Good morning, everyone, and welcome to Gap Inc. 2020 Virtual Investor Meeting. I'm Steve Ossenfeld, Head of Investor Relations for Gap Inc. We're joining you today from our San Francisco headquarters. Normally, we would welcome you here, but today, recognizing our focus on social distancing in the midst of the coronavirus pandemic, we're hosting today's meeting virtually and in compliance with all health and safety measures required by the County of San Francisco and the CDC.
Today's event is being webcast live and a replay of the webcast as well as our presentation materials will be available on the Investors section of gapinc.com. Before we begin, I want to remind everyone that today's presentation and the accompanying materials include forward looking statements. For information on factors that could cause our actual results to differ materially from the forward looking statements, please refer to today's materials as well as our most recent quarterly report on Form 10 Q filed on June 9, 2020, and our subsequent filings with the SEC, all of which are available at investors. Gapinc.com. These forward looking statements are based on information as of today, October 22, 2020, and we assume no obligation to publicly update or revise our forward looking statements.
Today, we are pleased to have the company's leadership team with us discussing our Power Plan 2023 strategy. As part of today's agenda, there will be a break between the discussion of the power of our brands and the power of our platform. Following the presentations, we'll have another quick break before we open it up for Q and A. Our webcast format allows for the submission of questions, which we'll gather throughout today's discussion and then address after the presentations following the 2nd break. So again, thanks for joining us today.
I'll now turn it over to Sonia Single, Gap Inc. Chief Executive Officer.
Hi, everyone. Thank you for joining us today. I'm Sonia Single, CEO of Gap Inc. And I'm pleased to welcome you to our 2020 Investor Day, our first as a new management team. So I was named as CEO on March 5 and announced my new team 1 week later.
On March 16, we commenced shelter in place and the very next day we communicated the temporary closure of our North American store fleet due to COVID. It was clearly an interesting start to the job. We faced the biggest crisis we've ever faced as a company and yet in that moment or perhaps because of it, we emerged with clarity and conviction of what our path forward needed to look like. I'm pleased to share the crystallization of our go forward strategy, one that leads with our competitive strengths and addresses areas where we previously lacked focus and execution as we build towards growth. This moment has fully brought to the surface what this great company was founded on, brands that stand for something, brands rooted in values, in relevant product and in unbeatable experiences that inspire our customers to become loyalists.
Our North Star is this, we grow purpose led $1,000,000,000 brands that shape people's way of life. And our company will deliver consistent growth with better focus, focus through omni dominance in North America and partnering to extend our reach to new customers. As we continue to address the challenges of the pandemic, our liquidity may be the best in the company's history and it allows us to play offense which we intend to do. In today's landscape, what our customers have taught us is that they want to wear their values. The brand name on their clothing label is deeply personal and customers they want to be met where they are emotionally and physically.
Each of our brands deliver a distinct point of view. Each stand for something and here's how they come to life. This is Gap Inc. At its best. Each brand's distinct point of view is vital to our recipe for success going forward.
As we share our vision of Gap Inc. Future with you, let's take stock where we are today. Old Navy at $8,000,000,000 with 9 out of the past 10 years of growth has always stood for the democracy of style. Gap at $5,000,000,000 standing for modern American optimism here and around the world for 51 years. Banana Republic at $2,000,000,000 with a North Star of working for a better republic.
And Athleta, our fastest growing brand at 1,000,000,000 embodies the power of she, women and girls empowering each other. With reach that is the envy of the industry, our brands are directly and deeply connected to our customers and we are just getting going in maximizing that relationship. We are closely watching the economy, the retail landscape and the competitive environment to evaluate how we can strategically play to win, how we can do things that only we have the authority to do. This means taking all inputs and remaining flexible as we look to gain share in the roughly $200,000,000,000 U. S.
Apparel market. We have a clear eye on the economic outlook. GDP single digit recovery over the next few years, unemployment is expected to stay high, unprecedented store closures and a shift out of mall based real estate. We also see discretionary spending shift from entertainment and travel to apparel and home. And we are zeroing in on the distressed apparel retail landscape that represents $15,000,000,000 of the market opportunity.
This retail disruption combined with our unique direct to consumer vertical omni model at scale and with speed allows us to aggressively take market share. For us, we believe this is a once in a generation opportunity. We have led the casualization of the American wardrobe where comfort, fit and quality matter. Our assortment is 95% pointed at the use occasions that are most relevant today. Our active and fleece business is $3,000,000,000 and our kids and baby business is 4,000,000,000 dollars In tough economic times, kids keep growing and we have the recession proof assortment that meets the needs of families everywhere.
With 51 years of experience in physical retail and 21 years of digital retail, our omni advantage at our scale plays into how the consumer is shopping today. And we deeply know and understand our customers, enabling us to make business decisions with them at the center. We know how she's shopping, the way she's dressing, what matters most to her and her family and how she expresses her values through her style. Through the power of our portfolio, we will reach roughly 80% of the addressable apparel market. And at $16,000,000,000 we are the largest apparel retail company in America.
With 170,000,000 known customers and many of them loyalists already, our brands reach all ages, all bodies, all socioeconomic brackets, all moments and all use occasions. And by being the category killer in the apparel space, we can fully optimize for it. We have powerful omni capabilities. Gap Inc. Is ranked number 2 in the U.
S. Apparel e commerce sales. We have sharpened our real estate strategy and our stores will be where our customers want to shop today. We have increased focus on convenience and experience and uniquely ownable digital and physical spaces. And we own the full value chain from end to end.
We design, we make, we deliver and sell directly all at a scale that matters now more than ever due to the leverage we garner. Over the past 7 months, we've honed these 6 competitive advantages. And these advantages, they give us the power to deliver. It starts with brand power. As I said, we grow $1,000,000,000 brands that stand for something.
We have an amazing enviable collection of brands that are woven into culture today due to their awareness and their ubiquity. We have enduring customer relationships. We infuse the voice of customers into every decision point. We see them as real time co creators. We relish in their feedback.
To deliver, we will create loyalists and intimacy through personalization. With our leading omni platform whether in store, on mobile or through one of our new capabilities like curbside pickup or virtual styling, customer convenience and engaging experiences will be the rule. And we will invest heavily in delivering standout moments and doubling our digital contribution. At product love, we have been advantaged through key categories and have seen success in expanding into new segments such as plus and teen. From newborns through all stages of life, we create products with style, sustainability and value.
Everything well made and worth the price. Every piece matters and lives up to a promise, a brand promise. And we bring it to fruition through our lean and advantaged operations. From the creation of our product to restructured real estate and scaled strategic partnerships, through a highly automated fulfillment network and a well run stores base with a heart, we will continuously streamline to be fast and flexible. And lastly, and I can go on forever about this, our teams and values.
Undeniably, our most important asset always is our people and the belief that they have for what this company stands for. With diverse perspectives and through collaboration, teams are aligned and have clarity now of the behaviors that drive value and high performance. We are embarking on a critical culture change that requires results and consistent innovation. And we are embracing a customer curious mindset and creating beauty and optimism with audacity. With values and relevant experiences at the heart of it all.
We stand for inclusivity. Each are essential elements in our growth and together they uniquely differentiate Gap Inc. In the marketplace. So today we are introducing our new strategy, our Power Plan 2023. This is our 3 year plan to grow 4 purpose driven $1,000,000,000 lifestyle brands, capitalizing on our unmatched customer reach and addressable market, leveraging our omni capabilities and scaled operations and extending our engineered approach to cost and growth.
Today, you'll hear through the power of our brands, our portfolio and our platform, how we have the right strategy and culture to execute, win and scale for profitable growth. So my leadership will walk you through our new strategy in deeper detail and Katrina will share our economic model and value creation approach. And we'll hear from our Executive Chairman, Bobby Martin for the Board's perspective. With that, I will hand it over to Nancy Green.
Hi, everyone. I'm Nancy Green, the President and CEO of Old Navy. I've worked here at Gap Inc. For over 25 years across multiple brands, leading the Athleta brand for 6.5 years before rejoining Old Navy last year. And I'm so thrilled to be here at Old Navy leading this powerful brand into the future.
As Sonia mentioned, we grow purpose driven brands. And at the heart of Old Navy is our manifesto, which starts with the idea, imagine the world runs right. This manifesto is as applicable today as when it was written in 1994. And sitting alongside our manifesto is our core belief in the democracy of style. And that idea is that great fashion and quality at unbelievable prices should be accessible to all.
Old Navy is also a very important part of the communities we serve. Our values of inclusivity,
of inclusivity, opportunity for youth and a future
that's sustainable deeply resonate with our customers and employees who live in these communities. And this year, we elevated our storytelling to reflect our values, as you saw with the last video that shared our $30,000,000 donation to families in need. This TV spot was one of the most highly rated in the last decade. And we're also in the middle of an activation right now with Power the Polls to pay our employees to work the polls on Election Day due to a projected potential shortage of poll workers. Values matter.
They matter to our customers. They matter to our teams and all of our employees and they matter to me. They're vitally important to our engagement, both with our employee community and with our customers and they make a big difference in our brand health. So Old Navy is also very uniquely advantage in our positioning. We sit at the intersection of value, curation and speed.
And speed and agility have never been more important, especially in 2020. Our responsive supply chain combined with our omni capabilities enabled us to quickly pivot as customers' emotional and functional needs changed quite substantially. So I want to start by grounding you in the size and scale of Old Navy, which is the 2nd largest apparel brand in the U. S. We have 45,000,000 active customers.
We have the 4th largest apparel e commerce business combined with a highly profitable store base. Our scaled channels and omni capabilities provide us flexibility to better serve our customers as their needs evolve. And staying close to customers' evolving lifestyle needs and behaviors is absolutely critical for relevance. As we build on this scale with our new capabilities, we have a clear path to growing into $10,000,000,000 by 2023. So why do we have confidence in this path to $10,000,000,000 dollars Well, we've delivered sales growth 9 out of the last 10 years, and I'm very pleased to share that Old Navy has returned to solid sales growth quarter to date.
We have momentum building now that our stores have fully reopened in communities across North America and our e commerce business remains very strong. We've been able to quickly pivot to where our customers are gravitating to, both in product categories that matter most to them and in experiences that provide more options for how people want to shop. So to deliver our path to $10,000,000,000 we're focused on these four key strategies that will sustain our growth trajectory. It starts with winning with product. It's absolutely essential.
It's what we make and sell. And then we'll deepen our customer engagement through loyalty. We'll double our e commerce business and enhance our omni experiences. And we are creating increased access for customers through new store growth. I want to start with product and our market share opportunity.
So currently Old Navy has a strong position. Again, as I said, we're the number 2 apparel brand and we're the number 6 apparel retailer. We have 3% market share today and with 3% we see plenty of room for growth. So how are we going to do this? We'll start by maintaining share in the number 1 and 2 categories we're currently leading in.
And next, we'll accelerate our share growth through investment and focus in 3 key areas. The first is active. Active represents the largest growth opportunity and continues to be a source of strength as we bring performance functionality and versatility to the market at an accessible price. At over $1,000,000,000 today, we share that active grew by 24% in Q2 and we're seeing greater acceleration quarter to date. Active also has a big impact on our kids business as it's what kids love to wear.
Kids and Baby is a strength of ours as a family brand. And our kids and baby offerings are both a destination for our customers as well as a great way to bring new people into the brand as the vast majority of our customers are parents. So we over index in our market share in kids and baby at nearly 2 times the brand average. And this along with active are the 2 largest opportunities with market consolidation. Denim also very important.
Denim for the family represents a very big and important category for us and has been a key driver of growth and loyalty among our customers through our ability to create flattering fits across a highly inclusive size range. So we also see new growth opportunities in new categories, and we're very excited about Plus. We have one of the broadest size ranges in the industry. However, our Plus offering right now is largely limited to online. So in 2021, we'll roll Plus to our entire store fleet.
We see this as a great way to bring new customers into the brand and better serve our existing plus customers with a physical place to shop and engage with us. So to serve more customers' needs, we're also seeding new categories. Building on a very successful sleepwear business, we see a natural opportunity to extend into lounge and intimates as well as opportunity to extend into lounge and intimates as well as self care. Remaining relevance relevant to our customers depends on us staying very close to their evolving needs and it's a fundamental part of our product strategy. So speaking of customers, we've had consistent file growth over the past 4 years and we see great opportunity to better engage our 45,000,000 base, while
attracting new customers as
well, beyond just the the loyalty pyramid the loyalty pyramid through omni channel and loyalty offerings, there is known value to be created. Customers who are enrolled in loyalty spend more on an annual basis and multi channel customers are significantly more valuable than those who shop in a single channel. Building a powerful loyalty program combined with greater omni capabilities are critical to our growth strategy. And you'll hear more specifics on loyalty from John Strain later this morning. So this leads us to our omni experience strategy, which will fuel our path to doubling our e com business.
The power of the democracy of style has fueled us to becoming an $8,000,000,000 brand. And our future will build on this strength with the addition of the democracy of service, where anyone can interact with our brand and have a shopping experience that feels easy, personal and respectful. The mobile and app experience will become the digital hub for omni shopping throughout our customers' journey. We are quickly scaling our omni capabilities that offer convenience and ease with service options for our customers like shift from store, curbside and buy online and pick up in store. And in the last 6 months, we've moved at a much faster pace from prototype to scale, rolling curbside pickup in a matter of weeks across our fleet during the early phases of COVID.
More recently, we quickly rolled out omni convenience hubs in our stores, making it much easier for our customer and our store employees to do pickups and returns. These hubs are at our store entrance, so a customer can come in, drop off a return and see your credit very easily and then move on to continue her shopping. This is solving a major customer pain point resulting in much shorter lines at checkout. So the next phase for us will be to create a differentiated service experience enabled by greater personalization and loyalty. And we'll continue to accelerate e comm growth with a clear path to more than doubling the business based on the capabilities I've shared and the momentum that we are currently seeing.
Again, I want to reiterate the critical advantage we have through the scale of our e com platform. And finally, you can't create omni customers without stores. So stores matter. They really do and they remain a very important underpinning of our strategy. We'll continue to open new stores.
However, in light of current market conditions and the evolving customer shopping patterns accelerating to online, we're going to slow the pace of our new store openings to about 30 to 40 a year. We'll also be targeting these new store openings in smaller markets with populations under 200,000. This creates an additional option for our customers who are already shopping online with us in these markets. And it's also a great alternative to big box competitors that are already in these smaller markets. Opening in these smaller markets also minimizes the cannibalization to stores in existing markets.
We will remain very thoughtful in how and where we open our new stores, so we can remain economically efficient. And we'll also continue our store remodel program as it's very important to stay relevant and fresh. So the combination of our product category distortion and a highly differentiated experience powered by new and highly scaled omni capabilities, as well as loyalty will accelerate value creation for both our customers and for our business. Old Navy has always been a brand that delivers on fun, fashion, family and value, with strong values that distinguish us in the apparel industry and creates a meaningful connection with our customers. Our current momentum combined with our growth strategy gives my team and I great confidence as we look to the future and our ability to grow to $10,000,000,000 in the next 3 years.
I appreciate spending time with you today. And with that, I'm going to pass it over to Mark Breitbart. Thank you.
Hi, I'm Mark Breitbart. It's great to be back on Gap. I have always appreciated this brand. I first joined the company in 1997 and I've worked on Gap for many years, including when I led Gap's product in 20122013 during the brand's resurgence. Then I rolled up my sleeves in the world of private equity.
Because of these experiences, I see all that Gap has to offer and I see its potential. Gap is far bigger and better than its business with tremendous reach and affinity. That said, Gap has been impacted by operating model challenges, structural problems that impacted profitability and poor execution. When I stepped into this role in January, the team and I got to work right away on fixing these issues. We have already made tremendous progress through real estate restructuring, headquarter reductions, new partnerships and market evaluations.
Work that we talked about and deliberated for years, we have executed within the past few months. We are changing the game at Gap and fast. We are creating an opportunity in this pandemic to truly reimagine Gap to not only meet the needs of today's customer, but to draw in new customers. With a sharpened focus on what Gap stands for, dominance in relevant and growing categories and urgency in adapting our business model, we're ready to pave a new path forward. Gap is an icon of casual American style.
We have strong global awareness with 23,000,000 active customers around the world and 80% brand recognition. We have tremendous reach. When you include our franchise business, we serve customers in 42 countries around the globe. Our customers believe in our quality and they trust us as a purpose driven brand. I am confident in our strategy and the team we have put in place to double down on execution and grow Gap in the future.
And we're going to do this with brand clarity, better customer targeting, narrower assortments and by delivering a clear point of view each and every season. So let's talk about our brand positioning. Gap is modern American optimism. This brand platform is our source of energy and creative confidence. In 1969, this brand was created to bridge the gaps between individuals, generations and cultures.
And that notion has never been more important and relevant than right now. It's why we're leaning into culture defining conversations and creative, our customers are responding. You can feel the positioning, breathing life into our recent campaigns, such as our Stand United and Kids campaign Be the Future, which you just saw a clip of. We've also done the heavy lifting to pull through a clear, more consistent point of view in our brand offering. We are famous for effortless style, quality reinvented essentials that are well priced.
This focus is enabling stronger execution and execution is everything, particularly when it comes to our plan to radically transform Gap for the future. This transformation is well underway. One of our earliest actions I took this spring was to remove management layers. We shrunk the headquarter organization by 25%. This enabled our teams to move more quickly with clarity, accountability, agility and speed and decision making.
That was especially critical as we move through the early impacts of COVID. I also brought a new Head of Marketing and a new Head of Digital, 2 critical areas. This is a lean team focused on execution now. What we're doing is restructuring the fleet, shifting and pushing more of the business to digital and growing share in key categories. We know that we are in the right categories at the right time, And we are partnering to amplify.
We're going to leverage the strength of others to grow in a way that is cost efficient and profitable. That's the playbook. We've done more in GAAP in the last 6 months than in years prior. Let's take real estate as an example. We're the oldest brand in the portfolio with the most legacy real estate.
We've been overly reliant on low productivity, high rent stores. We've used the past 6 months to address the real estate issues and accelerate our shift to a true omni model. We are shrinking North America specialty stores and getting out of mall based locations. By 2023, we will have reduced our North America fleet by 35% and 80% of our stores will be outside of malls, huge changes. We're also looking at how we optimize our business internationally.
Gap has tremendous reach and we believe in the international business. We're looking at how we bring the brand to life globally. In particular, we've begun a strategic review of our European company owned business, where we operate about 220 stores in the UK, Ireland, France and Italy today. We will look at transferring parts of our business to partners. Our goal is to create a new operating model that offers an omni channel experience for customers around the world in a cost effective way.
The transition in Europe is critical for us, both strategically and financially. We will complete the strategic review and move forward in the next 9 months. All of these changes help us become a digitally led brand, meeting our customers where they are and fueling e commerce as the flagship experience. Being digital being digitally led requires talent, infrastructure and execution. We are tackling this head on leveraging Gap Inc.
Digital enhancements like discovery, Checkout, personalization, BOPIS and the PayPal launch. John Strain will share more about these capabilities later today. And we're growing our global e commerce penetration to north of 40%. That's part of the work to create a healthier core business. We expect growth.
That is our mindset. And we know we have the right brand in the right categories at the right time. Denim, active, fleece, we see opportunities especially during the pandemic. There's $100,000,000,000 of market opportunity to go after. These categories are important to us and they are important to youth culture.
I am optimistic about growth because we have pricing power, especially in Baby Gap and Gap Kids where we are known for quality, to $129,000,000,000 business in the U. S. Annually. In addition, we can expand our kids offering with teen. In April, we launched Gap Teen to target a largely untapped customer base and transition our existing Gap Kids customers into Gap teen as they age up.
We started with girls in the spring, then added boys in fall. It is exceeding our plans and we continue to invest in it. We're a denim led brand, we'll continue to innovate and focus on quality and fit to command higher AUR. There is a tremendous opportunity gap for activewear. The $60,000,000,000 fast growing sector is growing faster than other categories.
And with the pandemic, we have seen an acceleration in our active business. We're going after all this in a very GAAP way, modern, quality reinvented essentials that are well priced. We are reducing our assortments by 20%, which allows our design teams to focus on more productive categories and units, while offering a tighter point of view for customers that make it easier to shop Gap. In addition, each season, more styles in the assortment are sustainable. We know from our customers that this is a key differentiator and a key loyalty builder.
This is part of our healthier core and then when we have a healthier core, we work with partners to drive growth. We are partnering to amplify the brand. We are focused on leveraging partner capabilities. This is an asset light, low risk approach that will help us expand our reach and attract new customers. We signed a deal with IMG in April to turbocharge licensing.
We had a 1,000 proposals in the 1st 60 days. We have signed 10 agreements to date that will get us into Gap Home, Baby Gap Gear and other new categories in 2021. We believe licensing in the next 5 years can grow to a meaningful number. Franchise is another cost effective way to expand our reach. Through our franchise partners, Gap reaches customers in more than 35 countries around the globe with more than 400 stores and 14 e commerce platforms.
A franchise flagship store just opened in Barcelona last month. It is a great asset light model. And we will leverage it to get into other things like military based exchanges, which we're also planning for 'twenty one. And in one of our biggest announcements this year, we shared that we are launching Yeezy Gap in 2021. We have a team stacked against this.
There's a lot of creative work underway. This is a bold energizing move for Gap brand that drives relevance and will attract new customers. We are harnessing the power of our brand. We are radically restructuring to win, creating a healthier core business, leading with e commerce, regaining relevance and partnering to amplify. 1 of our cultural tenants is try fast, learn fast, think big.
We are moving fast at Gap and we are thinking big, taking bold actions that will redefine our business model. We have a strong plan in place, a strong team in place and we are 100% focused on execution. And with that, I'm going to switch over to Banana Republic. Because before I moved full time to Gap brand, I led Banana Republic for 2.5 years. I have some deep appreciation for the brand and would like to share some perspective as I see it.
Over 4 decades, Banana Republic has been a loved brand, famous for affordable luxury. It's been a good business that has reinvented itself multiple times. With COVID challenges, there's a major disruption in the BR space. We are aggressively playing offense and looking to gain share in this environment. I'm going to pass it over to Anne Doyle, who is deeply focused on the work at Banana Republic.
Banana Republic is a 42 year old trusted lifestyle brand. Over time, we've evolved to meet our customers' needs. We started as the 1st upcycling brand, evolved to affordable luxury and then became famous for work. Now the way the world works is changing and so are we. Banana Republic is redefining workwear.
While our customers are working from home and not going out, we're evolving our assortment to meet their needs. When they're ready to get back to work and go back out again, we will pivot our assortment to meet their needs again. We've shifted inventory out of traditional work and occasion dressing. We're shifting out of men's suiting, men's shirts and ties, women's dresses and outerwear. And we're shifting our assortment into knits, sweaters, loungewear, sleepwear and active lifestyle product.
This is not your basic fleece. This is elevated, luxury, lounge and workwear. People will want to dress up again, but without sacrificing the comfort to which they've become accustomed. We are monitoring developments and trends. We are leaving inventory open.
We are thinking digital first, getting our products online as quickly as possible. And we're prioritizing sustainability and inclusivity. Over 60% of our assortment is sustainable, and we're pushing that number higher every day. We will continue to build on our inclusive sizing and styles with collections such as True Hues, which offer an assortment of products in a wide range of colors to suit every skin tone. Our new brand positioning Work for a Better Republic connects with customers on a deeper level.
I'm excited about where we're taking the brand and look forward to sharing more with you.
We know how to make do, make it through, make the best and still strive to make it better. We know resilience. And it didn't come to us one day as we sat broken, praying for strength. We've learned it every day from our mothers,
Hi, everyone. I'm Marybeth Lawton, President and CEO of Athleta, and I'm really excited to be here today to share Athleta's plan for growth. And I want to start with our brand. Athleta is a purpose driven brand with a powerful mission. What do we mean by purpose driven?
We are a brand that stands for inclusivity, community and empowerment. And the power of She is our platform. It's all about supporting confident women and girls to realize their limitless potential. And our mission comes to life in everything we do from how we design our products to the experiences we offer in our stores and online to the impact we have on our local communities. Athleta plays in the attractive category of U.
S. Women's active apparel, which is outpacing total women's apparel by 14 points. And within this growing category, Athleta is uniquely positioned to win because we sit at the intersection of a number of exciting consumer trends. First, health and wellness. We know more and more women these days are focused on self care and holistic wellness.
And Athleta offers both active apparel as well as versatile lifestyle products like this great interstellar blazer I'm wearing today that support her full life from working out to working at home. 2nd, female empowerment. We are the only major active brand that is 100% focused on women. We like to say that we are designed for women by women. For example, we co created a post mastectomy bra with breast cancer survivors to help them feel confident and comfortable called the Empower bra.
This is a powerful example of how Athleta uniquely understands and supports women's needs. Environmentally conscious. We're proud to be B Corp certified since 2018 and currently 70% of our product is made from sustainable materials. And 4th, inclusivity, which is core to our brand DNA. We have a comprehensive product offering across all sizes and ages.
And this comes to life across our brand touch points for our customer. Today Athleta is a $1,000,000,000 brand and we have a clear path to double our revenue to $2,000,000,000 by 2023. Here's why that path is clear, starting with brand awareness. Today, we have 53% brand awareness among U. S.
Active women. That means we have tremendous runway to introduce more women to our brand over the coming years. Next, we're seeing more and more of our customers shop with us across channels. These omni shoppers are extremely valuable to us because they spend 3.5 times more than single channel shoppers. Let's look at our real estate next.
We currently have a highly profitable fleet of stores with nearly 200 locations in the U. S. And these stores are top customer acquisition and brand awareness vehicles for our brand because they sit on our customers' path as she does her daily activities like going to a workout class or shopping for groceries. Our stores also serve a really important role in our local communities through women inspired events and classes and services that attract and engage our customers. But we currently have an underpenetrated real estate footprint in the U.
S. Versus our competitors. So we know we have room to grow this critical store base in the coming years. Finally, we have a significant and growing digital business. Our online penetration is north of 50% in Q3 to date, and we continue to see strong double digit online growth.
And in fact, we are also experiencing double digit growth overall in the business quarter to date, which is really exciting. What will be another key driver of our growth? Our product. And we're thinking about this in 2 ways. How can we drive loyalty with our existing customers through what we call our hero assortment strategy?
And how can we reach new customers by focusing on exciting growth categories. So let me expand on both of these, starting with our hero assortment strategy, which focuses on fewer key styles that we're already famous for and then puts greater depth behind those styles through new prints, new patterns and colors every season. This gives our customer great confidence to buy because she knows her fit in these key styles, which drives her loyalty. And with longer life cycles in these key styles, it allows us to maintain our regular price business model with very limited discounting. For spring 2021, we expect these key product franchises to drive 70% of our volume.
In terms of our growth categories, a big win for us in 2020 has been our masks. They've received some great press coverage, won a few awards and even been worn on some well known faces. And as a result, masks are helping supercharge our new customer acquisition. And we are now also finding success in getting these new mask customers into our hero bottoms and tops, which is really exciting. Our athletic girls business continues to be a strong growth engine for the brand.
1 third of our customers have daughters in their homes, which presents a key basket building opportunity, but it also allows us to connect with customers at an early age. As a mother of a 9 year old daughter, Kyla, I have seen firsthand how Athleta can have an impact on her, both in terms of the great product we offer, but it's also the experiences. Earlier this year, I took Kyla to our local Athleta store for an event and it was magical. Girls from a local high school came and held a boot camp for the younger girls, so they taught them some exercises, but they also talked about how staying in sports has given them confidence. So all of us mothers and daughters, we walked away that day from the event, of course, with a lot of new purchases, but also an experience we would never forget.
And finally, inclusive sizing. We are confident we have a right to win here because inclusivity is so core to our brand DNA. We are proud to share that we will have 75% of our spring assortment in inclusive sizing, offered online and in all of our stores. And we recently did a sneak peek of this collection and one of our customers said, this is why I love Athleta. I could buy my yoga clothes anywhere, but their commitment to making all sizes is really important to me.
Putting the customer at the center is core to our athletic growth strategy. So we are focused on creating a powerful digital ecosystem that creates seamless and personalized journeys across touch points for our customers. And we know this is important because customers today are bouncing back and forth constantly between the digital and the physical worlds. So we aren't thinking about single channels in isolation, but rather her full customer journey with Athleta. And to bring this to life, we are investing in key areas like customer data and CRM to drive personalization, omni loyalty and our mobile app, which can really serve as that glue for our customer across touch points.
I was visiting our store in Nashville last week and I met a customer named Allison and Allison was telling me how she's been shopping exclusively online with Athleta for the past 6 months. But last week, she was so excited to be back in her local Athleta store, visiting with the sales associates who know her by name, earning loyalty points and just checking out the new product that she had pre shopped on our mobile app. We know when we get this right, when we can create seamless, personalized cross channel experiences like this for our customer, it results in customer loyalty as well as significant value because customers like Allison who cross channel shop spend 3.5 times more than single channel customers as I referenced earlier. And finally, we have the opportunity to invest in new touch points to drive growth for Athleta. Let's start with our real estate footprint.
As I mentioned previously, we have approximately 200 stores in the U. S. Today, and our target is around 300 stores. So in the coming years, we are planning to open approximately 20 to 30 new stores per year in high quality locations. 2nd, international expansion.
We know we have an opportunity to expand beyond the U. S. To other markets where there's demand for our products, which is really exciting. 3rd, strategic wholesale. We are forming a few selective partnerships to increase our brand awareness and drive new customer acquisition with a new partnership rolling out early next year.
And finally, distributed commerce. We're exploring new social shopping partnerships so that we can have a strong presence where our customer is spending her time, like on social media sites. In closing, there is significant potential for growth ahead for Athleta. We are a purpose driven brand with permission to expand in multiple directions. And we are well positioned to meet our customers' needs in the high growth active category.
As a result, we are confident that we will reach $2,000,000,000 in net sales by 2023. And we will do it in a healthy way through a regular price business model with limited discounting and highly relevant product for our customers. I wanted to end on this quote about dreaming big from Allison Felix, Olympian and Athleta athlete, because we are definitely dreaming big at Athleta. Thank you very much.
Thank you, Marybeth. We're now going to take a 10 minute break, returning at approximately 9:35 Pacific Time. We'll then begin with a discussion of the power of our platform. Thank you.
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Hi, everyone, and thank you for being here today. My name is John Strain, and I am excited to walk you through Gap Inc's capability strategies and why we believe we have what it takes to win in this changing marketplace. At Gap Inc, we have a number of sustainable competitive advantages when it comes to our platform. We are ranked number 2 in apparel, e commerce sales, we have strong brand recognition and love, and a platform that is built around scale technology capabilities, omni channel, loyalty and personalization. At Gap Inc, we put the customer at the heart of everything that we do and our Net Promoter Score is the number one way we measure customer satisfaction.
Our teams and our stores are laser focused on these numbers and it shows. We launched the Medallia tool, which surveys customer sentiment 2 years ago. And since then, we have seen double digit positive comps in our net promoter scores in our stores. And we leverage MPS for our digital properties as well. For context, retentally shows that the average e commerce score for MPS is 62.
And scores over 70 mean that your customers love you and your company is generating a lot of positive word-of-mouth referrals. At a time when great brands matter, we are in a tremendous position to drive the customer relationship. In addition to strong net promoter scores, we have a healthy file, which speaks to the reach we have with our customers. We have 60,000,000 active customers or customers that have shopped with us in the past 12 months. And in total, between active and inactive customers, we have over 170,000,000 on our file.
In Q2 alone, we had 595,000,000 customer touch points or 595,000,000 customers that visit our stores and our online sites. This is a great starting point and we think our file is truly an asset. That said, we know we are leaving opportunity on the table. Loyalty is just a great example. We think of loyalty as both our 11,000,000 credit cardholders and the 9,700,000 members that are in our multi tendered loyalty program as of the end of Q2.
But interestingly, our MTL program was in pilot mode all the way up until September 22nd this year. Prior to that, our MTL program was only available in pilot markets, California, Austin, Texas and Atlanta, Georgia. Now, we relaunched our loyalty program and it went full fleet, all stores, all our markets, across all our brands just 4 weeks ago. And we turned on our digital capabilities and really put some marketing behind it. And as a result, we have seen tremendous growth, adding 2,400,000 customers to the program in only a month.
As we continue to roll out our loyalty program, we'll have an opportunity to drive significant number of our customers into our brands. In a similar manner, omni channel represents another growth opportunity. While we launched buy online, pick up in store 2 years ago, we really thought of it at the time as primarily a fulfillment option. But COVID has taught us that it really is an engagement opportunity. We've seen 50% year over year increases in buy online, pickup and store orders, resulting in 3,500,000 new online customers.
And as a result, over 30% of our omni customers were previously single channel shoppers. Meanwhile, we also see the opportunity to grow the file through partnerships. You heard Mark talk earlier about the Yeezy deal with Gap brand, and we know that will lead to acquiring new customers and attractive new demographics. And from a technology partnership perspective, we're seeing similar opportunities as we've launched partnerships this last summer with PayPal and Afterpay. And the percentage of millennial and Gen Z customers that we've acquired through those partnerships has been very encouraging.
So why is growing the customer file so important to us? As we add customers to our file and transition them from 1 and done customers, customers that make a single purchase, we never see them again, to cross brand and multi channel customers, we see a significant increase in the revenue growth and value. We talk about this as the customer value ladder. You heard Nancy reference this earlier in the Old Navy presentation. If we can get customer from a single transaction to multiple transactions and multiple transactions to multiple channels and ultimately to multiple brands, we see value acceleration at every step up.
Meanwhile, we also see a significant opportunity in the context of our customer loyalty program from non member to MTL member to card member to card tier. What this data shows is the opportunity we have to build enduring customer relationships with our customers through truly understanding them. A lot of our efforts are going into how we mature and expand relationships over time. And one of the ways we're doing this is that we've recently gone through a customer segmentation exercise to better understand who our customers are. To do this, we started by profiling the entire domestic apparel marketplace.
We brought in experts, we leveraged data science and customer insights, we ran a lot of surveys and focus groups and panels and all this effort resulted in 12 potential target segments across the total spectrum of the U. S. Apparel market. We then applied data science to our existing file, placing 74,000,000 customers from the past 24 months into these target segments, looking at a variety of factors, including demographics, psychographic, geographics, broaden third party data, did a bunch of overlays. And then with our brand partners, we selected 2 to 3 target segments for each brand.
So what's a segment? A couple of examples of segments, one of which is carpool parents. Carpool parents tend to have children who are 5 years old or older, they tend to be suburban and they tend to spend a lot of money on apparel. There's also a segment around new parents. New parents tend to have children under the age of 5, tend to be more urban, but they also tend to spend a lot of money on apparel.
And between those two segments, actually several of our brands had targeted those segments in particular. Active Achievers is another segment. These tend to have higher household income, tend to be more environmentally conscious and tend to work out more often than the average. This is actually a great target segment for us both from Banana Republic standpoint and Athleta. Interestingly, a third, 4th segment for us is trend seekers.
These tend to be very fashion forward. They tend to spend the most of any apparel segment, but at the same time, they're not a segment that any of our brands chose to target, because they are notoriously expensive to acquire and have no loyalty to a brand. So we pick segments that made sense for us. Now the brands selected target segments represents about 80% of the $184,000,000,000 addressable market in the United States for apparel. And we're using this segmentation data to really help us drive more relevant engagement with our customers through targeted marketing.
And we're leveraging those segments to help us drive product development. Overall, this is a really good example of how we're leveraging data to drive personalization and create authentic and meaningful engagement by better knowing our customers. We believe that customer engagement is a new currency for customer relevance. And as much as you're relevant, customers will engage. If you can get them to engage, you can build a relationship.
If you build a relationship, all good things come. While a lot of people in the industry are talking about personalization, we've actually made significant progress. Today, we personalize marketing content, e mails, on-site experiences. We do this based on channel preference, loyalty status, product affinity. This includes 74% of our website visits are personalized, 80% of our e mails are personalized, 80% of our product presentation is personalized.
So while we feel good about our coverage and position amongst our competition, we actually know there's a lot of opportunity for us to double down and automate personalization at scale. So it's driven more by artificial intelligence and machine learning. This is why personalization at scale is a major focus for us heading into 2021. As I said earlier, we have incredible power in our platform and the ability to win in this marketplace as we are the 2nd ranked apparel e commerce platform in the United States. But even as I say that, as you look at our penetration at the end of 2019, you get the sense that we have an opportunity to continue to leverage our scale, our customer file, our personalization capabilities to continue to grow.
Our performance so far year to date in e commerce demonstrates that from a penetration perspective. While it's hard in this market to predict penetration, our commitment to a digital first mentality is driving us to innovate at speed. This is why we're going to continue to grow and take share, and we're being aggressive. We compete in this market by having strong brands and a value added point of view for our customers delivered through an intuitive platform that smooths interactions. So let me tell you a little bit about that platform.
We have a custom developed proprietary architecture that provides us with a significant advantage. We have recently re architected our sites. We leveraged the React framework and microservices front ends to deliver flexibility, speed and reusability. And meanwhile, our website is actually fully deployed in the cloud, which provides us scalability in a seamless manner. This new architecture provides us the ability to innovate at speed.
And meanwhile, one of our signature competitive unlocks is a feature we call universality. While each of our brands have their own site with a dedicated look and feel and navigation, the platform also has common components where we've shared customer profile, checkout and bag. And in this way, we have the best of both worlds, the branded nature of stand alone sites with the multi branded nature of a marketplace. So to leverage this even further, we've been experimenting with cross brand customer experiences. An example is our new category for masks.
We call it the mask shop, which allows us to demonstrate our category dominance by merchandising masks through cross branded category pages on every store. This universality capability is really unique in the industry and is one of the reasons why we are well positioned to drive from a single brand, single transaction customer to a multi brand, multi transaction customer. We've also made significant technology investments in stores, having just released our next generation point of sale system, which is also fully applied in the cloud. Our store and digital platforms are custom built to support omni channel optimization. And this is another area where we're focused on leveraging the advantages inherent in our platform, and that is omni channel.
We think of every sale as an omni sale, and we can't forget the importance of our stores. They're not only an important part of building customer relationships and community, but an extension of our online experience. Sometimes e commerce orders are fulfilled from stores, other times e commerce orders are picked up in store or curbside or shipped from a store, or the order may have actually been inspired by a local store visit. And it works the other way around as well. Research papers from Deloitte and Salesforce show that over 80% of retail store visits are preceded by an e commerce visit or may even include an online shopping while in the store.
So every sale truly is an omni sale. Meanwhile, our store associates are a tremendous asset. No one knows and loves our customers, our products and our brands quite like our store associates. And as we continue to mature our omni offerings, we're also investigating investing into leveraging our store associates and their vast knowledge base through solutions like virtual stylus and clienteling. Omnichannel is a true unlock and we are seizing the opportunity.
We also think about mobile as an omnichannel solution. Today, we see over 70% of our traffic on mobile devices. We see more than 50% of transactions on mobile devices, and we see almost 9% of our e commerce orders are coming through our mobile app. So while we've enjoyed some success in as much as each of our brand apps have 4.9 plus stars on the Apple Store with significant downloads, we're actually redoubling our efforts in the mobile area. We believe our mobile experience can be so much more in the context of omni, from scanning QR codes on products in store to be able to get additional information to using QR codes to sign up for our credit card or our loyalty program to leveraging a doorbell functionality on curbside to someday even potentially enabling self-service checkout on a customer's own device.
This is why we are working on enhancing our mobile site and app experiences to enable further degrees of personalization, inspiration and frictionless omni channel shopping. Mobile is a key enabler for in store engagement, and we see it as a loyalty enhancement opportunity as well. In conclusion, we are confident that we have what it takes to win in this marketplace with our customers, loyalty and omni capabilities. Our customers love our brands as demonstrated by the health of our file and the strength of our Net Promoter Scores. We are energized by the opportunities in front of us and expanding the customer value proposition through loyalty, omni and personalization.
Our scale platform, both digital and store base, represents our opportunity to gain leverage and continue to build momentum. This is why we are positioned to win in this changing marketplace. Thank you for your time. And now I'd like to introduce you to our Chief Operating Officer, Sean Curran.
Hi. I am Sean Curran, Chief Operating Officer for Gap Inc. I've been with Gap Inc. For over 30 years. And over that period of time, we've worked across all facets of our supply chain operation.
Currently lead stores, real estate and operations for Gap Inc. In addition to supply chain. I've never been more confident about the road map we have in front of us, and I'm delighted to share how our operations are a strategic differentiator enabling capability in our growth plans. Over the past several years, we have reengineered our supply chain to be demand driven, building out advanced capabilities, enabling us to execute with speed, flexibility and efficiency at scale. These capabilities have given us a strong leveraged operating platform and have positioned us well to extend these capabilities across our end to end operating model.
Our size and our scale and the operating leverage that it brings is a competitive strength and a point of differentiation as the largest specialty apparel retailer in the U. S. We source in over 30 countries, work with 3 30 mills and 620 factory partners who manufacture over 1,000,000,000 units a year and 100,000,000 pairs of denim and manufacture over 650,000,000 yards of fabric. Our logistics footprint is expansive with over 30 consolidation points, origin consolidation points, over 250 trade lanes servicing 14 fulfillment centers around the world or as we like to call them now, customer experience centers. We execute over 400,000 deliveries to our 3,000 company operated stores every year, and we ship over 100,000,000 parcels per year on top of our fast growing buy online, pick up in store option that Nancy was talking about earlier.
All of this is powered by the best talent in the business with over 100,000 team members around the globe. Now we've been on a journey to significantly advance our capabilities from a push, instinct execution driven model to one that is responsive to customer demand, led by world class talent leveraging a balance of both art and science. Over the years, we worked diligently to solidify our core product capabilities and build a formidable scaled responsive supply chain. Now admittedly, we've been slow to adopt these capabilities consistently across our brands. Our opportunity going forward is in operationalizing and driving greater adoption.
Now we've consolidated our vendor base as well. Our top 20 vendors today comprise 50% of our sourcing spend. We've adopted 3 d technology to deliver consistent trend right fit. And we've implemented capabilities to respond to customer preferences to bring product to market in as fast as 5 to 14 weeks at scale and at the right cost. With investments in digital product capabilities and omni logistics network, we are well positioned for what's ahead.
We have built a strong engineering capability and operational muscle with the best talent in the business that fuels a performance driven culture. Our opportunity going forward is to apply this engineering and operating muscle further up and downstream across our end to end operations. And more specifically, our focus will be on advancing capabilities and optimizing inventory and margin, continuing digitalization and even more tightly integrating with our vendor base. Additionally, we will be modernizing processes throughout with the use of robotic process automation, artificial intelligence and advanced analytics. Over the last 5 years, we've built with we've built a technology and operating platform that gives us great speed, scale and cost advantage across our distribution points to support our growing digital and omnichannel needs.
We have been magnifically focused on building the best supply chain network in apparel retailing. The investments we've made in our DCs, in our stores and with our partners such as UPS and Kindred Robotics are great examples. Our logistics network leverages industry leading advanced robotics and automation today that we will continue to scale tomorrow. With our size, our scale, our sophistication, we are a preferred partner with our sourcing, technology and last mile partners. Our reengineering of the network has increased our online capacity by 2.5 times, while reducing the footprint of our network by 5 distribution centers and reducing our cost per unit by more than 10%.
It's all about ensuring inventory availability for our customers and ensuring and providing more choice for our customers. We've enabled the ability to serve customers digitally, as has been mentioned, offering buy online, pick up in store, curbside service and ship from store capability. In addition to, of course, providing a great safe retailing in store experience for our customers and for our associates. As we grow through our brand power and our omni expression, we will continue to expand these efficient omni fulfillment capabilities at scale. Looking ahead, we're fueling the acceleration of and that shift into our omni model through a fleet restructuring, a store reengineering effort and automation.
Across the fleet, we are rationalizing the portfolio with fewer Gap and Banana Republic stores and shifting the weight of the fleet to Old Navy and Athleta from what was a 40 2% penetration to a 52% penetration going forward. More closures are going to most of the closures we have going forward are going to be in malls. The majority will close at lease expiration, but there will be a handful of stores that we're planning to close through a buyout. Also, we're negotiating rents for the remainder of terms on a segment of those stores. This restructuring will right size our rod and position us well to grow omni sales.
Now Katrina is going to share more on our store fleet plans in a moment. More than the opportunity to transform our fleet, we have the opportunity to transform our store experience and operations. We have tremendous internal muscle to bring to bear. We have deep customer knowledge built on enduring relationships, modern store designs and layouts, tailored to elevate our brands and streamline operations, advanced digital and omni capabilities to power personalized seamless experiences and proven engineering and automation expertise that drives efficiency, speed and inventory optimization. Combining these advantages, we will design a more convenient, personalized and brand tailored experience for customers with mobile driven self-service options such as self checkout and returns along with integrated loyalty programs, as John mentioned, and platforms that enhance her connection to our brands.
Many of these customer facing improvements also help improve our store operating costs, applying automation to key customer touch points such as checkout and back of house operations, enabling us to provide greater levels of service and engagement with our customers. We are focusing on a holistic redesign of our stores operating model, reimagining upstream operations, embedding data driven performance management across the fleet and empowering our store associates to do what they do best, be brand ambassadors. Now the challenges we faced with COVID are unlike anything that we faced in our lives. We had to come together to quickly lead and collaborate with our teams and our partner network on the best path forward. This is where we saw the potential of our end to end company and partners fully unleashed.
On top of the monumental work to ensure employees and customers were safe and our supply was pivoted to our online demand, our product and logistics teams also built an entirely new business, our masks product line and B2B mask business. In under a week, each brand had fully digitally developed initial mask offerings, leveraging the existing raw materials in the network. They were produced and air shipped to market in under 5 weeks and since then have leveraged a weekly demand read to meet evolving customer demand and reduce inventory liability. Since April, this new business has sold over $225,000,000 of masks, won accolades for best masks and brought in nearly 1,000,000 new customers to our portfolio of brands and of course helped millions of people feel safe. This is a tremendous example of how we of how the power of our end to end scale and the capabilities that we have can come to life for our customers and how we can generate a sustainable advantage for our shareholders.
I'm really excited about the progress we've made to date. I'm even more excited about the potential in front of us. Our journey over the next 3 years will be focused on leveraging these strengths and creating a lean advantaged end to end operating model, one that is engineered and purpose built to deliver the very best experience and products for our customers. Thank you very much. And with that, I'd like to turn it over to Katrina O'Connell, our Chief Financial Officer.
Hi. I'm Katrina O'Connell, Chief Financial Officer, pleased to be here today. As you've heard this morning, we're proud to share our Power Plan 2023 strategy with you, focused on driving shareholder value through our brands, our portfolio and our platform, as has been illustrated by earlier presentations by our management team. Gap Inc. Has advantages across each of these, which we believe provides an opportunity to drive shareholder value that no one else in our space has.
Today, I will demonstrate how the Power Plan 2023 ladders up to our economic model. This includes how we plan to drive revenue and profit growth and fuel the company's ability to generate cash flow. And lastly, we're focused on deploying our cash flow to invest in profitable growth, partially restructure our store base, reduce leverage and return cash to shareholders, all intended to drive top tier total shareholder return. Gap Inc. Generated $16,000,000,000 in sales in 2019 and is the largest apparel retail company in the U.
S. Our portfolio of 4 multibillion dollar brands competes in an almost $200,000,000,000 addressable market. Our operating cash flow has consistently remained strong, averaging $1,500,000,000 a year over the last 5 years. And while we've invested in the business, we also have a long history of returning cash to shareholders, both through dividends and share repurchases. With these historical strengths in mind, it's important to acknowledge that we've not had great execution in recent years.
We look forward to delivering different results through the execution of our Power Plan 2023 that you've heard about today. Our opportunities specifically are first, we have plans in place to deliver more consistent year over year sales growth. 2nd, we aim to expand operating margin, which I'll talk about more in a moment. 3rd, we're fundamentally changing the cost structure of our company, reallocating fixed expenses and rent into demand generation and online. Our increasingly variable cost structure will create a more flexible model and reduce the volatility we've faced historically.
And last, we will optimize our capital allocation priorities with a more acute focus on return on invested capital. As we lay out our path to a sustainable economic model, the path may look as follows. 2020 is the year we've likely all faced the most acute impacts of the COVID pandemic. As we know, the effects of the pandemic this year have been far reaching, distorting how and when our customers shop. We're pleased with the way we've navigated the crisis so far, bringing our over 3,000 store fleet back to open quickly and safely earlier this year, driving about 90% growth year over year in Q2 alone, which leverages our advantaged e commerce business to serve the customer how and when she wants to shop, and leveraging the stores and online together using our omni channel capabilities such as BOPIS and curbside pickup.
We expect 2021 to be a strong return to profitable sales growth and provide a solid foundation as we build momentum towards our longer term economic model. As the environment normalizes, our goal at Gap Inc. Is to emerge from the pandemic year of 2020 and strong recovery year of 2021 that will be the foundation for our economic model that delivers top tier TSR on a go forward basis. Here's what we believe the company is fundamentally structured to deliver in 2022 and beyond. We believe we can drive low mid to mid single digit sales growth annually, deliver EBIT margin expansion to achieve a 10% and beyond EBIT margin in 2023, generate operating cash flow of about 10% of sales and efficiently deploy cash through capital expenditures and return of capital to shareholders.
We're proud of this economic model and the value it will create. Let me talk about each of these pillars individually and connect them back to our Power Plan 2023. First, sales growth. Our confidence in delivering lowtomidsingledigitsalesgrowthannually comes from the multiple vectors of growth in our strategy that you heard about today. Our brands, our enduring customer relationships, our omni experiences and our product.
By 2023 Old Navy and Athleta will make up about 70% of net sales for Gap Inc. Versus about 55% today. These powerful brands are growing quickly and are delivering strong profit. At about 70% of the company, they will help transform the company's overall sales and margin profile on our path to achieving our 2023 EBIT margin goal given their higher margins. With regards to gross margin, we will significantly expand our gross margin as follows.
Our real estate closures in North America combined with the reevaluation of our Europe market as well as the successful negotiations of our ongoing leases will benefit Rod substantially beginning next year. Expanding product margins using demand generation investments to drive traffic and responding quickly with inventory will take away the need for blanket promotions and deep discounts. And these big levers will more than offset the headwinds from higher fulfillment costs associated with our acceleration in online sales on our path to more than doubling our e commerce business. Now turning to real estate. We are quite pleased with the progress we're making on our store closures for Gap and Banana Republic and we'll be closing about 350 North America stores between fiscal year end 20192023.
At about 8 70 stores at the end of fiscal 'twenty three for both brands across both specialty and outlet channels, the North America fleet will be 30% smaller than it was less than a year ago. The pace of the 350 store closures is fast and looks as follows. We will close 60% of the targeted stores approximately 200 this year. In 2021, we will complete another 75 stores and be 75 percent complete. The balance will be completed by 2023 as we look to balance the economic benefit of lease expirations with closures.
As a result of this work, our mall based exposure will decline meaningfully. In fact, by 2023, about 80% of our revenue at Gap and Banana Republic will be driven by off mall strip outlet and online formats, which we believe significantly reshapes the brands and reduces the company's exposure to declining malls. Closing these stores will significantly benefit Rod and SG and A beginning next year. Most of the leases of our stores we're closing expire during the next year, allowing us to exit properties that don't meet our profitability hurdles relatively easily. For a small population of high profile stores, there will likely be one time cash exit costs in the estimated amount of about $210,000,000 However, we anticipate a slightly positive P and L impact due to prior ROU asset impairments.
And positively, we expect a meaningful EBITDA benefit going forward, projected to be approximately $100,000,000 annually once the closures are complete. And we have achieved meaningful amount of rent reductions on our remaining fleet. We expect lower annual rent expense of about $45,000,000 for stores that we will be continuing to operate. The lease buyout costs and the annual EBITDA benefits from closures and rent reductions are all specific to our real estate restructuring efforts in the North America market. They do not include our strategic evaluation of Europe, where we're exploring a possible exit or a partial transition to our successful franchise model, which I'll discuss next.
We have a strong franchise model today. One of the options being explored in our strategic review of Europe is the possible shift of our company operated Gap e Commerce and about 120 Gap stores in the U. K, France, Ireland and Italy to a partner model by the end of the Q2 in 2021. As we conduct the review, we will look to transfer elements of the business to interested third parties as part of a proposed partnership model expansion. Franchise partnerships are a strong and capital efficient way to amplify the brand.
They reduce our exposure to volatility and enhance our profitability. Through franchising, Gap brand already reaches customers in 35 countries with over 400 stores and 14 e commerce sites and we believe there's significant room to expand our franchise footprint. While franchise is preferred, another option is to close our company operated stores. And as we recently announced, this comprehensive market review is now underway. Next, I'll turn to SG and A.
I'm excited by the pivot we're making on SG and A. As part of the economic model we're presenting, we expect SG and A to leverage on our sales growth. Within SG and A, we are making a very important shift. We are strategically driving down fixed costs and reallocating a portion of those costs to demand generation in support of our sales growth. As we reduce fixed costs, we're reducing headcount by finding efficiencies, lowering store expenses through significant closures, using our engineering capabilities that you heard Sean discuss to drive productivity in our store labor expenses, and evaluating the future of work, looking at how and where people work in the new paradigm.
And as we look to drive growth, we're investing in the following: marketing loyalty, which you heard a lot about today technology, largely in support of a digital and customer capabilities and fulfillment as we look to support the more than doubling of our online business. It's exciting to see how all these strategies come together on our path to our 2023 10 percent or above EBIT margin. Our target EBIT is achieved in 2023 by the following: growth in our higher margin brands Old Navy and Athleta becoming about 70% of total sales Our North America store closures and European market evaluation for closure are transitioned to partner model. Higher product margins largely offset by shipping costs associated with online growth and productivity in fixed operating costs fueling investment in profitable sales growth. What I hope is obvious from today's discussion is that the initiatives presented today result in a more flexible and less volatile company.
We will have 4 strong multibillion dollar brands purpose led each with their own ability to grow and add value to the company. We will be digitally led with our more than doubled e commerce business. Our cost structure will be more variable less fixed as we shut unprofitable stores, exit or franchise the Gap brand European market and engineer our fixed costs for productivity and reallocate a portion of those costs to growth related investments. We will have deployed capabilities such as loyalty and personalization to monetize our $170,000,000 strong customer file. And we will leverage our significant scale in our operations as a strategic advantage at a time when scale matters with regard to speed, cost and flexibility.
Finally, I'd like to turn to cash flow and how we're thinking about our efficient use of cash going forward. Again, as mentioned a moment ago, Gap Inc. Has historically been a strong cash flow generator at approximately $1,500,000,000 each year for the last 5 years. We've used that to invest in the business, particularly in capital expenditures, averaging roughly 4% of sales a year. We've returned the remaining cash to shareholders in the form of dividends and share repurchases resulting in cash return to shareholders of $3,800,000,000 during the last 5 years.
As you know, we've currently suspended our return of capital as a result of COVID and the associated economic environment. While we're not yet prepared to resume dividends or share repurchases given ongoing macro volatility, rest assured we continue to view an optimized return of capital policy as a key driver of TSR in the long run as I'll cover shortly. So recognizing the strong cash generation of the company, let me look forward. As noted, we believe the company can generate operating cash flow at roughly 10% of sales. So how will we deploy that?
Our first priority for cash will be to invest in the business through capital expenditure. We expect CapEx to remain in the range of 4% to 5% of revenue, but what's important here and I'll touch on this on the next slide is that we're pivoting how we invest this capital with a heightened focus on driving return on invested capital. Once we feel we've invested in the business to the degree we can drive a strong return, we look to redeploy a portion of our cash flow on the short term restructuring needs of the company. As noted, we will likely have to spend some of our cash flow on exit costs related to store closures. But as a reminder, once done, we expect this to generate roughly $100,000,000 EBITDA benefit annually from the North America closures alone with the evaluation of the Europe market still to be determined.
3rd, as noted on the slide, we remain committed to an efficient capital structure. Today, the company is very well capitalized with ample cash. In fact, we had over $2,000,000,000 in cash at the end of the Q2. Looking forward, we believe our cash flow will allow us to delever over time. And lastly, we intend to return remaining cash to shareholders in the form of dividends and share repurchases.
1st, in early 2021, we plan to pay out the dividend we suspended in early 2020 as a result of the sudden onset of the COVID-nineteen pandemic. 2nd, we anticipate returning to paying a consistent and competitive dividend. And lastly, we anticipate a return to share repurchases at a minimum to offset dilution, but also as we consider the best return for our shareholders making additional open market repurchases. Before I close, let me illustrate our ROIC based focus on how we're investing in CapEx. In the past, about half of our capital expenditures were invested in stores and our international operations.
Going forward, consistent with enabling a seamless shopping experience for our customers, particularly with the shift to greater online sales, we will be investing more in customer facing capabilities, including digital, customer technology and fulfillment. We believe investing in these capabilities as you heard John and Sean say earlier is going to be a big competitive advantage. In some years, our investments could push our capital expenditures to closer to 5% of sales, but our ROIC focus will ensure this money will be well spent. So to recap, while we expect to return to strong profitable sales in 2021, this will provide a foundation for our economic model for 2022 and beyond. We anticipate being able to deliver consistent low to mid single digit sales growth annually.
With the margin and cost reduction focus we've outlined, we will expand EBIT margins annually, attaining a 10% or above EBIT margin by 2023. With continued management of the balance sheet, we believe we can deliver operating cash flow of 10% of sales and combined with our focus on returning cash to shareholders through a healthy dividend and share repurchases, we believe these factors together will deliver top tier TSR. All said, we believe the investment case for Gap Inc. Is strong. We're generating value through our strong brands and the advantages created by our portfolio and our platform.
This will result in significant cash generation and we intend to deploy it in a shareholder friendly manner to drive TSR. With that, before we have Sonia close and then open it up for Q and A, I want you to hear some comments from Bobby Martin, our Executive Chairman.
Greetings, everyone. I'm Bobby Martin, Gap Inc. Executive Chairman. In addition to all you will have heard from our leadership, I'm pleased to share with you the Board's perspective on the company's strategic direction and also reinforce what I see from my vantage point of working closely with Sonya and her team. It's appropriate and I would not pass up the chance to publicly thank the entire Gap Inc.
Leadership team led by Sonya Single for a commendable job steering the company on A Course TO Win. This team came together during one of the worst crises the industry has ever faced. It has required great strength and leadership to avoid only reacting to the crisis, but instead maintaining focus on direction and seizing opportunity. Protecting our liquidity, cutting costs and caring for our people were only the start of managing the crisis. Our leadership acted with speed and personal commitment to push past significant obstacles to continue driving cultural change, omnichannel strategies, scale of operations and our important brand initiatives to advance the platform for growth you're hearing about today.
Clearly, in our minds, what the leadership team has accomplished in a very short time has been tremendous and we're very proud of them. None of us would likely debate that the effects of the COVID-nineteen pandemic will continue for some time. This company has weathered its share of storms over its 51 years and has always done so with a determination and optimism to emerge strong and take advantage of every opportunity presented. And we see this time no different. Our confidence was high and purposed in appointing Sonya Single even before the crisis and giving witness now to her leadership to date, we could not be more confident in that decision.
I muse with her periodically that if a new CEO deserves a honeymoon period, she certainly missed her chance. Decisive actions and some of the most difficult decisions a CEO ever makes quickly became her welcome mat. I see her up close in my role and know her strategic leadership abilities to be equal to or perhaps greater than her long standing excellence as an operator. We have a leader in Sonya that can carry this company anywhere it wants to go. She has driven the organization to a strong alignment around a set of common goals, clarity of direction, candor and broaden the respect held for her through her own inspiring leadership.
Collectively, the team has demonstrated the expertise and capacity to take on all that is required to seize this moment and accelerate our transformation and in turn advance our strategic initiatives that have been highlighted for you today. I won't take time of you today to add comment on each of the key leaders, although it's tempting for me. I will trust instead that their quality and strength speak simply spoke for itself. I will, however, comment on Katrina O'Connell, because it's worth noting that Katrina is the 1st Chief Financial Officer to emerge from the operating ranks of the company, and we are fortunate to have her. Her deep knowledge of every corner of opportunity in the business and strong disciplines of accountability and strategic focus has made her an exceptionally strong partner for Sonya as they have guided the prudent measures to establish our solid recovery and now a path to create a leaner, faster and more focused Gap Inc.
Positioned for growth. And I take great care in carrying the voice of our directors. Let me give you a little bit about them. We're fortunate to have a diverse, modern and deeply experienced Board of highly ranked executives from a variety of backgrounds and relevant industries. Contributions to things like strategy, financial management, our important brand building, technology and more is all highly impactful.
The continuity of the Fisher family values and history remain present today through their representation, including our highly respected Director Emeritus, Doris Fisher. I also can't skip acknowledging the extent of extra time in role given by no matter how many times we called upon our Board, how they would always respond to the need and certainly that was no more true that we saw with their guidance and judgments applied throughout the COVID crisis. As you would expect, the Board today has a keen focus around meaningful financial performance improvements and a path to consistent top tier shareholder returns. Speaking on behalf of the Directors, an open relationship with management exists today. The Board believes in the plan that you are seeing and hearing about and our ability to leverage a strong economic model.
Things like smart SG and A work, disciplined use of cash governed by strong return on invested capital hurdles and consistent profitable sales growth, driving operating margin expansion are certainly oversight priorities that you would expect to see. We are aligned with management in the understanding also that the brands today with real deep connection to purpose are creating value and winning new customers. Specific to the strategic direction presented by management, a healthy engagement by the Board has been maintained with the full management team, in particular with Sonia and Katrina, to define the strategic direction that you are seeing and has produced now the alignment needed to ensure ongoing support and effective oversight. Stating it more directly, confidence and alignment are high. Management's vision, plans and expertise to drive real change is the work we believe will unlock even greater value out of the enterprise for customers, employees, and again, deliver the expectations for our shareholders.
Allow me to switch gears a bit now and finish up with these observations. While all this work is enough for any CEO, I'm also pleased to share that under Sonya's leadership, we are quickly seeing the core values of the company taking root with a newer relevancy inside each team as they build a business for the future. We know this is a vital part of our success as Gap Inc. Has a richness of values. Our powerful and entrusted brands are synonymous with social progress and optimism.
From being the first Fortune 500 company to validate our gender pay equity globally, to aligning our sustainability priorities against an environmental, social and governance framework, we believe our portfolio company offers unique advantages unlike any other in the marketplace. We are company founded and fueled by values, a company that strives to be better every single step forward. From the beginning, with the opening of the very first Gap store in 1969, Don and Doris Fisher launched this company on the foundation of equality. Ever since, we've held an unwavering commitment to equality, opportunity and inclusion because we know ultimately that our business can thrive only if everyone has the chance to do the same. As a company co founded by a woman and largely led by women today, we are working toward greater inclusion for everyone every day.
Now along with our Board, I'd just like to share and say I'm proud of what this company certainly stands for, much we've been able to share with you today. Certainly, we're greatly encouraged by what we will all accomplish in this next chapter. And we'd like to thank you again for choosing to invest your time with us.
Thank you, Bobby. Those are some powerful words and we are grateful to you and the entire Gap Inc. Board of Directors for your leadership and stewardship of our company and values. The Board's investment of its time and expertise cannot be overstated as Bobby said. Throughout the Board's insight, the management team is ready to take on this next chapter.
And I personally want to call out how much I benefited from Bobby's unparalleled industry experience coupled with his vast knowledge of our business. He and I were named the same day and he has been with me every step of the way. In particular, as Executive Chair, his thought leadership and partnership to me and my leaders has been invaluable. I also want to thank my team. Each was chosen for their track record and intensity and desire to win as a team and each has lived up to that promise and more.
As I said earlier, we're just getting going. As Bobby noted, we are really fortunate to have such a vibrant legacy to stand on. Our founders, Doris and Don Fisher built this company in 1969 based on a single need, fit. When Don could not find a pair of jeans that fit his 6 foot 4 tall frame, they opened a store as an equal partnership. And that first store became what we know today, a portfolio company of powerful lifestyle brands led by the belief that we can bridge not only the gaps between us but future generations.
We started out as an inclusive company by design intentionally and with purpose and being open to all is our call to action. Creating opportunities for the people and communities connected to our business inspires each of us each day. And over these years, this vision has guided our company to imagine how we can do more to help people, more to protect our planet and more to give back. We measure our progress and hold ourselves accountable to public reporting and transparency on this front. From being the 1st apparel retailer to release a CSR report in 2004 to the accomplishments we reported and announced today in our latest sustainability report, in our 51 years of doing more than selling clothes, responsible business practices have been our long standing commitment just as our co founders envisioned.
It's core to who we are. While this work is not new, we are now embarking on a journey to better engage our investor community on our accomplishments and path forward. As we scale, we will articulate our efforts through an ESG framework that captures environmental focus on water, waste and climate, social with focus on our employees, the workers in our supply chain and the communities in which we operate and governance with prioritizing diversity among senior leadership and the Board, transparency and risk oversight. At Gap Inc, we are doing our part within our business and collaborating with partners across the industry, maximizing our impact to address global issues and accelerating the pace of much needed transformation across the industry. We intend to lead here.
So you heard a lot today and I'll leave you with this. It's an honor to lead a company that acts with intention and purpose in everything we do. And as we look ahead with clarity and focus, we have the right teams, the right strategy and the right capabilities and most importantly, a winning culture to execute and pivot to growth. Thank you.
Thank you, Sonia. We're now going to take our last break, which will be 10 minutes. Following that, we'll resume with Q and A. Thank you. Welcome back, everyone.
We're going to start the Q and A session now. Thank you for the questions you've already submitted. We've received quite a few, but please also feel free to continue to submit questions through the webcast platform. We'll get to as many as we can in our allotted time. We have Sonia and Katrina on stage socially distanced.
Other members of management who presented today are also available to answer questions, but are not on stage as we abide by social distancing. So with that, let me turn to our first question. Sonya, this relates to Old Navy. What do you view as the lowest hanging fruit towards improving the EBIT margin in the history or in the Old Navy business relative to 2019?
Why don't I let Katrina start with the EBIT margin and then I can talk a little bit about strategy and we can ask Nancy to chime in.
Yes, sure. So I think we've said publicly that Old Navy had a history of being in sort of that mid teens EBIT margin range in 2016 through 2018. I know it had a little bit of a dip in 2019 as we face some headwinds in our women's product performance. But fundamentally, as you heard today, Nancy say, we're really pleased with the sales growth we're seeing quarter to date. And so we feel like a lot of that's largely behind us.
And as I think about the Old Navy EBIT margin in particular, there's nothing structural that would say that we can't get back to that Old Navy mid teens EBIT margin when you think about the profile of Old Navy. First of all, it's so big at $8,000,000,000 The scale that it garners in getting great unit economics is super helpful when you think about hitting great costs. And on top of that, they're largely off mall and so they end up with great rent economics. And then lastly, since they operate in the value space, they're quite frugal in the way that they staff and run their brand. And so fundamentally, we believe that Old Navy is still able to deliver a great EBIT margin for the company.
Yes. And I think that when you add on all of the learnings from this year that will play forward, the speed that we've injected in the supply chain that's allowed us to expand margin, the pricing authority that Old Navy is seeing. And then as Katrina mentioned, you couple that with a very attractive real estate environment. And I think unique to the value space, the fulfillment costs are significantly advantaged relative to their competitive set. Why is this?
Well for 20 years we've been in the e commerce business and with Old Navy. And so a very automated relatively lower cost network to their competitive set I believe gives them advantage as they aggressively pivot into e commerce in addition to the obvious benefits of their stores channel. So I think a lot of levers. You add to that some of the capabilities we spoke about today around loyalty and what that can do as well as the increased personalization. So there's multiple levers for Old Navy and I think that applies to actually all of the brands.
And I'll ask Nancy to chime in with any other thoughts. Nancy, if you'd like to?
Yes, I would just double down on there's nothing structural getting in our way of achieving those high operating margins again. And we're constantly looking at ways to drive productivity in the business. I mean that's what Old Navy does is a value business. And looking at where we can drive down costs in certain areas to be able to reinvest in areas that will drive meaningful value creation for our customer. And we're seeing that right now.
So and I'll just double click on the strength and health of our product. The stronger our product is, the stronger the margin and pricing power is. And we're really pleased with that. And then lastly, just the scale in which we operate, the scale in which we operate is just incredible in terms of the economics that we can get. Our team is always, always very,
very focused
on that. Okay, great. Sonya, next question relates to Gap. At Gap brand, it feels like the transformation you expect is operationally driven and doesn't necessarily require a pivot in terms of product and brand positioning. Is that true?
I think Mark articulated it. I'll turn it over to him in a minute. We believe it requires equal focus on and this is why he's such a great leader for the brand, the soul of the brand and us living up to that promise of the soul with respect to the product and the experiences. So more focused assortments, a better delivery every single day on the essentials, the elevated essentials, the quality essentials that Gap is famous for and has been famous for. But equally the resolve that Mark has around what the structural work that has needed to be done and is getting done.
So it's a combination of both at the same time. And Mark, I'll turn it to you to add some comments. Yes.
I think I would reiterate the core piece of it is getting a healthy core back into the business, whether it's product, getting the quality sustainability focused assortments back and of course the real estate restructure, which on one hand is largely about execution, but it is about showing up where and how the customer wants to shop. So not being in aged disadvantaged malls and showing up with e commerce with a more powerful e commerce message, the app, those are all critical to our strategy. I would also point to investments in marketing, in digital marketing and the investments that John talked about. So loyalty, personalization, that's all part of reimagining Gap.
For all of our brands, just to pile on to Mark's thoughts, we've for 51 years we sold we've sold our product in stores. For 21 years, we've sold our product online. And what we're doing is we are decoupling the power of our brand from the traditional channels of selling. Now stores and online will always be important and at the heart of our omni dominance in North America. But as Mark's articulated, the ability to partner to amplify and extend our reach around the world where Gap is well known creates very low risk and highly repeatable revenue and earnings that we're excited to maximize.
So I think that in particular for Gap, the shift away from only a narrow set of selling points to a much broader ways to reach our customers is a key component of the strategy.
Great. Katrina, next question for you relates to operating margin. What are the operating margins by brand today? And what brand operating margins are embedded in the 10% forecast for EBIT margin?
Yes. So I'm not going to get that granular by brand. I think we just talked a little bit about Old Navy. Fundamentally, what we talked about today is that the overall plan we believe will allow us to hit at least a 10% EBIT margin for the company by 2023. And when I think about the big levers and then I can speak maybe a little bit to the brand.
Fundamentally, what's different is this big unlock in our real estate portfolio and the sheer amount of unproductive rent and occupancy that we think we will shed as a part of the closures as well as the work we're doing around Europe and the potential closure or franchising of that market. So I think those are important that combined with the higher product margins that offset our fulfillment costs And then the SG and A focus that we have led by Sean and his team where we're really reengineering costs and getting unproductive operating costs out of the system in order to pay for demand generation. And so all of that flows through nicely to EBIT margin. And then as I think about by brand, we talked a little bit about Old Navy. Athleta also highly profitable.
And as we talked about both Old Navy and Athleta get to be about 70% of the portfolio by the time we hit 2023. And so between Old Navy's operating margin and then Athleta, which actually has a portfolio leading operating margin, that really helps fundamentally restructure the operating margin of the company. And then for each of the other brands, both Banana Republic and Gap, as we talked about, they significantly benefit from the restructuring work that we're doing and will be growing off of a much more profitable base.
Sonya, next question relates to portfolio. Any plans to divest the brand? How are you thinking about M and A?
Look, today's strategy was really about our commitment to these 4 iconic and multibillion dollar brands and we believe there's value in that in these 4 together. The ability to share customer file and to leverage insights across whether it's talent, whether it's product capabilities, whether it's the ability to personalize and service all the different needs that these 4 brands provide in terms of use occasion that the power together at our scale is really what we're committed to and that's the power plan 2023. And we believe that this focus is what's going to matter. In terms of M and A, I think listen, we're focused on what we shared today. We believe that the prioritization on brands, on the capabilities such as personalization and customer monetization, as well as the operating scale and engineered cost are the top priorities for us to achieve the results that Katrina laid out.
I mean the only other thing I'd add to that is hopefully the plan today demonstrates that we are acutely focused on profitability and high returns on invested capital. And so we will always stay objective as well as we think about maintaining the profitability of the company as we think about the future.
Next question relates to shipping and fulfillment costs. So Katrina, I may direct this to you. It's a bit of a long question, so bear with me. Can you dive into costs and margins around BOPIS and ship from store? The latter tends to be margin dilutive.
Have you been able to roll out systems to maximize profits on shipping while moving merchandise effectively to customers? Do you
want me to start? Yes. I mean, why don't I start and then I'll pass it over to you and then to Sean. Look, one of the biggest advantages we have by being a category killer is that we are the only company at our scale with a vast logistics network that we have that is built for purpose, right? So we ship a 1,000,000,000 units, we receive a 1,000,000,000 units.
And if you walk into our distribution centers, there's 5 shapes of boxes. So the level of automation we can have at our scale is unprecedented. And you're just not going to find that because of the category killer nature of our business. And then you couple that with the last mile providers and the fulfillment costs associated whether it is through ship from store or whether it is direct from our distribution centers to customers, we are a preferred customer. And why are we preferred?
Well, our product is pretty malleable. It ships well. It doesn't break. We're not dealing with mattresses and toilet paper. We're dealing with items that are preferred for our 3rd party providers.
So those two capabilities between the distribution and the transportation through the partnerships, we believe gives us advantages over many of the larger players out there and over our competitors as well. So I think that's how we think about it specifically how it rolls into the 3 year flow through I'll let Katrina address.
Yes. So I'm happy to take that and then I think it might be good Sean to hear maybe a little bit from you on how you and your team are working through optimizing shipping costs. But as we talked about today, we have multiple levers in the P and L that we're going after in order to drive overall profitability. We do believe that the significant shift to e commerce that we're seeing is a trend that's not going to stop and we're proud to have a large dominant e commerce business and with that does come fulfillment costs. But part of the ways that we are addressing that beyond what Sean will talk about through his efficient network is really leveraging things like store closures and other engineering of fixed costs in order to be able to accommodate some of the higher shipping on the P and L.
As we said today, we still think that with higher demand for our products, we'll run higher product margins that will somewhat offset that. We still feel like all of that lends us to an ability to expand operating margin. So I don't know, Sean, if you want to add
on. Sure. It's a great question. And just reference back to my what I mentioned earlier, it's right, it's all about inventory availability for the customer and obviously being agile in the way that we have our operations set up. And so we've just spent, as I was articulating very briefly in my talk, a significant amount of our engineering and operational horsepower to bring together what was 2 separate channel networks into 1 cross channel network today.
And it's really all about being able to pivot at any point where the customer is at to either the retail purchase, the online purchase. And so as Sonia mentioned, our fulfillment network is a single cross channel network with technology stacks that scale and allow us to pivot inventory wherever the demand is at every node that we have in the network, whether it be upstream in our transportation network, in our DCs as it lands there. As we see demand shifts, look at what happened in the past 8 months, the ability across our 3,000 distribution points to be able to service her and give her the item that she demands when she needs it and where she needs it. And so we're extremely excited about the capabilities. And Sonia's comment around the integration of that design with our partner network is also very, very important, so that we can really work to deal in a world where supply and demand are changing every day to be nimble and agile in the way that we can pivot cost effectively.
And so part of that is also speed. And so as we've been designing it not only for cost, we've been designing for speed. So the automation that I'm referring to in our DCs allow us to move extremely fast in getting product to customer as well as leveraging the strengths of our partner network.
Great. Next question, this relates to Europe. What is the strategy for Europe and suggested changes that were outlined in the press release?
I mean, I can start with that and then Mark, I think you can talk more specifically about your view. We fundamentally believe that Gap as a global brand has far reaching power and that Europe is an important market. Again, we're highly focused on driving profitable sales growth. And so our decision to really evaluate what's going on in our European market is about still maintaining that market share, but doing it in a way that is low cost and high return. And so we feel quite good about this decision and that we will get to a place where we can try to maintain as much of the sales as possible through franchising, but also thinking through the impact of really getting to a much more profitable structure.
So I don't know, Mark, what else you would want to add.
It's just we have such a great business with franchise partners. And there's so much to leverage there. Their local expertise, their ability with site selection, understanding the local customer and being able to drive a business on the ground that is and with incredible economics. So we get the power of our brand, but the power of their local expertise. And I think that's how we have to look at the business.
And Europe is just an example where we are going to do the review and start with a clean look at what the best way to approach the market is. We are really energized when we see kids in every country wearing Gap logo on their 1st day of school country by country. We know this brand has power. It's all about how we execute in a way that's right for us for the long term.
Next question relates to Athleta. Athleta is looking to expand internationally. Can you discuss your approach to international expansion? Which geographies do you plan to focus on first? And when do you expect this to begin?
Well, why don't we pass it over to MB to maybe answer that question?
Yes, sure. So as I mentioned earlier, we are excited about the opportunity to expand internationally and service our customer outside of the U. S. As a key element of our growth in the coming years. And we're lucky to be part of the Gap Inc.
Portfolio and leverage the insights from our sister brand experiences and then combine this with our own Athleta specific market research and insights to figure out the right locations. So we'll be continuing to look at markets where our sister brands have found success and entering in places where we feel like we can be really successful.
Not surprisingly, we've got a question on Gap Yeezy. I think this specifically was mentioned in the presentation, but maybe we want to elaborate. So when can we expect to see Gap Yeezy product in store? Is there anything else you would share really related to the relationship?
Yes. Mark, I'll pass it over to you.
We're excited about what we think the potential is here with Yeezy Gap, I think both on its own and what it can do for Gap brand. So we are currently fully engaged in supporting the creative process. And as of now, we expect product in the first half of twenty twenty one.
Katrina, in your 10% plus margin target by 2023, are you assuming Old Navy and Athleta remain at pre COVID brand margin levels or is there an assumption for lower or higher margin rates at either brand?
Yes. I mean, there's a multitude of scenarios that we've run that we have clearly stared at and there are different ways that it could play out. Again, fundamentally, when I think about it and the reason why we're so successful as a portfolio of brands is that we have specific growth and margin plans for every brand and that comes together in the 10% EBIT margin target for 2023. And we talked about I think those components, right, driving profitable sales at Old Navy, expanding rapidly in our most profitable brand of Athleta and returning both Gap and Banana Republic to better profitability through restructuring. And so all of that comes together and brand by brand we'll see how it plays out.
But fundamentally there's not just one way to get there by 2023.
Yes, the multiple vectors of growth I think is what excites us. We've got the brand plans and we've got the capabilities that we spoke about and you add that all up and the consistency which is important for us and we know has been more lucid than we'd liked in our past, this has been a priority to ensure we have a variety, a range of levers in order to deliver these expectations.
Katrina, a question on the balance sheet. Do you have a target debt leverage ratio?
Certainly, we did what we needed to do during the peak part of the crisis in order to shore up the balance sheet with cash and we feel quite good with what we were able to get done there, especially in light of the fact that we did have a maturing debt in early 2021. That said, we'll see where we land from a cash perspective. And I think you heard a little bit today about how we're thinking about uses of cash. We tend to generate a lot of cash. And so, 1st and foremost, as we talked about today, we are committed to investing in the growth of these businesses with an ROIC focus.
We're also going to look to spend the money to restructure the fleet as we talked about. And then on the list was looking at leverage ratios. And so I'm not prepared today to talk about what specifically that looks like. But we certainly do expect that we will return back to the right capital structure when it makes sense. And then of course, we're committed as we talked about today to returning cash back to shareholders as soon as we think it's prudent.
So more to come on that, but fundamentally believe that the right capital structure is certainly on our list of things to get done.
Great. Next question is on our top line growth aspirations. Can you talk about the top line growth by brand? Low single digits to mid single digits seems aggressive given store closings and declines in 3 of the past 5 years.
Look, we've talked about our digital momentum and the fact that we're roughly looking at a 50% e commerce business and the natural momentum we're seeing there as well as shedding unproductive sales. We feel good about those decisions and the power that these brands have and are building with the amplification of what they stand for is proving out in as we've seen sequentially sort of during the COVID crisis as well as pre and where we think we can plan for the future. So this combination of the power of these brands that are through known levers coupled with these capabilities and then shedding the unproductive sales and the lower ROIC investments, we think is quite powerful. And that focus, I'm a big believer in management focus. And as we focus on our omni dominance partnering to amplify, we think that that will give us even more ability to execute.
Yes. And I think I'll go back to what you said, Sonia, earlier, which I think is a critical pivot that the company has made when it comes to sales growth. First of all, we have multiple ways that we expect to achieve sales growth. And so whether it's each of our $4,000,000,000 plus brands with their specific categories that they're looking at growing, whether it's the pivot in fixed expenses into the investments that we believe will grow those brands. And then as you said, our e commerce platform, which is growing rapidly.
And then also not to be undersold the capabilities that John spoke to as it relates to personalizing and marketing to those. And then something as easy as a loyalty program that's been out there, especially for Old Navy in competitors in the value space, proven growth vehicles that we are just getting going on, we think provides us with lots of runway for growth over the next couple of years, while we also do shed that unproductive growth, which is really important. And then I would say also, Mark talked about partnering to amplify. We're not seeding the dollars at GAAP. We're actually just thinking about more profitable ways to grow.
And so whether it's Yeezy or Franchise, lots of different growth opportunities that the company has over the years in order to be driving growth.
Next question is on merchandise margins. Also, how are you thinking about long term merchandise margins and the opportunity there with respect to markdowns and or mix?
I mean, I can start with that and then hand over to you, Katrina. So look, we have been pleased with our merchandise margin expansion. We think that that will that has the opportunity to continue. Why? Because we have deployed now largely deployed the pipes that will allow us to use technology such as AI and machine learning to better optimize our inventory.
We have a 1,000,000,000 units that we sell every year. So we all know that optimizing that inventory through better science will yield quite a bit of margin expansion. And so that's one obvious way. In addition to the creative execution that we're really proud of and building focus on, we're asking our teams to create with audacity, taking greater product clarity risks and bets and we're seeing the benefit of that. So great product executed well coupled with the science of optimizing a 1,000,000,000 units we think will give us many again many vectors of margin expansion.
Yes. No, I think well said. And we also as we've talked about, are thinking about demand generation differently. And rather than investing so many discount dollars with better product, with new categories, with investments in marketing, we believe we actually don't need to be spending as many discount dollars on driving sales, but rather can be driving those sales through a better deployment of those dollars. I don't know, Nancy, I know you're thinking a lot about merchandise mix as well at Old Navy, if there's anything you'd add?
Yes, I think I mean growing the active business is a very attractive margin just starting there. So that's exciting to us. And I think Sonia outlined what we see as a very, very large opportunity for us with our inventory management and yield opportunity. I mean, we are just scratching the surface on what is a huge opportunity for us as we deploy machine learning and advanced analytics. So there's a lot of opportunity ahead.
Next question is on loyalty. What's new versus what you've had in the past or is different versus your competition?
Well, what's new is we have a loyalty program. That's new. I mean we had a pilot for a while and wasn't very well deployed. And what we launched in September as John shared is exceeding our expectations in terms of creating loyalists by brand. I think what's new is we've really leaned into the emotion of each brand and then the power of the portfolio together.
And it's that combination that is unique to us. And so what's different what we expect to be different than the industry is obviously all the known values that a great loyalty program gets you. But the below the line value that is really about that emotional connection is where we think we will differentiate. And each brand matters to our customers in different ways. And as we think about those below the line connections, which by the way don't cost that much, I think that's really where we think we can stand out.
Okay. Our next question is on Old Navy. Can you give me some more color on the growth algorithm for Old Navy? Previously, you had opening 75 stores per year to get to 2,000. With the store count opening now 30 to 40 per year, where is the growth going to come from?
Yes. Why don't we pass that over to Nancy to handle?
Yes. I mean, as we said earlier, the growth is omni and we see a very clear path to more than double our e commerce business. And so that is why we chose to slow the store growth pace down to really focus on new markets where we have less than 200,000 customers to be able to have access to creating additional customers bringing them in and creating that omni customer formation. So slowing our store growth pace has no impact to our overall growth.
Yes, I'll just add to that. Nancy's business and the Old Navy store fleet is underpenetrated relative to some of their value competitive sets in these smaller markets. And the opportunity for Old Navy to continue to grow in 200,000 person communities is there. And so we're excited about what that will do for the both channels and that's part of that important part of the Old Navy plan.
Due to our allotted time, we have time for just one more question that we can address. Question relates to inventory. What percent of your inventory can you source in season, 4 months or less? And does it differ by brand?
Look, we shared an example today of masks in 5 weeks, which I think is a wonderful North Star and we've done that at scale with very, very good volumes. We're not prepared to break down the product types and by lead time. But suffice it to say, I don't know Sean you have 125 jumbo jets right now.
What I would say is, I mean, first of all, I mentioned responsive capabilities and what does that mean in more time than we have right now. But we have roughly 70% of our fabric platform and a trigger process in place that enables us to read demand and respond into it. And so those are capabilities that we are going to continue to advance. Sonya just mentioned a fun fact. So obviously with uncertainty around holiday, we were postponing as much as we could our commitments around our purchase with the postponement of the and the platform fabric.
And then once we got the read, moved very, very quickly. And so leveraging our factory partners and our logistics partners. So we have positioned at every node the ability to be able to pivot to various modes of transportation based upon demand need, and we pivoted to air, because it was the right decision to make given the uncertainty. And we have just fun fact over 10747s of product for the holiday season that we have been able to quickly respond back into to meet demand. So just a couple of examples of our responsiveness and the agility that we've built.
Great. Thank you, everyone, for your time today, learning about our Power Plan 2023. For any further questions, please follow-up with our Investor Relations team. And as a reminder, a replay of the webcast as well as our presentation will be available on the Investors section of gapinc.com. We look forward to speaking with you again following our Q3 earnings release in late November.
We hope you have a great day.