Gap Inc., a clothing company well-known to the U.S. middle class, is expanding across China. It is a thriving market for retailers, but the competition is increasingly fierce. Knowing how to shift business strategy to adapt to local demands is key.
The San Francisco company, which operates Gap, Old Navy, Banana Republic and Athleta brands, plans to open 25 Gap stores and up to 10 Gap outlet stores in China in 2014, adding to its current 80 stores in the country. China is a strategic market for Gap, which is facing headwinds in the U.S.
In China, apparel sales in urban areas are expected to reach $156 billion by 2017, up 58% from 2013, according to Boston Consulting Group estimates.
Jeff Kirwan, president of Gap’s China division, is tasked with the expansion and has recentlylaunched Old Navy, the company’s lower-cost, family-targeted brand, in Shanghai.
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Mr. Kirwan, who has been the company’s China head for three years, met with The Wall Street Journal in Shanghai to talk about Gap’s strategy and explain why he believes there is room for brand expansion—with physical stores and online.
Edited Excerpts:
WSJ: Many analysts believe that there are lower margins and stiffer competition for Old Navy and that bringing the brand in is a riskier bet than expansion of other brands.
Mr. Kirwan: We run a really tight model with Old Navy and I think the idea that margins are compressed might be false, but more importantly I would say that we have a competitive advantage with Old Navy. We have a broad assortment and serve every stage of the customer’s life—from infant through to adult. We have a unique brand voice that is very different from any local competitor or international player specifically in China.
WSJ: Competition is stiff here. How will you battle strong competitors like H&M HM-B.SK -0.40% and Uniqlo and take on domestic rivals?
Mr. Kirwan: When we were deciding to bring Old Navy into China, we looked at our brands, Old Navy and Banana Republic, and we really thought the decision was which was going to be the easiest and which would be the biggest payback and [what presented] the biggest opportunity. When we sized the market and looked at the addressable customer we could serve, the largest impact we had was an opportunity for Old Navy. If you take a look at the number of cities with over 1 million people, over five million people, the emerging middle class and urbanization, we think we could push Old Navy broader, bigger and faster than we could with Banana Republic. That was the decision process, but we think they will both play an important role in China ultimately.
We publicly stated that we want to bring Banana Republic into China, we just need to pick the right time and the right location and we haven’t made a decision internally as to when that’s going to happen.
WSJ: You’ve mentioned that you plan to expand Gap’s presence online in China. What sales results are you seeing now that are driving that desire to expand e-commerce?
Date: April 6, 2014