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 Brand awareness is one of the uphill battles Gap faces in China as
the U.S. firm looks to increase its stake in the world's second
largest clothing market, where it lags rivals H&M <HMb.ST>, Japan's
Uniqlo, owned by Fast Retailing Co Ltd <9983.T> and Inditex SA's <ITX.MC>
Zara.
Gap, which launched its first Old Navy store in Shanghai on
Saturday, plans to open five stores of the value-end chain this year
as well as adding 30 Gap stores to its current 81, Gap's Greater
China president Jeff Kirwan told Reuters on Saturday.
"Outside North America this is the largest opportunity for us,
acknowledged by all the senior leadership in the company. This is
the number one growth vehicle for the company," Kirwan said in an
interview at Gap's Shanghai office.
A bastion of the clothing sector in the United States, where it has
around four percent of the apparel market, Gap entered China behind
its rivals, setting up its first own-brand shop in 2010. It now has
around 80 stores, around half the number of rivals H&M, Inditex-owned
Zara and Uniqlo.
"I hadn't heard of Old Navy before. I was just passing by and saw
something going on. It was my sister who told me it was part of
Gap," said Ji Yin, 30, queuing for the flagship store's launch in
Shanghai's up-market Jing'an district.
Gap's China team plans to invest in promoting brand awareness with
local shoppers, especially online, to play into the rapid growth of
China's e-commerce sector, a segment of the retail market that is
unusually large.
"We're putting a lot of attention into e-commerce for both brands,"
Kirwan said.
They might need it. Gap's account on popular Sina Weibo, China's
equivalent of Twitter, has just 86,000 followers, a figure dwarfed
by Uniqlo's 3.6 million Weibo fans. Old Navy, which joined Weibo in
January, has just 3,700 followers so far.
"If you can get a social media buzz in China it goes fast and wide,
because Chinese people are very well connected. Without one, it's
difficult for a consumer brand in China. It's almost a must I would
say," said Nick Debnam, Asia Pacific chairman for consumer markets
at KPMG.
FINDING A NICHE
One hurdle facing Gap is that some consumers say it lacks the trendy
image of Zara but prices itself above affordable rivals such as
Uniqlo, a specialist in basic clothing items. Gap says with its Old
Navy brand it will try to leverage an energetic and enthusiastic
"American voice".
"Gap's position in China is not very clear. It's outpaced by Zara on
a fashion level and out-competed by Uniqlo on the concept of
high-value basics," said Cherry Dai, Shanghai-based project manager
at consulting firm SmithStreetSolutions.
Price is also an factor for China's cost-conscious consumers. A pair
of Gap women's jeans costs up to 599 yuan ($97.48), higher than
around 299 yuan ($48.79) in Uniqlo and 399 yuan ($65.11) in H&M,
according to a Reuters' analysis.
Kirwan said the key rivals for Old Navy — where a similar item cost
up to 299 yuan — would be Uniqlo and H&M.
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Uniqlo has 260 mainland China stores, and has Uniqlo plans to add up
to 100 stores each year. Tiger Pan Ning, Uniqlo's Greater China CEO,
told a press conference in Hong Kong on Friday that Uniqlo's wide
store footprint, speed of openings, and its range of simple,
everyday basics gave it a "competitive edge".
In a market where low cost can be equated with low quality, however,
price is not the only factor determining success.
"The most important criteria is of course the clothes being
good-looking. The price should also not be too low," said Wang
Manxue, 21, a female student in Shanghai, who shops at France's Etam
Developpement SCA <TAM.PA> and boutique Chinese brands.
GROWTH PROSPECTS
A shift towards mass market retail could work in Gap and Old Navy's
favor. Lower-priced fast-fashion brands such as H&M and Zara beat
store expansion goals last year, while two-thirds of high-end
retailers missed their target.
Other mid-range brands have also struggled in China. Esprit Holdings
Ltd <0330.HK> shut 38 directly managed stores last year as it
grappled with high rents, stalling sales and wholesalers with too
much inventory.
"I think Old Navy has a better shot (than Gap) of pushing deeper
into China," said Kirwan, referring to its potential in lower tier
cities, increasingly the engines for China growth.
"We'll read the customer and if the customer is happy with the brand
then we'll get very aggressive and move quickly."
Though launching a new brand from a standing start will require
substantial capital spending, there is significant potential for
growth in China despite fierce competition from both international
and domestic rivals.
 "The China market is just huge at that price level," said Vincent
Liu, Hong Kong-based consumer sector partner at consultancy firm
Boston Consulting Group. "Just getting one or two percent could mean
a couple of thousand stores."
($1 = 6.1284 Chinese yuan)
(Editing by Miral Fahmy and Simon
Cameron Moore)
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