In an effort to penetrate deeper into the $1.4 trillion global apparel retail market, Gap Inc. (GPS) outlined its growth strategies at the Investor Meet held yesterday. As per its expansion plans, the premier international specialty retailer will focus more on broadening its international presence and online business.
As part of its global expansion plans, Gap firstly intends to open more franchise stores of its low-priced brand - Old Navy, at key international locations in fiscal 2013. Last year, the company, which has a global market share of 0.25%, opened its first international Old Navy store in Japan. We believe that the brand possesses huge growth potential as it contributed about two-fifth of the company’s total revenue in fiscal 2012.
Further, this Zacks Rank #3 (Hold) company envisions promising prospects in the Chinese market and expects it to augur well for its successful expansion. Additionally Gap has decided to open company-operated Old Navy and Banana Republic stores in China as it currently operates stores under its namesake brands only.
During fiscal 2012, the company opened 33 stores in China and intends to add approximately 35 new stores in fiscal 2013. With this addition, it will have nearly 85 stores in China the country at fiscal 2013 end. Alongside, Gap is eyeing other emerging economies such as Brazil and India.
Moreover, in order to deal with the changing consumer shopping habits, Gap will continue to enhance its online capabilities and develop the omni-channel platform.
Gap, which competes with Buckle Inc. (BKE), Abercrombie & Fitch Co. (ANF) and American Eagle Outfitters, Inc. (AEO), has been making significant progress with its long-term plans by reducing its dependency on the North American specialty business while increasing its online presence and expanding its international operations. Moreover, Gap has targeted to generate 30% of its total sales from overseas operations and online business by 2013 versus 27% in fiscal 2012.
Further, for expanding its North American operations, Gap will increase focus on its smaller brands, the newly acquired luxury boutique INTERMIX, athletic gear Athleta and online site PiperLime. We believe that Gap’s international presence and infrastructure would help these brands evolve as globally recognized trade names.
Gap, which has transitioned through a phase of declining comparable-store sales and reduced profitability, is now reverting to the growth track riding on its turnaround strategies as evident from its solid comps and sales performance in fiscal 2012.
We believe that Gap’s long-term strategic moves, along with its disciplined cost management measures have not only provided it with financial flexibility, but helped reduce its operating expenses. Moreover, Gap’s globally-recognized brands complement one another, enabling the company to leverage its position in the sector.
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