There is light at the end of the tunnel. Gap investors now hope that the partnership with Kanye West will make it shine again after some ‘dark’ years.
After the deal, the company’s shares rose by 40%, something that has not happened for the last 40 years. This was after they announced the partnership agreement with the dominating rapper and designer
The company said that West will work together with Gap Inc. on a new line of men’s apparel, women and kids called Yeezy Gap. According to Yeezy spokesman, the deal is a multiyear partnership. Kanye West has been running errands in San Francisco, Gap’s headquarters. The line that is still in the design stage is expected to debut online and in stores next year.
“This move,” said BMO Capital Markets analyst, “may give Gap Inc. some life as it has been struggling with changing the consumers’ preference and turnaround effort which has been blocked by Coronavirus pandemic. Associating itself with Kanye may rejuvenate the struggling brand.”
“Gap has struggled with figuring out how to balance exclusivity and distribution. If Kanye will elevate the brand while leveraging the company’s broad reach and past success, then Gap will sell a lot.” He said.
Gap shares shot with 42% on Friday in New York trading, which was the biggest gain in over 40 years. This year, the company’s share has dropped by 43%.
West will upscale the brand to a broader market as Gap capitalizes on Yeezy’s growth. In a statement, Mark Breitbard, the global head of the Gap brand, said that the line will build on the success and aesthetic of the Yeezy brand.
Coincidentally, West was working at a Gap store in Chicago as a teenager. He will also have input on presentations in stores and online e-commerce stores. “The marketing and display of the range will be interesting,” said Neil Saunders, who is an analyst in GlobalData Retail.
According to the deal, West’s compensation will be proportional to sales and his company will earn royalties and potential equity according to the terms of the deal. Gap is setting lofty financial targets.
Aspiring for Resuscitation
Warrants of up to 8.5 million shares were issued if the line would achieve $700 million in net sales during the fiscal year, based on the regulations. Gap had $16.4 billion in net revenue in 2019.
Siegel said that Gap is expecting economic resuscitation. Gap has been grappling with difficulties on the turnaround efforts. At the beginning of this year, Gap called off a plan to separate the Old Navy brand from the rest of the business. The sales fell with 50% last quarter as it has been struggling with most of their stores staying closed due to the pandemic. The company was, however, struggling even before the pandemic.
The pandemic upended most of the new plans unveiled by Sonia Syngal, the new CEO that took over in March.
Syngal who was previously leading the Old Navy chain said that Gap was renegotiating its rent and in the meantime, it is paying a considerable fair amount. Some company’s landlords are challenging this in court.
West’s brand, Yeezy, valued at $3 billion, has been growing rapidly. The $3 billion is for the sneaker side alone. The shoes are made and distributed by Adidas, as Kanye West retains sole ownership of the brand.
Gap bets that the same success Kanye has had with sneakers can translate to mass-market apparel.
According to an Intelligence analyst, this deal will draw younger shoppers, rekindle the lost connections and get people looking at the brand again. “Gap still needs more steps, but as far as this deal is concerned, they have taken the right path to recover and be a future retailer.”