Old Navy to Nearly Double Store Count as Other Retailers Scale Back
Published Wednesday, September 18, 2019

Old Navy plans to open more than 800 brick-and-mortar stores around the nation in a move that bucks the trend of national retailers shrinking their retail footprints.

The discount retailer, which is in the process of splitting off from its parent company, The Gap Inc., will increase its U.S. store count to roughly 2,000 locations, executives said. Old Navy currently has 1,139 brick-and-mortar stores in North America, including 92 in Canada and 20 in Mexico, according to an investor presentation from The Gap.

The company plans to focus on opening smaller stores that have lower overhead costs in underserved markets, seizing on its strategy of trendy, lower-priced clothing for a variety of demographics. While chains that serve just teens or women or luxury shoppers are struggling, Old Navy's something-for-everyone approach has been working to boost foot traffic in stores.

Old Navy reported $7.9 billion in net sales in 2018 with $1.6 billion of that attributed to online sales. The chain, which opened its first storefront in California in 1994, aims to expand its total sales to $10 billion in the near future.

The separation of Old Navy from Gap will allow Gap to pursue a strategy of focusing on its premium brands that fit into its long-term efforts to revitalize its image. The separation should be complete in 2020 and Gap said it expects to incur between $700 million and $800 million in separation costs between 2019 and 2021.

Gap bought the San Francisco building at 550 Terry Francois Blvd. that serves as the headquarters for Old Navy from Hines for almost $343 million earlier this year.

"The best way for each company to grow and meet the evolving needs of our customers is to allow them to pursue tailored strategies separately," Gap CEO Art Peck said on an earnings call prior to the deal being announced.

Gap has closed hundreds of stores in recent years as retailers across the globe have been dealing with changing consumer habits and the rise of online shopping. Clothing stores have been hit hard, whether located in suburban malls outside small cities to New York stores in tourist areas of Manhattan, as shoppers look for convenience and lower costs in shopping through the web.

Gap's brands include Athleta, Banana Republic, Gap, Hill City, Intermix and Janie and Jack. Gap reported $8.7 billion in total sales for 2018 with about $2.1 billion coming from online sales when excluding Old Navy. Through all of its various stores, Gap had 2,173 stores as of June 30, not counting Old Navy stores.

Gap bought the higher end children's clothes store Janie and Jack from Gymboree Group for $35 million earlier this year.

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