Gap and Yeezy sign 10-year deal, Gap shares surge 42%

Shares of Gap surged 42% after the company announced a 10-year partnership deal with Kanye West and Yeezy, a fashion brand owned by West.

The deal will lead to the creation and design of a “Yeezy Gap” fashion line of affordable clothing for both adults and children. According to Gap, the clothing will be sold in Gap stores as well as online, starting from next year.

As of 11:20 am on Friday, Gap’s stock price increase added approximately $1 billion to the company’s market capitalization, increasing it to nearly $4.8 billion. While this is good news for the company, its overall stock performance this year is still down 20%. Through the first quarter of 2020, Gap Global sales plunged 50%, including store sales dropping 64%, and online sales 5%

West’s Yeezy sneakers brand already partners with Adidas. The Yeezy shoe brand was valued at $3 billion by the Bank of America last year. There was also an expectation of the brand to earn $1.3 billion in sales last year, as reported by The Times.

West expressed his pleasure of singing a partnership deal with Gap as he had always looked forward to partnering with the fashion firm ever since he worked there as a teenager. He told The Cut un 2015 that he aspired to be “the Steve Jobs of Gap.”

Gap said West would receive royalties, as well as possible equity tied to Yeezy Gap’s sales performance.

“We are excited to welcome Kanye back to the Gap family as a creative visionary, building the aesthetic and success of his YEEZY brand and together defining a next-level retail partnership,” said the Global Head of Gap, Mark Bretibard in a statement.

Many onlookers support the partnership, saying that Yeezy will help put Gap back on the radar, in keeping up with new trends. Yeezy offers Gap the opportunity of getting insights into what the younger customer really cares about.

Oliver Chen, a senior equity analyst at Cowen’s sees this as a great step for Gap to reach out to “the younger customer who cares about streetwear [and] who loves fashion. This is a luxury brand getting more accessible with a lot of market demand.

He also mentioned that Gap stock increased $700 million in market cap after the Friday announcement. He, therefore, forecasts Gap to bring in a $1 billion revenue in time, based on the performance of Yeezy sneakers with Adidas.