Gap plans four China stores this year

NEW YORK Wed Jun 23, 2010 6:43pm EDT

John Ermatinger, president of Gap Asia Pacific, speaks at the 2010 Reuters Consumer and Retail Summit in New York, June 23, 2010. REUTERS/Brendan McDermid

John Ermatinger, president of Gap Asia Pacific, speaks at the 2010 Reuters Consumer and Retail Summit in New York, June 23, 2010.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Gap Inc (GPS.N) will open its first four owned and operated China stores in Beijing and Shanghai later this year and simultaneously launch an online shopping site for the key consumer market.

China, as the third largest clothing market in the world, has a growing middle class with an interest in America's casual style.

The new Gap stores will stock apparel for women, men, children and babies, and include the new 1969 jeans line that has proved successful at reminding shoppers of Gap's strength in classic, easy looks like jeans, khakis and T-shirts.

"It will be denim, denim and denim. It's the ubiquitous product that's worn in China by everyone," John Ermatinger, Gap Inc's president of its Asia region, told the Reuters Consumer and Retail Summit in New York. "Our goal is to be the denim destination in China -- hands down."

Gap's plan to enter the China market, first announced last fall, is part of a larger international expansion on the heels of recent stabilization at the company's domestic stores.

Eventually the company will consider bringing Gap to other Chinese cities and the possibility of other brands beyond its namesake chain to the country.

"Our intent is to really get these four stores solidified ... and really learn from that launch what the preferences are of the Chinese consumer," Ermatinger. "You really don't know until you welcome them through the doors."

Ermatinger said Gap next year would announce new store locations in Hong Kong.

Chief Executive Glenn Murphy told investors in October that while European and Japanese brands like H&M (HMb.ST), Zara (ITX.MC) and Uniqlo (9983.T) already operated in China, a significant presence by U.S. apparel brands was missing.

"There's an absence of a big American brand that under one roof will do everything from adult to baby," said Ermatinger, noting that all product will be "Asia-fit" to accommodate a different body type.

Chinese consumers are craving simple, multi-functional garments that will take them from work to evening but still want unique styling details, he said.

The goal is to deliver "aspirational product at accessible pricing," to a target shopper aged 20 to 35 with a deep appreciation for well-known American brands.

LONG RUNWAY

Gap operates about 3,100 stores in the United States, UK, Canada, France, Japan and Ireland. It also has recently expanded its international footprint through franchise deals in other parts of Asia, the Middle East, Europe and Latin America.

After studying the market at length, Gap executives decided to open their own stores, rather than relying on a partnership, Ermatinger said.

"We believe at the end of the day that China has such a long runway that it would be more prudent for us to do it ourselves," he said, adding that partnerships with local operators could potentially be considered vis-a- vis Gap's other brands or for other regions within China.

Over the past two years, the owner of the Gap, Old Navy and Banana Republic brands has been boosting profit margins by cost-cutting. A recent turnaround in sales has been welcomed by Wall Street.

In May, the company posted a 1 percent gain in overall same-store sales -- a common measure of retail strength -- versus a 6 percent decline in May 2009.

Gap said it would open its China headquarters in Shanghai, led by Redmond Yeung as president and Lorenzo Moretti as managing director.

The two executives, who will report to Ermatinger, have previous experience with top retailers such as Best Buy(BBY.N), Tesco (TSCO.L) and Marks & Spencer (MKS.L).

Gap will partner with e-commerce company Shanghai Yi Shang Network Information Co. Ltd. on the website.

Gap shares closed up 3 cents at $20.47 on the New York Stock Exchange. It hit a 52-week high of $26.34 in April.

(Reporting by Alexandria Sage; Editing by Michele Gershberg, Leslie Gevirtz and Carol Bishopric)

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