San Francisco, California-based Gap Inc. (GPS), intends to further expand its global presence by opening its first ever stores in Vietnam and Guam through its franchise channel.
The company believes that both countries have tremendous growth opportunity as Vietnam’s economy is growing rapidly and Guam has a well established tourism industry. The stores will include a wide selection of apparels and accessories for men and women under its Gap, GapKids and babyGap and Banana Republic brands.
Gap in Vietnam
Gap has made a franchise agreement with one of the largest conglomerates in Vietnam, Imex Pan Pacific (IPP), to open its first two Gap stores in Vietnam’s largest city, Ho Chi Minh City in October 2011, followed by other locations in Hanoi in 2012. The company intends to open its first Banana Republic store in the latter part of 2012.
The country’s demography also supports the company’s expansion plan as 90% of its 86 million people are under the age of 65. In addition, rapid growth of a middle class consumer base coupled with strong demand for international brands are also expected to boost its growth.
Gap in Guam
Gap will open its first two Gap stores in the country under its existing franchise agreement with Casual Clothing Specialist Inc. (CCSI) in January 2012. CCSI is a leading retail and commercial firm in the Philippines, managing the company’s Gap and Banana Republic franchise. Guam’s economy is mostly supported by tourism as it is very near to Japan, Korea, China, Hong Kong, the Philippines and Australia, which provides a congenial environment to open retail stores.
Gap wants to increase its market share in the $1.4 trillion global apparel market and hence is focusing on enhancing its franchise store base counts. The company has increased its franchise store count to about 200 across 26 countries over the last 5 years. Moreover, with today’s announcement, the company’s presence will expand in 32 countries. Further, Gap wants to increase its franchise store base counts to about 400 by 2014.
Further, in a drive to boost international operations, Gap consolidated its foreign business under one umbrella, and operates from London. Lackluster sales in North America has compelled the company to explore business on other shores. In order to counter the domestic market saturation, Gap is aiming to generate 30% of total sales from its overseas operations and online business by 2013.
Gap which competes with national and local department stores and discount stores, such as American Eagle Outfitters Inc. (AEO) and The TJX Companies Inc. (TJX), currently maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Neutral.
