American fashion retailer Gap Inc has renewed interest for a possible foray into India’s specialty clothing market with a business development team from the $14-billion giant visiting several domestic corporates with presence in lifestyle retailing, people who are directly familiar with the development said.
The development comes soon after its global rival Spain’s Inditex – which dislodged Gap Inc as the largest international apparel retailer – saw robust opening for its flagship Zara stores in Mumbai and New Delhi. Zara’s large format stores in two of the country’s most popular shopping destinations, Palladium Mall in Mumbai and Select City Walk Mall in Delhi, opened with aggressive pricing strategy attracting significant customer interest.
Gap team’s visit last month follows its recent announcement to enter China with initial stores in Shanghai and Beijing expected later this year. Gap Inc – which operates stores under the same name, Banana Republic and Old Navy – will be tracking international growth markets more aggressively given the sluggish consumer sentiments in the core US market.
One retail industry source said, Gap was still in exploratory talks and has had recent meetings with multiple retailers and corporates with interests in retail and real estate including Reliance Retail, Arvind Ltd, Aditya Birla’s Madura Garments and K Raheja Corp that runs department store chain Shopper’s Stop among others. “But these are early days to suggest that they are talking to a particular entity,” cautioned this source who did not wish to be quoted as talks were private. “Gap puts a lot of emphasis on the quality of management when they decide to move into a new market, and this one will be fairly long process,” added a second industry source.
An email sent to Gap last week remains unanswered at the time of posting this report.
Gap is predominantly a mall centered apparel retailer in the US, but it could be tweaking the real estate strategy in newer markets like China and India, where it would go in for high-street locations. Indian regulations does not allow Gap to own more than 51% stake in mono-brand retail stores, with the other option being hitting the market with franchise stores initially. But Gap would prefer an equity arrangement given the market potential, sources said.
A possible entry will involve only the namesake Gap stores, which is spearheading the fashion behemoth’s global expansion. Gap Inc operates over 3,400 stores, mostly in the Americas, with 300-odd stores in the overseas markets. The San Francisco firm also has around 150 franchise stores where it controls the merchandise and the look of the store but does not manage the retail operations.
In 2007, The Economic Times reported that Gap was holding fairly serious discussions with Reliance Retail for India entry. However, the talks petered off with the onset of the economic recession, which seriously crippled Gap Inc and its expansion plans. Gap is likely to be wooed by several Indian retailers as it starts pursuing the local market opportunity once again.
Inditex’s Zara launched in India through a joint venture with Trent Ltd, which is a part of the diversified Tata Group. The Zara stores are sporting probably the sharpest price tags anywhere in their international operations, as they seek scale in a market that has not seen many international fashion brands flourish. “Zara prices in India are indexed almost on par with its home market Spain. Zara’s international operations sport higher prices as merchandise is shipped from Spain. In this case, they seem to be taking a conscious hit as the aggressive pricing absorbs the import tariffs that are at 40%,” a chief executive at the Indian unit of a global fashion retailer said.
In India, this pitches Zara on par with mid-premium brand like Benetton, which has resorted to heavy local sourcing of merchandise.
But Gap might not be ready to peg itself so aggressively in India, as it would not be in a position, like Inditex, to absorb costs on its balance sheet. Further, as industry sources argue, it is still early days for Zara in India. The real size of Indian market for global fashion retailers is still in question. Benetton and Levi’s, the two global brands that have gone truly mainstream, are still below $200 million operations in India.
There have been past instances of global designer brands (like Esprit, Tommy Hilfiger, and more recently, Diesel) making a good debut as there is always a pent up demand. But the challenge lies in sustaining the momentum as they expand beyond the top metros. That’s probably why Gap’s passage to India will be a long drawn affair in contrast to relatively quicker decision making on China.