China: Potential High-Growth for The Gap - Analyst Blog

The Gap, Inc. GPS evidently views China as a country with high growth potential, as reflected in its strategic moves over the past few years. In an effort to tap the Chinese market, the company has been aggressively increasing its store counts in the country along with enhancing e-commerce capabilities as well as tailoring its brands to suit consumer aspirations.

Beginning with four stores, two each in Beijing and Shanghai in 2010, the premier specialty retailer has increased its store counts to 81 at the end of fiscal 2013 across the country. The company now has plans to open 30 more stores in the country by the end of 2014. Moreover, in 2011, Gap became the first international retailer to launch an e-Commerce operation in China, along with opening stores.

Since its venture into China in late 2010, the company has made extensive analysis of consumers' buying habits and found that the country's people preferred to go shopping in groups. Hence, Gap has been increasing its store count in China to attract a higher footfall.

We believe that capturing the Chinese market is both a strategic and ambitious move by the company, given the rising middle class and expanding retail sector. The fading brick-and-mortar retailing concept in the United States is another major reason for retailers to expand footprint overseas.

Reporting on The Boston Consulting Group projections, The Wall Street revealed that apparel sales in the urban areas of China will expectedly reach $156 billion by 2017, registering 58% rise from 2013. This high growth potential has attracted many U.S.-based retailers including Ralph Lauren Corp. RL, V.F. Corp. VFC and Tiffany & Co. TIF that have led to an overcrowding of the Chinese market. In such a scenario, we believe that if Gap intends to remain on top, it has to make its products and services distinct and unique.

This Zacks Rank #3 (Hold) company expects the Chinese market to be promising and drive its growth going forward. We believe that Gap's initiatives are furthering its idea of establishing a network of multi-channel consumer markets in China for its various brands. This involves opening a considerable number of stores in the coming years.