Gap cancels the spin-off of its subsidiary Old Navy

Gap abandoned plans to separate and announced the departure of another senior executive, in another sign of how retailers have problems with their strategic responses to turmoil in the industry.

The company, which has a valuation of almost 7 billion dollars, established plans almost a year ago to separate its Old Navy division from the rest of the group, which includes Banana Republic as well as its namesake brand.

However, the retailer said that the “cost and complexity” of the proposed separation meant that it was no longer worth continuing. He also said that weaker operating results stimulated the change of course.

The rethinking occurs just over two months after Art Peck, executive director, who had defended the division, left office. The group has yet to name a permanent replacement. The company also said that Neil Fiske, head of the Gap brand, left the firm.

The announcements, along with the disclosure that this year’s earnings would be better than previously expected, caused the company’s shares to rise up to 7 percent in operations after the market closed.

The idea behind the division was to unlock the value in Old Navy, whose targeted offer has allowed it to deal better with its peers in the group with pressures in retail. Peck had argued that Old Navy had a different business model from – and its customers had little in common with – the most expensive brands in the group.

Initially, investors welcomed the plan, which caused the share price to rise 16 percent in a single day after its announcement. However, the results of Old Navy have deteriorated since then along with those of the more general group. Figures published shortly after Peck announced its departure in November showed that comparable sales in the third quarter of the division fell 4 percent compared to the same period in 2018.

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