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Cash-Strapped Gap Eyes Expansion into Baby and Home

Gap Inc. wants to move beyond casual apparel and core denim products as it seeks to expand its brand universe to attract new customers and find distribution channels outside its own stores.

The retailer’s first ever multi-brand licensing agreement with IMG will deliver cross-category product extensions with a focus on Gap’s casual, American style, Banana Republic’s modern lifestyle and Janie and Jack’s updated twist on classic looks for kids and babies. The deal also includes “support” for GapKids and babyGap. The IMG agreement does not include the other brands in Gap’s portfolio–namely Intermix, Old Navy, Athleta and Hill City.

While Gap and IMG are still exploring product categories, the two said sectors being considered include baby equipment and baby care, home décor and textiles and furniture. The idea is to bring in new, complementary lines not already sold in its stores, while leveraging the unique creative characteristics of each brand in the new product extensions. Moving to new channels of distribution could also open up a new wholesale opportunity for the company, which operates as a vertical retailer.

“Gap Inc. operates a portfolio of strong, globally relevant brands that are familiar, trusted and highly marketable across multiple demographics. We are excited to explore new market segments and complementary points of distribution for Gap, Banana Republic and Janie and Jack in an asset-light way that harnesses their individual strengths,” Roy Hunt, Gap’s head of franchise and strategic partnerships, said.

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Bruno Maglione, IMG’s president of licensing, noted how both distribution channels and consumer purchasing habits have evolved significantly since Gap was founded in 1969, “and never more so than in the last few years.”

“As one of the world’s leading fashion retailers, Gap Inc. recognizes this omnichannel opportunity and the power of its brands to attracting existing and new consumers from more than one angle and via more than one format,” Maglione added.

Gap, founded by Donald and Doris F. Fisher, didn’t begin to sell its own private-label line until the mid-1970s. Fiscal sales in 2019 slipped 1 percent to $16.4 billion, while earnings dropped to $351 million from $1 billion in fiscal 2018. While still an apparel powerhouse in the specialty retail channel, it’s been losing ground since the early-aughts to its competitors along the mall corridors.

The clothing giant’s heyday likely came in the 1990s when Gap took on an upscale sensibility under the leadership of Millard “Mickey” Drexler. But that changed when Drexler left the CEO post in 2002 after 19 years at the helm following a period of store over-expansion and a decline in sales. The company has also seen a series of CEOs come and go over the years, most recently Art Peck last November. Sonia Syngal, the head of Old Navy, which was supposed to be spun off under Peck’s tenure, took over the CEO post two months ago.

Expanding Gap’s reach comes at a time when the retailer could use some new blood in the form of consumers shopping its brands. Like its competitors on the retail front, Gap temporarily shuttered its stores amid the shelter-in-place mandates from state and local governments to curtail the spread of the coronavirus, or COVID-19, pandemic. The company furloughed most of its store staff to cut costs while stores remained closed, and warned last month that the pandemic’s impact on the closures might mean the company won’t have sufficient reserves to fund future operations. The company also delayed $115 million in rent payments to U.S. landlords. Gap is in discussions with landlords about its store leases.

The specialty chain, which drew down its entire $500 million availability from a revolving credit line, is in the process of raising $2.25 billion of senior secured notes in the form of junk bonds to pay down the borrowing from the revolver, with the balance to be used for general corporate purposes.