Bringing Gap Back to its Kanye Best: Gap shares soar after striking long-term partnership with Kanye West
July 20, 2020
2 min read
What's going on here?
US clothing retailer Gap is teaming up with Kanye West’s Yeezy brand to create a new clothing line: “Yeezy Gap”. The announcement led Gap’s share price to rocket by a huge 42%.
What does this mean?
Set to debut in early 2021, the partnership under West’s creative direction is intended to deliver “modern, elevated basics for men, women and kids at accessible price points”. West’s design vision also covers how Yeezy Gap will be presented in Gap’s retail stores and online.
The partnership is a 10-year deal with an option to renew after five, according to the New York Times. Gap believes that, by the five-year point, the collaboration will be generating $1bn in annual sales. In return, West’s Yeezy brand will receive royalties and potential equity depending on sales performance.
What's the big picture effect?
This story highlights the potentially lucrative commercial value in a brand partnership. With this deal, Yeezy gains access to yet another platform and supply chain that can speed up growth and brand presence. Meanwhile, Gap acquires a mix of high-profile products that could entice new customers and convince long-term customers to return. Even better, it preserves cash flow by not purchasing the expensive Yeezy brand, which has recently been valued at $2.9bn.
We only need to look to Adidas and its partnership with Yeezy to observe actualisation of these benefits. Alongside boasting an impressive $1.5bn in revenue in 2019, Yeezy has added “cultural prestige” to Adidas and raised the brand’s “credibility with younger shoppers.” Following the Yeezy-Gap deal, other companies may now begin to look to brand partnerships as a viable method of growing and diversifying their business.
The partnership arrives at a good time for Gap, which has been accused of falling behind competitors by not updating its “anemic range” of clothing. The recent coronavirus pandemic has dealt an even bigger blow. Since its stores closed in March, sales have declined by 50%, rent payments were missed and the company has been sued by a mall owner. Therefore, a deal like this can be worth more than just providing commercial value. Instead, it may make the vital difference between a successful turnaround and falling into administration.
However, do the two companies fit? Whilst Gap sells clothes as high quality “basics” focusing on mass distribution, Yeezy’s success is driven by scarcity and high resale values. They also share a completely different customer base. This has led some to suggest that the success of this partnership is short-lived and will fail once the Kanye West novelty wears off. The practicalities of this are yet to be seen, but it will be interesting to see how these differences are reconciled. Usually, law firms will be hired to conduct extensive due diligence at the negotiation stage to ensure that any deal makes good commercial sense for all parties involved.
Overall, there is significant value in a brand partnership if done correctly. It can offer an effective avenue to generate sales, and even more so provide a crucial lifeline to ailing companies. If the Yeezy-Gap partnership materialises the way that it is forecasted to, we may just see brand partnerships become more commonplace in years to come.
Report written by Shea Brinsley
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