CEO and Director; Sonia Syngal, President of Old Navy and CEO of Old Navy, and Teri List-Stoll, Executive VP and CFO.

Old Navy’s Active Lifestyle Category is its Fastest Growing and Hit $1 Billion in Sales

Old Navy’s active lifestyle category is its fastest growing apparel category, with $1 billion in sales, according to management. The company is looking to extend the category’s use and is adding fleece, dresses and blazers to the category. This follows Nike and Lululemon’s recent additions of dresses to their activewear categories.

Old Navy denim is a $1 billion business, and the company is adding more product choices, fit, sizes and size ranges both in-store and via online channels.

75% of Old Navy’s 1,140 Stores are Located in Off-Mall Locations, the Company is Opening Stores in Smaller Markets

Old Navy has 1,140 stores in the US, Canada, and Mexico, with over 75% in off-mall locations, with franchise partnerships in 10 countries. Old Navy has opened approximately 35 stores in smaller markets to reach customers who want stores closer to where they live. Although stores are mainly concentrated in North America, the company has a nascent China business that it is working on growing, as well as franchise partnerships.

17% of Old Navy Customers Shop Across E-commerce and In-Store; the Lifetime Value of a Cross-channel Shopper is Three Times that of a Single Channel Shopper

The company reported that some 17% of Old Navy customers shop across e-commerce channels and in-store, and that the lifetime value of a cross-channel shopper is three times higher than a single channel Old Navy shopper.

20 of Old Navy’s Suppliers Account for 60% of its Sourcing Spending

Old Navy designs, produces, ships and sells 700 million units of clothing a year. The company’s supply chain gives it cost and flexibility advantage and it has developed deep relationships with its top suppliers: Approximately 20 suppliers account for about 60% of the company’s total sourcing spend. This has helped Old Navy innovate new product offerings, including denim, slug tees and chambray shirting, new to the value space. The vendor base is also geographically diverse, which helps to mitigate potential trade challenges.

Old Navy and Athleta Expanding Inclusive Sizing

Old Navy is growing its adjacent categories through expanded sizes and through new product offerings. It has one of the largest breadth of sizes, from size 00 to 30 with 8 different lengths. It also has a growing plus-size business, primarily online, but is now testing in some physical stores.

Athleta is bringing 3X inclusive sizing to its stores, which will expand its offering to sizes 24-26. The company said it believes there is a significant opportunity to serve this customer today: The average woman in the US is a size 16.

Old Navy Sees Growth Opportunity in Intimates and Beauty

Customers are seeking these products from Old Navy today. The company sees growth and value opportunities in these categories.

Athleta has Grown at a 23% CAGR Over the Past 7 Years: Plans First Outlet Store

Athleta’s brand positioning is on performance, beauty and sustainability. The brand has grown at a 23% CAGR over the past seven years to $1 billion in sales today, and management said it sees the brand growing to $2 billion in sales over the next few years. Athleta’s brand awareness is relatively low, at 41%, but when customers become aware of it “they love it,” according to management. Athleta also announced it will open its first outlet store in the next few months.

Gap is Focusing on Women’s Denim as its Core Business

Arthur Peck, CEO and Director at Gap, said the brand is focusing on its women’s denim, since women purchase the bulk of apparel sales and the bottoms business is a loyalty category. Gap is focusing on gaining share in denim to fuel a turnaround, and said initial comps have been positive. The customer is responding to denim trends, for example, with high-rise denim and also to body diversity in marketing.

Banana Republic Focusing on Appealing to Younger Consumers

Banana Republic has experienced slower sales despite a high brand awareness score of 83%. The brand is targeting younger consumers with a new subscription model and near-term plans to rollout a buy online, pick up in store (BOPIS) service.

Splitting Gap and Old Navy into Two Brands is Expected to Create “Dis-Synergies”

Management described the dis-synergies that the company expects to create from separating the Gap brand and Old Navy into two separate business entities. Management says the separation will help each business become more efficient by operating on its own. The initial expected gross dis-synergies related to Gap are between $225-250 million and for Old Navy $150-175 million. These costs are on a gross basis before mitigations and represent approximately 2% to 2.5% of revenue.

There will also be one-time impact costs associated with separating the technology and logistics platforms.

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