Dive Brief:

• OrotonGroup announced on Thursday that it has entered into a binding agreement with Gap Inc. to discontinue its Gap franchise business in Australia with store closures targeted for completion by January 31, 2018, according to a press release. Oroton also ended its two-year relationship with U.S. apparel brand Brooks Brothers. 

• The Australian retail company, which runs some 70 stores including the six Gap locations, is working through details of the closure plan and said that, while it’s too early to quantify the financial impact, the agreement will end its future investment in the franchise and limit future losses related to the partnership.

• Oroton is in the midst of a strategic review announced in June, which could include a sale, debt restructuring or recapitalization of the company. The company earlier this year announced the resignation of director Will Vicars, which leaves a majority of independent directors on its board.

Dive Insight:

Gap remains one of the world’s largest apparel companies, but the retailer has struggled in recent years amid headwinds in the market. Still, at a time when apparel retailers are tumbling into bankruptcy and shuttering stores, Gap has begun to demonstrate that it can survive, posting first quarter sales numbers that were a big improvement over recent quarters.

Same-store sales in the period rose 2%, compared to a 5% decline in the year-ago quarter. By brand, Old Navy Global same-store sales rose 8%, compared to its 6% decline in the year-ago quarter; Gap Global same-store sales fell 4%, down from the 3% decline last year; and Banana Republic Global same-store sales fell 4%, compared to its 11% dive last year. 

Although the flagship Gap brand is beginning to hold its own against the competition, it continues to face pressure from fast-fashion retailers like H&M. Meanwhile, Banana Republic is foundering. That, GlobalData Retail Managing Director Neil Saunders warned in May, is emerging as a problem for the company as a whole, beyond its drag on earnings and sales.

"Unfortunately for Gap, the group's progress is all down to Old Navy," Saunders said in an email to Retail Dive. "Outside of this powerhouse of growth, the company's other brands fared far less well… This imbalance means that Gap is firing on just one cylinder. More worryingly, it also undermines the group's contention that improvements to styling, quality and fit are delivering results. On the contrary, we believe that Gap and Banana Republic are still brands in search of a purpose and identity."

These turnaround efforts haven’t reached Gap's operations in Australia. Oroton officials last week said the company will let go of its Gap fleet to focus on the luxury handbag business. The company entered a partnership with Gap in 2013, having lost its license for Ralph Lauren apparel after 23 years of distribution in Australia and New Zealand, according to the Sydney-based company’s website.