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Gap Is Said to Explore Selling Itself
Gap, the casual clothing chain that turned staples like T-shirts into must-have fashions and spawned scores of imitators that nibbled away at its business, is exploring a sale of the company, people briefed on the matter said yesterday.
The chain, started in San Francisco in 1969 by a husband and wife, has hired Goldman Sachs to explore strategies ranging from the sale of its 3,000 stores to spinning off a single division, like Banana Republic, these people said.
In December, a crucial period in the holiday shopping season, sales fell 8 percent, prompting the board to hire Goldman. “This has been a long time coming,” said a person close to the board. “The December numbers made the decision obvious.”
A sale of Gap would be one of the largest buyouts ever in the retail industry. The company’s current market value is $16.4 billion, and analysts expect that a buyer would have to pay more than $18 billion.
Goldman is expected to conduct a full review of Gap’s business lines and then present a plan to directors, the people said. The review is not expected to be completed until the end of the month, at the earliest.
The very possibility of a sale — even though a deal is by no means guaranteed — amounts to a stinging concession that Gap’s current management, which has overseen a period of nose-diving sales, may be unable to turn around its fortunes.
At Gap, which is all but synonymous with the American mall, sales have fallen every month for the last year, as executives have experimented with a dizzying number of fashions and store layouts.
In the end, consumers appeared more confused than intrigued by the incessant changes, like a nostalgic return, beginning over the summer, to the basic-looking jeans and polo shirts that defined the chain throughout the 1980s and 1990s.
A spokesman for Gap, Greg Rossiter, said the company would not comment.
Any decision about Gap’s future will be made by the company’s founding family, the Fishers, who control more than 30 percent of its stock. A person close to the family suggested that “nothing is off the table,” but also said the family was more likely to try to keep the company intact than to sell it piecemeal.
Over the last year, the family was informally approached by several private equity firms about taking the entire business private, or at least parts of it, two people close to the family said. The family, however, never engaged in any serious conversations.
Private equity firms, which have a long history of buyouts in the retail industry, are expected to be the most interested suitors. Texas Pacific Group, which turned around J. Crew and installed a former Gap chief executive, Millard S. Drexler, to run it, has long been speculated about as a possible buyer, as has Edward S. Lampert, who bought Kmart and merged it with Sears.
Shares of Gap surged 7.3 percent to $20.26 yesterday after CNBC reported that Gap had hired Goldman. They rose another 23 cents in after-hours trading.
Gap’s big presence in American apparel retailing has gradually eroded over the last decade, as nimble rivals serving smaller segments of the American population — like Abercrombie & Fitch for teenagers and American Apparel for 30-something urbanites — have taken consumers. Indeed, Gap is an anomaly in the mall today: a single chain trying to serve shoppers from birth until death.
“Everyone who is successful at the mall today has a laser focus,” said Bob Buchanan, an analyst at A. G. Edwards. “Gap has not been focused for several years.”
With 3,000 stores, Gap has long been considered too large — and a potential buyer is likely to sell off poorly performing locations.
Gap operates stores under four names, but the bulk of its sales come from Gap and Old Navy, with Banana Republic and a new chain, Forth & Towne, representing less than 25 percent of its business. Banana Republic sales have rebounded, making the division enticing to potential buyers.
Much of the blame for Gap’s woes has fallen to its chief executive, Paul S. Pressler, a former Walt Disney Company executive who took over the company in 2002 after Gap’s board ousted Mr. Drexler.
Mr. Pressler was heralded for cost- cutting that restored financial discipline. But there was a trade-off, analysts said. Mr. Pressler, who had little retail experience, did not steer Gap toward its customers’ tastes. A rotating cast of designers tried to recreate the Gap brand — with expensive handbags, bell-bottom jeans and evening gowns — but the result was the same: sales fell.
Jennifer Black, president of Jennifer Black & Associates, a retail investment firm, said Mr. Pressler “has had four years; that is long enough.”
