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Growing in the East: Saks, Gap Sign Deals To Open Asian Stores

Saks is near a deal to open a Shanghai store, and Gap Inc. said it will open franchise units for Gap and Banana Republic in Singapore and Malaysia.

NEW YORK — Two top American retailers are expanding in Asia.

Saks Fifth Avenue is close to signing a deal to open a licensed store in Shanghai, while Gap Inc. said its first franchise agreement, which will see the opening of up to 30 Gap and Banana Republic stores by 2010 in Singapore and Malaysia, has been signed.

Gap has selected FJ Benjamin, a Southeast Asia distributor and retailer, as its franchisee. The first Gap franchise will open this fall, while the first franchised Banana Republic is seen opening sometime in 2007. Singapore-listed FJ Benjamin Holdings Ltd. is a retailer and distributor of brands in Asia including Valentino, Guess, La Senza and Raoul, and luxury timepieces such as Girard-Perregaux and Jean Richard. The $16.3 billion Gap Inc. operates about 3,000 stores.

Also, Gap is expected to soon announce a new 11,000-square-foot showroom in Manhattan where franchisees can select clothing. The company did not disclose specific locations of Gap franchised stores or the showroom. The franchising strategy is headed by Joshua Schulman, senior vice president for strategic alliances.

In addition to Asia, “we are definitely looking at the Middle East and other areas” for further franchising, said Gap Inc. spokeswoman Kris Marubio.

Gap already operates stores overseas, but they are company-owned. In Japan, there are about 90 Gaps and five Banana Republics. There are also 130 Gaps in the U.K. and 30 in France, and in Canada, there are 60 Old Navy, 25 Banana Republic and 100 Gap stores.

Asked if the recent soft performance of Gap could deter potential franchisees, the spokeswoman responded: “Absolutely not.” She added that there has been strong response from potential franchisees.

Stephen I. Sadove, chief executive officer of Saks Inc. and the Saks Fifth Avenue division, would not confirm whether Saks signed a deal for a Shanghai location. However, David Pilnick, Saks’ vice president of international development, is believed to be in China working on a deal with a potential licensee. It would be the first Saks store in Asia, and could open in two to three years.

While not commenting on any specific sites, Sadove did emphasize that, for Saks, “there is substantial opportunity in Shanghai, and over time, other Chinese markets. The Saks brand is recognized by Chinese travelers who come to the U.S. If you go to the West Coast, in our stores in gateway cities, you see many Chinese. Chinese tourists are traveling more and more.”

This story first appeared in the January 19, 2006 issue of WWD.  Subscribe Today.

In 2003, Saks announced a strategy to build a network of licensing arrangements with overseas companies. So far, there are only two foreign units operating, in Dubai, United Arab Emirates, and Riyadh, Saudi Arabia. Saks said at the time that Japan was being considered, though the planning has since shifted to China.

Sadove said the company is confident that in China it can secure the brands and designers it needs to present the right image. While acknowledging Saks’ strong interest in expanding in China, Sadove stressed the company’s core focus is still to boost the operating performance of its U.S. stores. Saks recently has been grappling with excessive markdowns and insufficient operating profits.

Under its licensing deals, Saks personnel consult on the design, marketing and merchandising of the overseas store, but it is operated and owned by the licensee. “We will be providing support and will be very involved in helping [the licensee] in the merchandising and making sure it stays true to the Saks brand,” Sadove said.

Saks collects fees from the licensees. The arrangement limits the risks of overseas expansion, but there’s also less profit potential from the offshore units.

Roosevelt China Investments Corp., an investment firm, is expected to strike a deal with Saks on the site and line up a retailer to operate a Saks unit. According to a source close to Saks, “there is a good probability that this will happen.”

Roosevelt China already has signed a deal with Shanghai New Huangpu Group, developer of the city’s Waitanyuan area, to open a high-end retailer as part of a complex being developed, according to sources, confirming a wire service report. The report indicated that Saks is in talks with Shanghai’s Huangpu District government to open the store near the intersection of Beijing Road E. and No. 1 Zhongshan Road E. in the Bund, which is Shanghai’s premiere designer retail strip. One of the few other major high-end department stores operating in the city is Lane Crawford of Hong Kong.

In addition to China, the Middle East and South America also are considered possible areas for Saks to put up more licensed stores.

Aside from two licensed Barneys New York stores in Japan, Saks is the first upscale U.S. department store to embark on an international expansion. Neiman Marcus and Bloomingdale’s currently have no plans for international expansion.

Under its agreement with Gap Inc., FJ Benjamin holds exclusive rights to operate Gap- and Banana Republic-branded apparel and accessories stores in Singapore and exclusive rights to distribute Gap and Banana Republic products in Malaysia, which the company expects to convert to a franchise agreement after regulatory approval.

“We are bringing Gap and Banana Republic to more customers throughout the world,” Andrew Rolfe, president of Gap Inc. International, said in a statement. “Singapore is a shopping destination for Southeast Asia and Malaysia is one of the fastest-growing markets with shopping malls. FJ Benjamin has significant expertise in this market and we’re delighted to enter this collaboration with them to bring Gap’s fresh, casual, American style and Banana Republic’s affordable luxury to fashion-savvy customers.”

Frank Benjamin, chairman and ceo of FJ Benjamin, said in a statement, “We are excited to be working with Gap Inc. Gap and Banana Republic are global fashion icons and we intend to aggressively launch and grow these brands in Singapore and Malaysia.”