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Hole will increase 11% on retailer closure plans, focuses on e-commerce and off-mall retail

A Gap store in New York, August 2, 2020.

Scott Mlyn | CNBC

Gap Inc. shares rose up to 11% after the retailer announced plans Thursday to shrink its store space by about 350 stores and move to a business model powered by e-commerce and off-mall locations becomes.

The clothing retailer, consisting of the chains Gap, Old Navy, Banana Republic and Athleta, announced the strategy at an investor conference. By the end of fiscal year 2023, around 30% of Gap and Banana Republic's stores in North America are expected to close. By this time around 80% of the income is to be generated from e-commerce and off-mall locations.

Around 75% of closings in North America are expected to be completed by the end of fiscal 2021.

The company is re-evaluating its European business and could close deals there.

These changes will help Gap Inc. return to "profitable growth" next year, the company said.

Gap is grappling with other mall food staples during the coronavirus pandemic. It has evolved into new ways to increase sales, including making face masks and turning some stores into online fulfillment centers. Its face masks, which it sells individually and in bulk, were introduced Revenue of $ 130 million last quarter.

Online sales and its activewear brand Athleta were bright spots for the company during the pandemic. Online sales increased 95% and 3.5 million new customers were added in the second quarter ended August 1. Athleta was the only brand within Gap to see an overall increase in sales.

In June, the company also announced a deal with Kanye West to develop an exclusive clothing line for its store of the same name. This led to an increase in inventories.

As the retailer seeks to rebound and stay relevant during the global health crisis, Gap executives said Thursday that they are making improvements to their brands. Banana Republic, known for selling workwear like gowns and suits, will have a different range focused on active wear, nightwear and knitwear – with plans to return to their signature attire when more people return to the office.

Athleta and Old Navy are two banners that the company claims are on their way to rapid and significant growth. Mary Beth Laughton, CEO of Athleta, said the brand's value could double to $ 2 billion by 2023. Old Navy, currently a $ 8 billion mark, could rise to a $ 10 billion mark by the same year.

The brand of the same name, Gap, was one of the parent company's weak points. In three years' time, according to the company's managers, around 80% of stores will be outside shopping centers.

Gap stocks hit a 52-week high of $ 20.83 on Thursday. The stock is up 9% year-to-date and has a market value of $ 7.7 billion.

– CNBC's Amanda Lasky contributed to this report.

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