By  on June 20, 2012

Gap Inc. continues to reduce the square footage of its Gap and Banana Republic specialty stores in North America but sees opportunity to roll out outlets.

“A month ago, we opened a store on Fulton Street in New York. There isn’t a Gap for five miles anywhere near there,” said chairman and chief executive Glenn Murphy. “It’s not a market where Gap specialty, given its value proposition, would be successful. You drop in a Gap, in this case a factory store, and the sales per [square] foot are phenomenal. It’s going to be one of our top stores inside of our outlet business and there are lots of opportunities in inner city markets like Los Angeles, Chicago and New York.”

Murphy outlined growth opportunities at the Jefferies Global Consumer Conference on Tuesday. Among his key points: franchising, opening outlets and online growth are “good for customers, the best return on capital and the best return on sales we have, bar none.”

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In Europe, Murphy said it’s “wait and see” before more growth happens. We’re just holding where we are right now in our specialty business. It’s a shame because we really got off to a very strong start in Italy. And six months after our strong start in Rome and Milan, things started getting tough in Europe.”

In Japan, “We’re almost at near capacity on Gap, not quite. One hundred fifty stores in the third-biggest apparel market in the world, so there are some Gap opportunities, including for more Banana Republic stores.”

Old Navy’s first store in Japan opens July 11, Murphy added, bringing the value chain out of North America for the first time. “I was there about three months ago and looked at the work that’s going on in our store, our real estate, the excitement and the marketing that’s starting to develop for brand awareness for Old Navy. It’s such a huge opportunity for us.”

In China, Gap is opening 30 stores this year. “I’m going there next month,” Murphy said. “I get there about five to six times a year. There’s been a very big reception for Gap, which as an American brand fits nicely with the golden generation of customers in China. We feel very good about the beginning of our China strategy. Banana Republic is a consideration down the road.”

With Old Navy, “Let’s see how we do in Japan in 2012 and 2013 before we consider China, but it seems like a natural market for that brand,” Murphy said.

Murphy also said that Gap Inc. plans to step up collaborations with designers and other third parties. “So you look at our brands, you got the Diane von Furstenberg association with Gap, which we’d like to think can continue into the future.” He also cited the “Mad Men” Round Two collaboration at Banana Republic; Old Navy’s association with the NFL, and the Trina Turk collection at Banana Republic, launched about two weeks ago.

“This is not an H&M play, this is one that makes sense for Gap, for Banana Republic and for Old Navy,” he said.

He also said the company is moving “away from so much broadcasting” more into “person casting,” explaining that “the unique tools we’ve developed allow us to actually speak to people about what they’re looking at on our Web site and track them and actually send them messages to come back inside of our business on the categories that matter to them. So broadcasting has a role inside the marketing budget of Gap Inc., but more and more, whether it’s person casting or personalization, it’s an area for a lot of development.”

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