Gap Stock Has Never Had a Day Like This. Thanks, Kanye West.

26 Jun 2020

Barron's

Gap Stock Has Never Had a Day Like This Thanks Kanye West

The beleaguered retailer is hoping that the collaboration, dubbed Yeezy Gap, will yield some $1 billion in annual sales after five years.

The retailer’s stock was down more than 40% year to date before today’s announcement. Dan Kitwood/Getty Images

Gap stock is soaring Friday on news it will partner with Kanye West in a multiyear deal that will bring the rapper and fashion designer’s products to the mall stalwart, making it the top performer so far today in the S&P 500.

West will design apparel for men, women, and children, with the items hitting store (and virtual) shelves as early as next year. The 10-year deal begins this month, with Gap (ticker: GPS) hoping that the collaboration, dubbed Yeezy Gap, will yield some $1 billion in annual sales after five years.

That’s a big number, but not inconceivable: While Yeezy Gap won’t include footwear, the value of West’s shoe designs—distributed by Adidas (ADDYY)—is some $3 billion, according to Bloomberg estimates.

West has had many high-profile partnerships in the past, often with high-end fashion houses, including LVMH Moët Hennessy Louis Vuitton (MC.France). He also has a history with Gap, working at the retailer before he became famous and namechecking it in his lyrics in the past.

Gap certainly isn’t as fresh as it once was: The retailer’s stock was down more than 40% year to date before today’s announcement, hurt most recently by disappointing earnings and a legal dispute with mall owner Simon Property Group (SPG) over rent payments during coronavirus-related closures. Yet even before the pandemic, Gap was struggling, hurt by mall traffic declines and consumers turning to other specialty retailers.

Partnerships with celebrities have been a good sales driver for retailers in the past, with exclusive products helping to claw back business from e-commerce rivals. Yet they are not a panacea (as PepsiCo [PEP] learned the hard way with West’s in-laws, the Kardashian clan). At least there is somewhat more visibility around the value of West’s fashion line than there was around Kylie Jenner’s cosmetics brand: Filings by her partner Coty (COTY) revealed that her business wasn’t as successful as claimed, although that may not stop Coty from inking another partnership with the family.

Gap stock is up 35.3%, at $13.75, in recent trading—what would be its largest one-day gain on record—while the S&P 500 is down 1.6%. The beleaguered shares had been beaten down enough that bargain hunters were already circling, but that places a lot of pressure on Yeezy Gap to bring in big sales.

Write to Teresa Rivas at teresa.rivas@barrons.com