Attention Gap Management: Spin Off Something, Already!

Problems at The Gap Inc. (GPS) have continued well into 2007 as interim CEO Bob Fisher scrambles to save the company. Since the departure of former CEO Paul Pressler, The Gap has performed the following cleanup activities:

Leadership changes. The company’s board of directors announced a change in the chief executive officer position. Mr. Fisher, the company’s current non-employee chairman of the board of directors, stepped in to serve as interim president and chief executive officer. The company is in the final stages of selecting a search firm for a permanent chief executive officer. In addition, the company announced Marka Hansen, former president of Banana Republic, as the new president of Gap Brand and Michael Cape as the new executive vice president of marketing for Old Navy.

Conversion of Old Navy’s Outlet stores into Old Navy stores. In order to drive improved returns and leverage its existing retail channel, the company made the decision in February to convert its 45 Old Navy Outlet stores into stand-alone Old Navy stores. The company expects the conversion to be completed by October 2007.

Closure of distribution facility. As part of the company’s on-going assessment of its network capacity, it made the decision in February to close a distribution facility in Hebron, Kentucky.

Closure of Forth & Towne. After thorough analysis revealed that the concept was not demonstrating enough potential to deliver acceptable long-term return on investment, the company announced on February 26, 2007 that it would close Forth & Towne. The company plans to close all 19 stores by the end of June 2007. (Source: Gap SEC Filings)

While I agree with most of the changes, when is Gap going to save their hidden gem: Banana Republic? It remains the one bright light among the core Gap Inc. businesses, but is being held back because of the additional problems stemming from Gap Inc, Old Navy, and the closure of Forth & Towne.

The 4th Quarter Breakdown

Spin-Off, then Reconfigure Goals

Why doesn’t Gap spin-off either Banana Republic or Old Navy to focus on the underlying problems that plague the Gap brand? Gap Inc. could control a large portion of equity in either company, and distribute the remaining shares throughout the marketplace. In my opinion, Gap management was reactive to changes in the retail sector for too long. Maybe a corporate shake-up will save them in the long run. Either way, I’m holding onto my shares.

Disclosure: Author owns shares of Gap Inc.

GPS 1-yr chart: