Like many U.S. retailers, Gap Inc. (NYSE:GPS) recognizes China as a retail gold mine, and the company is now working on increasing its presence there, especially with its Old Navy brand. Reuters reports that Gap launched its first Old Navy store in Shanghai on Saturday, and the company plans to open five stores of the chain this year as it also adds 30 Gap stores to its current 81 in the country.
Gap’s Greater China president, Jeff Kirwan, said in an interview with the news service at Gap’s Shanghai office on Saturday: “Outside North America this is the largest opportunity for us, acknowledged by all the senior leadership in the company. This is the number one growth vehicle for the company.” Gap executives recognize that they will be forging an uphill battle in China, as the retailer will take on many competitors and have to develop its reputation. Reuters reports that when Gap asked its consumers whether they had ever heard of Old Navy, only a few had.
China is the world’s second largest clothing market, and there, H&M, Japan’s Uniqlo (owned by Fast Retailing Co. Ltd.), and Inditex SA’s Zara rule the roost. Chinese consumers flock to these companies’ stores to satisfy their retail needs, but that didn’t keep Gap from first setting up shop there in 2010, hoping to steal some new customers. According to Reuters, Gap has around around half the number of stores of rivals H&M, Zara, and Uniqlo there, but it is interested in growing its Old Navy brand in the country because it believes it can compete better in price.
China is known for its price-conscious consumers. A Reuters analysis highlights that while a typical pair of Gap women’s jeans costs up to 599 yuan in the country, Uniqlo sells them for around 299 yuan and H&M bills them at 99 yuan. Value-end chain Old Navy could market a price tag of around 299 yuan, putting it on a level playing field with rivals.
One way that Gap plans on increasing its brand awareness, according to Reuters, is via social media and e-commerce. Chinese consumers are very well connected, so having a significant Internet presence in China is important, especially if Gap really wants to succeed in leveraging its Old Navy brand as one with an energetic and enthusiastic “American voice.”
The problem is that as of now, Gap’s presence on the Chinese e-commerce scene is abysmal compared to its rivals. Reuters reports that Gap’s account on popular Sina Weibo, China’s equivalent of Twitter, has just 86,000 followers, while Uniqlo has 3.6 million Weibo fans. Old Navy joined Weibo in January and now has just 3,700 followers so far.
Nonetheless, Gap’s public relations team is up to the challenge, and there is certainly room for rapid growth in China’s e-commerce sector, a segment of the retail market there that is unusually large. Gap will push its affordable Old Navy prices and a reputation as a new up-and-coming American retail brand. Kirwan maintained to Reuters: ”I think Old Navy has a better shot (than Gap) of pushing deeper into China. We’ll read the customer and if the customer is happy with the brand then we’ll get very aggressive and move quickly.”
With rivals like H&M, Uniqlo, and Zara, it’s clear that Old Navy’s clothes will not only have to look good — they’ll also have to be priced appropriately. Gap executives appear to be up for the challenge.