NEW YORK — Gap Inc. sees the future of Banana Republic in the Land of the Rising Sun.
Amid somewhat disappointing news of flat third-quarter earnings, Gap said Thursday it will open three Banana Republic stores in Japan next year.
Combined with the fast-growing Asian apparel market, where consumers are hungry for higher-end goods, as well as Banana Republic’s recent relative success in the U.S., the division’s foray into the Far East could be a good thing for Gap, whose international segment sales never really rebounded along with the company’s wider turnaround.
“We’re often asked, when is Banana Republic coming to Japan?” said Paul Pressler, president and chief executive officer of Gap, in a Thursday statement. “We’re pleased to bring Banana Republic to Tokyo, making Japan the brand’s first market outside of North America. Expanding our brand portfolio in Japan builds on almost a decade’s worth of retail experience in that country. Japan will continue to be an important long-term growth market for us.”
Banana’s expansion into Japan isn’t entirely surprising, given that Gap said several times this year it was seeking significant growth opportunities. Additionally, the company already has 75 existing Gap stores in Japan, including a Tokyo flagship, and other stores in cities such as Osaka, Kobe and Nagoya.
Aside from the three new Banana stores, which will open in busy Tokyo shopping areas, the company said additional Banana openings will follow in Japan in the spring. Banana currently has 450 stores in North America and annual sales of $2 billion. Thursday’s news comes on the heals of Gap’s September announcement that it will launch in late 2005 a test of nine to 10 store concepts in the U.S. geared toward women over 35.
Andrew Rolfe, president of Gap’s international division, will oversee the Banana expansion in Japan, while the Japan team will feed off the expertise of Banana brand president Marka Hansen, the company said. In addition, a Japan-based merchandising team will tailor style, color and fit assortments to customer preferences in the more fashion-forward Japanese market.
Meanwhile, in the third quarter, Gap’s net earnings came in as Wall Street expected at $265 million, or 28 cents a diluted share, which included a loss on early retirement of debt. That compared with a profit of $263 million, or 28 cents, last year.
Gap’s total revenues in the third quarter increased 1.3 percent to $4 billion from $3.9 billion last year. By division, sales at Gap stores were flat at $1.3 billion, Banana sales rose 5.1 percent to $538 million and sales at Old Navy were up 6.3 percent at $1.7 billion. Same-store sales were up 2 percent at Gap — down 10 percent internationally — up 3 percent at Banana and down 1 percent at Old Navy.
“Business softened early in the quarter as traffic slowed and we faced an increased promotional environment,” Pressler said on a subsequent conference call. He also cited mixed consumer confidence impacted by high gas prices and the presidential election.
Pressler, who called the company’s drop in sales this summer “a few bumps in the road,” has otherwise been widely credited with redirecting Gap’s businesses and getting closer to the needs of the company’s consumers amid an operational turnaround that took hold in 2002. Banana Republic, for example, has taken a keener focus on bringing more fashion to its product lineup.
Yet international sales at Gap stores have been lagging the turnaround. In the third quarter, sales dropped 7.6 percent to $440 million.
Outside of Gap, Banana and Old Navy stores in Canada, Gap stores are the company’s only brand that has been taken fully international. The company has a total of 350 stores internationally as of Oct. 30, of which 240 stores are in the U.K., Japan and France alone. International sales make up about 11 percent of total sales, according to Wells Fargo analyst Mark Montagna.