TLDR
- Gap launching beauty products at 150 Old Navy stores this fall with items under $25
- Stock rose 5.1% to $23.74 after beauty expansion announcement Thursday
- Company partnering with E.l.f. Beauty and Korean cosmetic brands for product lineup
- CEO calls beauty and accessories “sleeper categories” with high-margin potential
- Analysts see strategic move but warn financial benefits may take months to materialize
Gap stock jumped Thursday after the clothing retailer announced plans to expand into beauty products at Old Navy locations nationwide.
The company will roll out cosmetics and beauty items at roughly 150 Old Navy stores starting this fall. Products include Old Navy-branded hair mist and body lotion, plus makeup and skincare from E.l.f. Beauty, Mario Badescu, and Korean beauty companies.
Most items will cost under $25, targeting budget shoppers. Some stores will feature dedicated beauty sections with specialized staff to help customers.
Gap shares climbed 5.1% to $23.74 following the announcement. Trading was briefly halted pending the news.
Strategic Expansion Beyond Clothing
CEO Richard Dickson described beauty and accessories as “sleeper categories” during his Goldman Sachs conference presentation Thursday. Both segments currently represent small portions of Gap’s total sales but offer higher profit margins than clothing.
“We believe those are two very big opportunities to go after, attracting new generations, as well as high-margin businesses that will complement our apparel business,” Dickson said.
The move builds on existing efforts. Banana Republic already sells accessories like handbags and jewelry. Old Navy launched a new handbag line this week with all items priced below $50.
Gap isn’t starting from zero with beauty either. Some Old Navy stores already carry cosmetics at checkout lanes, though the new expansion represents a much larger commitment.
Analyst Outlook on Beauty Strategy
Jefferies analyst Corey Tarlowe called the expansion a strategic extension of Gap’s transformation plan rather than just opportunistic diversification.
Given Gap’s $15 billion revenue base, even modest beauty sales could generate substantial incremental revenue and profit, Tarlowe noted. However, he warned adoption will take time, meaning financial benefits likely won’t appear for several months.
The beauty industry is projected to exceed $100 billion by 2025, making it attractive for retailers seeking new revenue streams.
Gap has posted six consecutive quarters of positive same-store sales growth under Dickson’s two-year turnaround strategy. The company beat second-quarter earnings estimates through improved products, better customer experience, and viral marketing campaigns.
The beauty expansion launches this fall at 150 Old Navy stores, with dedicated beauty shops and staff at select locations.
