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Gap's Deal With Kanye West Is Smart If Done Right

By Rich Duprey – Jul 3, 2020 at 7:03AM

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It's a bold stroke for the ailing retailer that could pay dividends for years.

Every so often a company does something that just makes so much sense, and the deal that Gap (GPS -5.61%) has signed with Kanye West is one of them.

Although the rapper is controversial who brings certain amount of risk by attaching his name to Gap, he is truly an influencer, unlike so many social media personalities to which the moniker is applied. 

A pair of white Adidias Yeezy Boost 350 V2 sneakers

Adidas Yeezy Boost 350 V2 sneakers. Image source: Getty Images.

Whether you like him or not (or merely shrug and roll your eyes when you hear his name), West bringing his Yeezy line of clothes to Gap is a really smart move for the retailer. It has the potential to bring new customers into its stores and move the needle on sales.

But beyond the risk of getting sucked into an imbroglio because of something the rapper says or does, Gap needs to make sure it handles this properly, otherwise it could seriously mess up what could be a very good thing.

Footwear for the masses

West, or Yeezy (or Ye), as he is variably known, has proved capable of helping lift brands to new heights. 

While Nike (NKE -2.17%) didn't really need the assist when his first line of Air Yeezy sneakers was introduced back in 2009, it was still a notable development because it was the footwear maker's first non-athlete-branded sneaker.

Today, a pair of those original shoes can go for as much as $4,000 on the online sneaker and clothing marketplace StockX, and the follow-up Air Yeezy 2 tops out at just under $10,000. West brought a similar level of influence to Adidas (ADDYY -0.02%) when he switched brands.

Although many styles are more affordably priced in the $100 to $200 range (if dropping that amount of coin on some sneakers is your idea of a deal), a set of Adidas Boost Yeezy 950 Turtles can set you back $4,300 on StockX.

The Yeezy collaboration with Adidas was an attempt by West to purposefully democratize the sneaker market, saying "everybody who wants to get Yeezys will get Yeezys." For a business based on scarcity in an attempt to drive up prices, it was a clear call to break the cycle of ridiculous premiums on footwear.

Keeping where you came from in mind

Gap is known for being an affordable brand, so the retailer needs to ensure it continues that with the new clothing line coming to market. Overpricing the brand to squeeze a few extra dollars of profit could undermine the whole venture.

At least Gap seems to recognize this as a key to the partnership's success. In its statement announcing the pending launch, the clothing company called West "a disruptive force" in music, fashion, and culture, but said under his direction "the YEEZY design studio will develop the new line to deliver modern, elevated basics for men, women and kids at accessible price points."

Gap has a chance to make its brand more relevant than it has been in years, and a far greater chance of success than it has by branching out into home furnishings and baby care products. A few months ago I suggested Gap should chart a course with a much smaller physical footprint and far more expansive digital offerings, with apparel more in tune with consumer tastes.

Kanye West, who reportedly worked at Gap when he was a teenager in Chicago, can bring a whole new demographic to its stores.

Kicking sales into high gear

Gap saw sales fall 1% last year, and it was battered by the coronavirus pandemic that closed all of its retail stores

It is hoping the 10-year deal with Yeezy can bring in as much as $1 billion annually at the halfway point, which would be a massive uptake considering Gap reported $4.6 billion in global sales in fiscal 2019.

The partnership makes sense as long as Gap continues to play it smart. It could generate tremendous value for shareholders for years to come.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool has a disclosure policy.

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