Is Gap stock a buy for 2021? Yeezy does it

(Sebastian Pociecha/Unsplash)

Although it’s no secret that COVID boosted the world of e-commerce, it’s been a different story for brick and mortar stores—including some of the US’s biggest retailers. 

San Francisco-based clothing retailer Gap has had many of its physical stores hurt by mall closures in the US since the pandemic started. That said, the company’s strong online shopping presence and its pivot to augmented reality fitting rooms has served it well. 

Additionally, its much-hyped upcoming Kayne West collaboration and a new rewards program provides some promising prospects for investors. But is the speciality retailer’s stock a buy right now? Let’s take a deeper look.

Yeezy does it

Although Gap is one of the US’s most iconic chain retailers, it has fierce competition from brands like Abercrombie & Fitch, J. Crew, Target, J.C. Penney, and H&M. In this sense, one of the brand’s biggest hurdles while recovering from US mall closures will be selling products high in quality and at a competitive price.

This said, it makes sense that the brand announced its much-buzzed-about collaboration with Kanye West and his fashion brand Yeezy last summer. The line, called Yeezy Gap, plans to launch in the first half of 2021 and its goal is to create “modern, elevated basics for men, women and kids at accessible price points.”

Gap is hoping that the new 10-year-deal will bring in $1 billion in annual sales after just five years. The collaboration with the celebrity, entrepreneur, rapper, and designer, understandably drew a lot of media attention and many investors flocked to buy stocks in Gap upon the announcement.

Virtual dressing rooms, anyone?

In addition to its celebrity collaboration, the company has also recently launched its new DressingRoom app, allowing customers to try on clothes via augmented reality. This logical upgrade to the increase in online retail traffic means less returned goods and in turn more cash for the company. Gap also just launched a new customer rewards program across all brands, giving customer’s another incentive to shop with Gap opposed to competitors.

Financial flexibility

The business has also taken steps to protect its finances due to COVID. This includes suspending rent for closed stores, laying off approximately 15% of employees, deferring dividends, and temporarily cutting executive salaries. It also issued two new $2.25 billion senior secured notes and a new $1.9 billion credit revolver. The company also significantly reduced inventory purchases and cut planned capital expenditures by 50% for 2020. 

Gap’s growth prospects seem to lie within its brands Old Navy and Athleta, as these can be found in strip malls opposed to larger malls. The exciting celebrity collaboration with Kanye West, in addition to the brand’s augmented reality dressing rooms, new rewards program, and financial contingencies the company has put in place suggest a strong business model for 2021.

However, considering the saturated specialty market, slower traffic trends, and ongoing uncertainty with the economy due to the pandemic, it might take more than Kanye to be able to save the day.

Market Buzz contributor Shelley Mason has no position in any of the stocks mentioned.

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