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- Gap Inc.’s shares soared as much as 42% after the company announced a 10-year deal with Kanye West to design a Yeezy line of clothing for Gap’s stores and website.
- But UBS said Friday that the deal likely won’t revive Gap’s business.
- “For the deal to truly change Gap’s outlook, it has to increase Gap’s relevance with consumers so the rest of its business stops shrinking,” UBS analyst Jay Sole wrote. “We don’t think this will happen.”
- In a June news release, Gap said the deal would “take the creativity, fashion leadership, global recognition and energy of Yeezy and fuel it with Gap brand’s 51 years of expertise, 88% brand awareness, global reach and best-in-class supply chain.”
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UBS analysts on Friday cast doubt on Gap’s splashy deal with Kanye West for a Yeezy line of clothing, saying it likely wouldn’t stop Gap’s business from shrinking.
“For the deal to truly change Gap’s outlook, it has to increase Gap’s relevance with consumers so the rest of its business stops shrinking,” UBS analyst Jay Sole wrote in a note sent to clients on Friday. “We don’t think this will happen.”
Gap’s namesake brand has battled years of falling same-store sales. The 10-year Kanye West partnership will bring Yeezy-branded apparel to Gap stores and Gap.com in 2021. When Gap announced the deal in June, the retailer’s shares soared as much as 42%.
UBS estimated that under the deal, Yeezy Gap could generate between $300 million to $400 million in annual sales, but said that estimate “carries big risk.”
“For the Yeezy floor space to be this productive, it likely has to have hit products, like Lululemon’s ABC pant,” Sole wrote, referring to one of Lululemon’s most popular products. “Coming up with ‘home run’ products is hard to do.”
A former Gap senior leader also questioned the deal’s potential for success, telling UBS that few retailer-celebrity collaborations have generated more than $100 million in sales in at least the last two decades, and “almost none… have approached $200 million,” Sole wrote.
The former executive, who was not named, questioned Gap’s ability to effectively market Yeezy products, as well, according to UBS.
“Gap will likely have to create excitement around product launches and an image of scarcity,” Sole wrote. “While companies like Nike and Adidas are masters at hyping products, this will be something Gap has to learn, which creates execution risk.”
Gap is hoping the Yeezy Gap brand will be generating $1 billion in annual sales within its first five years, according to The New York Times, which cited someone familiar with the negotiations.
In a June news release announcing the partnership, Gap said, “This bold alliance will take the creativity, fashion leadership, global recognition and energy of Yeezy and fuel it with Gap brand’s 51 years of expertise, 88% brand awareness, global reach and best-in-class supply chain.”
West will maintain sole ownership of the Yeezy brand under the terms of the deal, and Yeezy will receive royalties and potential equity related to sales achievement, according to Gap.