Gap Expands into Beauty Business, Partners with Old Navy and Gap Stores for Cosmetic and Fragrance Sales.

Gap Inc. is expanding into the beauty business by offering cosmetics, fragrances, and personal care products at 150 Old Navy and Gap stores next year. This move aims to diversify Gap's product offerings and tap into the growing beauty market. The company has made significant progress in recent years in advancing its strategic priorities.

Gap Inc. (NYSE: GAP) is set to expand its product offerings by introducing cosmetics, fragrances, and personal care products at 150 Old Navy and Gap stores next year. This move is part of the company's broader strategy to diversify its product portfolio and tap into the growing beauty market [1].

The decision to enter the beauty sector mirrors similar expansions by rivals like Abercrombie & Fitch (ANF) and Kohl's (KSS) partnership with Sephora, as well as Target's (TGT) experiment with Ulta (ULTA). The new offerings will be stocked alongside Old Navy-branded merchandise, such as fragrances and hair care products. Currently, 150 Old Navy stores have beauty and personal care products in checkout lanes, with 45 containing dedicated beauty shops [1].

Gap Inc. has been making significant strides in advancing its strategic priorities, emerging as a more resilient company with stronger financial footing, more relevant brands, and a unified culture. This momentum has enabled the company to seize exciting opportunities for growth and innovation, helping ensure its competitiveness and success in the future [1].

The company's recent earnings reports indicate that it faces a $150 million to $175 million tariff impact in 2025, reducing operating margins by 100 to 110 basis points amid rising import costs and inventory buildup. Despite these challenges, Gap Inc. has embarked on a multifaceted reinvention strategy, betting on quality essentials, creative collaborations, and sustainability to rekindle consumer loyalty [2].

For instance, the Gap brand reported a 5% increase in comparable sales in Q1 2025, driven by partnerships like Zac Posen's creative direction and a renewed emphasis on timeless design. Old Navy, the company's flagship brand, saw a 3% sales increase in the same period, leveraging nostalgia and strategic sourcing shifts [2].

Gap Inc.'s supply chain adjustments have further underscored its adaptability. By shifting 27% of sourcing to Vietnam and reducing Chinese imports to under 3% of its product mix by year-end 2025, the company has mitigated some tariff-related costs. This diversification, combined with a 98% sustainable cotton sourcing rate and 40% recycled polyester usage, positions the company to navigate both geopolitical and environmental pressures [2].

However, the financial toll remains significant. Inventory levels rose 9% year-over-year in Q2 2025, as the company stockpiled goods to avoid escalating duties [2].

Investors are watching to see if these reinvention efforts can offset the drag from tariffs. Gap Inc. has demonstrated financial resilience, with $2.4 billion in cash reserves and a commitment to returning $144 million to shareholders in Q2 2025 through dividends and buybacks. However, underperforming brands like Athleta and Banana Republic remain liabilities [2].

The company's long-term outlook hinges on its ability to balance reinvention with profitability. While it projects 1% to 2% net sales growth for 2025 and maintains an operating margin target of 6.7% to 7.0%, these figures assume that tariff pressures will stabilize or that the company can further offset costs through sourcing and pricing strategies [4].

References:
[1] https://seekingalpha.com/news/4492331-gap-branches-out-into-beauty-business-at-old-navy-stores
[2] https://www.ainvest.com/news/gap-gap-strategic-comeback-tariff-driven-retail-landscape-2509-73/
[4] https://www.investing.com/news/company-news/gap-inc-q2-2025-slides-flat-sales-but-eps-growth-amid-mixed-brand-performance-93CH-4215468