By Laurie Burkitt and Suzanne Kapner
SHANGHAI--U.S. clothing chain Gap Inc. is looking to China, one
of the world's fastest-growing and competitive apparel markets, to
offset sluggish sales back home.
The San Francisco company, which operates Gap, Old Navy, Banana
Republic and Athleta, plans to open 25 Gap stores and up to 10 Gap
outlet stores in China in 2014, said Jeff Kirwan, president of
Gap's China division, in an interview Saturday. Currently, the
company has 80 stores there.
"The opportunity in China is undeniable," said Mr. Kirwan,
adding that Gap is seeing strong growth in its China-based retail
outlets and online.
Gap is also rolling out its lower-end Old Navy brand to cater to
China's cost-conscious consumers, with plans to open five this
year, Mr. Kirwan said. It launched its first, a 22,000-square-foot
store, in Shanghai on Saturday.
Demand for clothing in China is high, with sales of apparel in
urban areas projected to reach $156 billion by 2017, up 58% from
2013, according to estimates from the Boston Consulting Group.
Gap has focused on international expansion to counter slowing
growth at home. U.S. sales at its namesake brand fell about 7% in
the fiscal fourth quarter to $1.05 billion, compared with $1.13
billion a year earlier. U.S. sales of Old Navy and Banana Republic
were down in the period as well.
The company had net income of $307 million in the quarter ended
Feb. 1, compared with $351 million a year earlier. Net sales fell
to $4.58 billion from $4.73 billion a year earlier.
Some industry experts warn that Gap could run into the same
problems overseas. "The problem with Gap is that it doesn't have a
strong identity," said James Button, a senior manager at
Shanghai-based consulting firm SmithStreet. He said that in China,
many consumers prefer fast-fashion players such as Spanish company
Inditex SA's Zara brand and Swedish fashion company Hennes &
Mauritz AB.
Mr. Button said Old Navy will face a large number of competitors
including Shanghai Metersbonwe Fashion & Accessories Co. and
Glorious Sun Enterprises Ltd., which operates roughly 3,000
Jeanswest casual-wear outlets in China. Gap could fetch higher
margins if it expanded its higher-end Banana Republic brand in
China, Mr. Button said.
Mr. Kirwan said Gap is planning to bring Banana Republic to
China, but it opted to open Old Navy first, looking for the
"biggest payback" and easiest route for it. "When we sized the
market and looked at the addressable customer, the largest impact
and opportunity we had was to bring in Old Navy," said Mr. Kirwan.
He said the brand caters to families and that China is a
family-driven shopping market.
With many companies jumping into the premium segment of the
apparel sector, there is money to be made with lower-cost brands,
said Sherri He, a partner at consulting firm A.T. Kearney. "The low
end has a lot of competition and it's not in the fast growth stage,
but the size is very, very big," she said.
Companies such as Fast Retailing Co., the Japanese operator of
clothing chain Uniqlo, and U.S. chain Forever 21 Inc. have been
eager to expand in China to fetch consumers who are looking to buy
casual wear, clothes for the office and duds for nights on the
town. Forever 21, known for its fast-fashion trends, is planning to
add five stores this year, adding to its three stores in mainland
China and one in Hong Kong.
Gap is also expanding in Japan, adding 20 new stores this year
to its current 38, Mr. Kirwan said.
Write to Laurie Burkitt at laurie.burkitt@wsj.com and Suzanne
Kapner at Suzanne.Kapner@wsj.com
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