GAP Inc Enter China
“If you look at China there are 110 cities with a population of one million or more, and all of them have room for a GAP store there somewhere,” Redmond Yeung, president of GAP Inc China operations INC’s
In Nov 2010, the American apparel retail giant GAP settled down its first site site Shanghai flagship on Nanjing Road anghai Road, sitting directly in China’s most modern city’s most famous shopping street. With the desire to get a piece of the grand attractive cake, GAP bravely jumped into the hot fast fast-fashion pot in China. This move finally put all the first three biggest apparel retailers of the world in the Chinese market, of which the other two refer to the Spanish Index(ZARA) group and Swedish H&M, who have entered China in 2006 and 2007 respectively.
History In Aug.1969, failing to find a fitted pair of jeans, Don Fisher and Doris opened the first Gap store on Ocean Avenue in San Francisco whose merchandise consisted of Levi’s and LPs. The next year they opened the second Gap store and established its first corporate headquarters in Burlingame, California with just four employees. Today Gap Inc. rst has been the largest apparel retailer in USA with
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Fast-fashion market Fast fashion is a product of the contemporary world. It refers to the designs move from fashion show to store in the fastest time to capture current trends in the market. This allows the mainstream consumer to take advantage of current clothing styles at a lower price. It requires the enterprises to have the highest sensitivity and quickest response to the newest trends and produce at decent qualities coupled with reasonable prices. Seeing the sluggish walk in their home market like other industries the global apparel retailers turned to the Asian markets, especially the Chinese fashion market which is rega regarded as a key growth driver.
Since the late 1990s, the world has been shown a rapid-developing China in all aspects, bringing increasing wealth and leading to a more opening developing increasing society. The last few years saw a fast fast-fashion explosion across China’s major cities. People who have more disposable income and more comfortable and sociable life began to pay atten attention to clothing. “One style fits all” cannot meet need any more.
A larger portion of the cash is spent on clothing. (See Exhibit 1 for details.) According to a report from Boston Consulting Group, over the past decade, the fashion industry in china has tripled in market over size, reaching nearly RMB 400 billion by the end of 2010 Chinese consumers are expected to continue to grow in 2010, strength and sophistication, tripling their annual expenditures on fashion by 2020 to 1.3 trillion RMB, or $200.7 stication, billion at current exchange. And on-line retailing(148 million on line shoppers&461.0 billion RMB in2010)with line on-line apparel the most popular categories.
Exhibit 1: Per Capita annual expenditure on clothing of urban and rural households, 2006-2010
For the fast fashion brands, the target group is mainly the young generation of 20s and 30s, who constitute the existing and potential middle class that is marked white collar, status-obsessed, affluent and sensitive to new things. They are more acceptable or inclined to foreign products, like to go ahead in the forefront of the era, but for most people the luxury or designer brands like LV are again too far, so fast fashion resolves this problem for them. Unlike their parent generation, as being called “post-1980” this young group, without experiencing much struggling life and with relatively good job, favors to show their individuality and personality through clothing which does not only mean “clothes” anymore but more deeper level things, and in more the “post-1990” generation amplified this side of behavior. (See Exhibit 2)
Exhibit 2: Annual spending on clothing by age and gender, 2010
Entry mode and strategy Hierarchical modes & adaptive management Unlike Zara who sprang up in Chinese market within short time since 2006 in an “oil stain” expansion strategy, Gap took a few years to make the decision to enter and moved forward very cautiously. The China store is the first new market that Gap has entered directly for more than a decade, rather than through the franchising model, launched in 2007, that it is using in the Middle East, Asia and Eastern Europe.
In this way, the stores are well controlled by the company, fully company-owned and operated. Gap chose shanghai, the most vibrant city in China, as its first destination for the store to set up its reputation, which was later followed by Beijing, the capital of the country. For the regional business there, Gap Inc. hired very experienced managers and directors who have worked in China for several years being familiar with the supply chain and the culture. On the other hand, as part of its multi-channel entry strategy, Gap Inc. simultaneously implemented the online shopping site that allows the consumers the opportunity to shop for Gap products whenever and wherever they want. In 2012, they registered on Taobao, the biggest e-commerce platform in China.
Competitors: international&domestic : Naysayers against Gap mainly think that the American brand is lagging behind European heavyweights Zara and p H&M, which found an eager public when they entered the Mainland China market long before Gap. They have taken the advantage of the good time to seed their goodwill in t consumers’ minds and set up their status which the is even higher than what they are in their home countries. It could be hard for Gap to easily copy the predecessors predecessors’ success. Its main international competitors like HM, ZARA and Uniqlo have already spread their stores across China. (See Exhibit 3)
Exhibit 3: Store of Fast fashion brands in China(including Hongkong) until 2012
In addition, in recent years, before Gap entered the domestic fast fashion brands also came to develop rapidly and , flourished. Due to the advantages in sales channel cost and cultural closeness, they quickl gain a share of the channels, quickly market, like Metersbonwe, Semir, Bosideng, Xtep etc.
Challenges and Opportunities From an optimistic perspective, Gap still could get the share, until now still no one possesse much big part of the possesses market exclusively, there is still the space. Regarding the later entry than ZARA or H&M, the post M, post-1990 generation just enters their 20s who would be the potential future mainstream customer if Gap could grasp their heart, but it’s gonna be a tough and long road. In terms of achieving growth in China, Gap faces the challenge of figuring out exactly how to position itself to a Chinese middle-class consumer who may or may not be familiar with the brand and who also already has a number class of other retailers, both domestic and foreign, with similar price points to choose from.
It’s understandable that Gap adopted the hierarchical mode to enter China in the beginning, by reducing the risk of hat possible “free ride” of the franchisees. But it also true that this mode is really costly with high investment and less it’s flexibility. In China more are lower-tier cities and they have heavy spenders. In this case, franchising might be better er in saving cost and expanding the market in larger scale. In the longer future, other forms of cooperation with the local company could also be in consideration.
Currently, Gap’s stores mainly focus in eastern China, more attention should be attached to the major cities in the middle, south and some in the west, they are relatively less developed comparing to the east, but at the same time this also means great potential, who take the chance who win. Lastly, it needs to figure out the gap to catch up with its competitors. ZARA is known for its legendary 12 days of putting production into the market, H&M 5 days later but then get better price, While Gap needs 90 days which , offers better quality but big disadvantage in fast fashion. Local production could be a consideration to reduce the ers time as well as the cost.