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Gap (GPS) Signs Kayne West to Boost Brand Image, Stock Up

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Gap, Inc. (GPS - Free Report) rallied more than 18% on Jun 26, after the announcement of its long-term collaboration with Kayne West. This partnership will allow the company to bring the YEEZY fashion label to stores and its website for customers across the world from 2021. Post the deal, Kayne West will retain the sole ownership of the YEEZY brand. Other terms and conditions of this deal remain undisclosed.

The YEEZY brand, which was worth $2.9 billion as of April 2020, will offer affordable clothing for men, women and kids. Going forward, Gap is targeting $1 billion in sales in the first five years after the YEEZY deal.

In 2015, the YEEZY label’s footwear category had teamed up with Adidas (ADDYY - Free Report) , which became a success story later. Notably, Adidas launched YEEZY sneakers in limited quantities and later increased volumes. This led to a resurgence in demand for pricey sneakers, which in turn aided sales. On the contrary, Gap is taking a different route and has planned to distribute the new collection to millions of customers across the world.

Sources reveal that Gap is back in the headlines for this recent deal. Further, the American rapper’s popularity and audience reach are likely to give a new life to the company. In fact, it has been grappling with soft demand for a long time, losing its customers due to obsolete merchandise. Also, temporary store closures stemming from the COVID-19 pandemic has added to its miseries.

Gap witnessed significant declines in in-store sales for all formats, with Old Navy down 60%, Gap down 64%, Banana Republic down 61% and Athleta down 50% in the first quarter of fiscal 2020. As a result, it looks forward to recovering its lost sales via this deal.

We note that this Zacks Rank #3 (Hold) stock soared 62.6% in the past three months, outperforming the industry’s growth of 25%.

Other Transformational Efforts

Management has been undertaking several steps to build customer confidence and boost the brand’s image. To this end, it revitalized the Gap brand by streamlining its specialty fleet and enhancing the marketing model to drive customer engagement. The company also focused on driving profitability through improved product assortment and inventory composition as well as reduced promotional activity. Notably, it reduced big box promotional events and adopted flexible promotional messaging. In a bid to re-establish its authority in denim, Gap launched a marketing campaign, “Its Our Denim Now”.

Also, the company canceled its plan to spin-off Old Navy into a stand-alone public company, considering the costs and complexities of splitting into two companies as well as soft business performance. Apart from these, it recruited a new leadership team for the retail portfolio.

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