Turnaround at Old Navy

The Wall Street Journal reports this morning that Old Navy, a division of Gap Inc., may be finally turning its fortunes around. According to the article, "Sales at Old Navy stores open at least a year rose 10% year-to-year in the fiscal third quarter, the first increase after 20 consecutive quarters of decline."

The article focuses mainly on Old Navy's past struggles and current strategies for revitalization. However, I believe that there's more to this story. The Gap situation strikes me as interesting corporate strategy question, i.e. is this multi-business unit corporation truly adding value to each of its units? Or, put another way, is the whole worth more than the sum of the parts? The question is interesting, because the Gap stores themselves have performed so poorly over the past decade.

For those who are not aware, Gap has three main business units: Old Navy, Gap, and Banana Republic (with each respectively representing a higher set of price points and more high-end image). To some extent, though, Gap stores has faced a challenge regarding the blurring of distinction among its brands. At times, Gap has, in some sense, been stuck in the middle between Old Navy and Banana Republic, without a clear identity of its own. That has caused some confusion in the marketplace and a degree of self-cannibalization. That problem, coupled with a series of other issues, has caused Gap's same-store sales to not fare well in recent times.

Clearly, synergies exist among the brands in the Gap corporation. However, any company trying to operate multiple brands in the same product category has to be careful about this blurring of brand identity risk. Just ask GM...