A Gap clothing store in Winter Park, Florida. Image Credit: AP

New York: Gap Inc. on Thursday announced plans to split into two companies and shutter 230 stores in a makeover that showcases its hot “Old Navy” chain and deemphasizes its slumping namesake brand.

Shares surged around 20 per cent in aftermarket trading following the announcement of the division into “Old Navy” and the unnamed “NewCo,” which will comprise Gap, Banana Republic and the company’s other brands.

“Following a comprehensive review by the Gap Inc. Board of Directors, it’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward,” Gap Inc Board Chairman Robert Fisher said in a statement.

“Pursuing a separation is the most compelling path forward for our brands,” he added.

The move comes as the US retail sector faces stiffening pressure from Amazon and other online retailers as e-commerce eats up a greater share of retail sales.

Conventional brick-and-mortar chains are also making costly investments to become “omnichannel” vendors to stay relevant.

However, profitability remains a challenge in the e-commerce portion of the business, in part because of customer demand to receive goods without paying for shipping.

Gap shareholders will receive an equal proportion of shares in each of the two companies. The transaction is expected to be completed in 2020.