Old Navy will operate from its current headquarters in San Francisco following the separation. Credit: NoslivRage.

US fashion retailer Gap is set to separate its business into two new independent entities in an effort to capitalise on distinct priorities, growth drivers and expand presence in the apparel market.

The company will separate the Old Navy brand as an independent business and operate other brands such as Gap, Athleta, Banana Republic, Intermix and Hill City under a unified entity.

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Currently referred to as NewCo, Gap is yet to provide a name for the new entity.

The spin-off will allow Old Navy to increase customer access by applying its real estate strategy, evolving its omnichannel model and expanding product categories. The brand will grow its market share by investing in capabilities and initiatives.

NewCo will use the complementary customer base and scaled operating platform to drive sustainable growth and improve profitability,

“It is clear that Old Navy’s business model and customers have increasingly diverged from our speciality brands over time, and each company now requires a different strategy to thrive moving forward.”

The company is expected to deliver enhanced results at Gap, Banana Republic and Intermix brands through strategic and operational focus. It will also capitalise on the momentum of Athleta and the newly-launched Hill City.

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In addition, the company has launched a programme to restructure the Gap brand’s speciality fleet in a move to enhance the profitability of that channel.

Gap board chairman Robert Fisher said: “Following a comprehensive review by the Gap board of directors, it is clear that Old Navy’s business model and customers have increasingly diverged from our speciality brands over time, and each company now requires a different strategy to thrive moving forward.

“Recognising that, we determined that pursuing a separation is the most compelling path forward for our brands, creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders.”

Gap president and CEO Art Peck will continue in the same role with NewCo following the separation.

Old Navy president and CEO Sonia Syngal will also continue in her role to lead the brand as a standalone company.

The transaction is currently subject to certain conditions, including final approval by Gap board of directors and regulatory approvals. It is expected to close in 2020.

Following the separation, NewCo will operate its business based in Gap’s current headquarters, while Old Navy will operate from its current headquarters in San Francisco.