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Gap May Consider Selling China Business, Loses NYC Rent Battle

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Rumors are swirling that Gap, Inc. is considering the sale of its China business. Bloomberg News reported on Monday that the company is working with Morgan Stanley on finding potential suitors for the business, according to unnamed sources. Those close to the matter noted that deliberations are still at an early stage and could fall through.

Gap, Inc., which owns Gap brand, Banana Republic, Athleta, Old Navy and Intermix, has maintained a presence in China for the past decade, with brick-and-mortar stores located throughout the region and a presence on Tmall, a major Chinese e-commerce platform that attracts more than 700 million active consumers annually.

Gap’s relationship with the Chinese market first showed signs of uncertainty when Old Navy was pulled from China last year following its failure to launch as a standalone public company. Just last week, Gap, Inc. reported its fourth-quarter 2020 financial results, noting that net sales declined 15.8 percent to $13.8 billion in fiscal 2020 compared to $16.38 billion in fiscal 2019, partially attributing the loss to government-mandated store closures and restrictions in China, along with Canada, Europe and Japan.

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This comes at a time when many major brands are heavily investing in Chinese markets. Farfetch recently entered into a $1.1 billion joint venture with Alibaba and Richemont, making Chinese expansion a central focus for the company. Similarly, Wrangler launched in China at the end of 2020 with a digital partnership with Tmall, and soon after, Off-White entered the region with a collection sold exclusively on Chinese social giant WeChat.

Gap Inc. announced it is heavily scrutinizing its store locations, and plans to close approximately 100 global Gap and Banana Republic stores, including 75 closures in North America. On the other hand, it will double down on its most successful brands, opening 20 to 30 Athleta locations and 30 to 40 Old Navy stores this year.

Last summer, it filed a lawsuit against Ponte Gadea New York LLC, landlords of Gap and Banana Republic stores at 59th Street and Lexington Avenue in New York City, claiming that its lease was invalid as a result of government-mandated store closures. However, the judge ruled in favor of Ponte Gadea and dismissed the case, stating that Gap was still able to do business during the pandemic and would be required to pay rent.