Gap Inc. sells Intermix to private equity firm


Gap Inc. sells multi-brand retailer Intermix, the retailer’s final step to trim its portfolio to focus on reviving its struggling namesake.

The American boutique chain, which rose to fame in the 2000s at the height of today’s fashion market’s influence, has been acquired by Altamont Capital Partners, a Bay Area private equity firm with more than $ 2.5 billion invested in a variety of categories. , including clothing.

Gap has closed or offloaded its smaller lines after deciding against a spin-off of its most successful asset, Old Navy, in early 2020. Hill City, a menswear label, closed last year and the children’s clothing brand Janie and Jack was sold to Go Global Retail in March 2021. The company announced early this year that it had conducted a “strategic review” of its Intermix business in late 2020. it incurred an impairment charge of $ 56 million. The group’s European activities are also being revised.

For the past 20 years, Gap Inc. with declining margins and diminished relevance to its eponymous brand, as well as to Banana Republic. Both have been displaced in the eyes of trend-conscious and price-conscious US consumers by global, fast-paced fashion challengers including Zara, H&M and Uniqlo, plus Amazon, now the top seller of clothing in the US. While the Gap brand still generates $ 2 billion a year worldwide, it relies heavily on promotions. Gross margins in 2020 for the entire group were 34.1 percent, up from 37.4 percent in 2019.

The executives of Gap Inc. have considered selling nearly all of the company’s brands at various times in recent years, but aside from the now-canceled Old Navy spin-off, big strides like closing Gap or divesting Banana Republic are rarely past the idea- stage. Group Chief Executive Sonia Syngal was promoted to the position at the start of the pandemic with a plan to continue tailoring larger companies including Banana Republic, Old Navy, Gap and the fast-growing activewear label Athleta. The hope is that changes in the marketing and product, including a long-term partnership with Kanye West, will reignite the interest of consumers who remain nostalgic for the Gap label and the grip it had on culture in the 1980s and 1990s. .

Smaller divisions such as Intermix, which Gap bought for about $ 130 million in late 2012, played no part in that strategy. A decade ago, Intermix was a 32-store retailer that Gap’s then-CEO, Glenn Murphy, planned to blow out by developing its then-small online presence. The chain also gave Gap access to richer customers. Long before online luxury players such as MatchesFashion and Net-a-Porter invested deeply in accessible luxury to expand their own customer base, Intermix – founded in 1993 by Khajak and Haro Keledjian – was a go-to in the US for luxury, but not exorbitantly priced, ‘going out’ and holiday wear from trendy labels that appeal to a younger or youthful customer.

Today, almost everything in the store is under $ 1,500 and usually under $ 1,000, but the brand mix is ​​more varied, with accessible labels like Ganni and Agolde selling alongside the Dundas and Balmain designer lines.

However, Intermix failed to grow significantly under Gap’s umbrella, where its business model and customer profile simply didn’t match the discount-driven mass market. While online is a bigger part of his business than it used to be, the store’s footprint is virtually unchanged. According to Gap’s most recent annual report, Intermix generated less than $ 140 million in 2020, less than 1 percent of the group’s nearly $ 14 billion in annual revenue.

For Intermix, Altamont’s investment is not only a lifeline, but also an opportunity to double or triple sales through upfront investment. Multi-brand retail is new to the company, whose apparel interests lie in the sports lifestyle space, including Huf, Billabong and Brixton.

“As we come out of the pandemic, we fundamentally believe there would be a desire to get back to normal,” said Keoni Schwartz, a general manager at Altamont. “Intermix is ​​well positioned to capture that demand, be aggressive and capture an increasing share of that market.”

Like many of its competitors, the online channel became approximately 50 percent of Intermix’s business by 2020, and Altamont is keen to take advantage of that opportunity as well as its unique positioning in the market. It has always had smaller stores and relied on a local customer, not tourism, meaning its fleet is better positioned than oversized, over-expanded American department stores.

It is also a primarily US-based company, with a customer database growing in the ‘double digits’, which chief executive Jyothi Rao, who joined the company in 2014, and Schwartz both believe it provides a competitive advantage over online competitors in Europe who continue to rely heavily on paid customer acquisition to expand their reach. About a third of the product is exclusively available in stores.

“One of the things we realized is that there is additional market share to gain,” Schwartz said.

At the same time, Intermix is ​​less dependent on one brand or category than multi-brand players, Rao argued.

“A lot of [of our competitors] are very dependent on luxury handbags and shoes, ”she said. “We don’t have too many eggs in one basket and we can be flexible in how we respond to customer needs. Because of the [small] size of our spaces, we are not dependent on filling a certain amount of space or buying a certain amount of inventory. “

And yet, multi-brand retail generally remains a challenge. Not only does Intermix have dozens of established players to compete against, including Nordstrom, Net-a-Porter, Saks Fifth Avenue, Neiman Marcus and Farfetch, but there are also plenty of new-model marketplaces, including The Yes, The Lobby and Verishop. which focuses more directly on the customer who is not necessarily shopping at the top of the luxury pyramid, but is willing to spend $ 500 on a dress. Not to mention the growing competition from individual brands selling directly to the customer.

However, Intermix has the ability to triple its revenue to something close to $ 500 million without spending exorbitant money on customer acquisition. (Once multi-brand luxury players cross the half-billion mark, it becomes more difficult to hold a stand and keep customers loyal.) While the party girl aesthetic has fallen out of favor with consumers in recent years, it seems looking to return with a post-pandemic revenge, with the rising popularity of fashion trends from the early 2000s and a widespread desire to ‘dress up’ again.

Intermix may have evolved its look beyond resort wear and bachelorette party wear, but consumers want to look sexy and wear color again. Rao said that while activewear and sneakers performed well during the pandemic and continue to do so, dresses are already on the comeback and even high heels from certain brands, such as Amina Muaddi, are being sold.

Now, overseen by an investor incentivized to prioritize growth, Rao believes she has an opportunity to take advantage of Intermix’s specific stance.

“Altamont really has what makes Intermix special,” she said. “We have the opportunity to double this turnover in a relatively short time.”

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