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Gap China Remaining Optimistic Despite Naysayers

Since opening its first store 16 months ago, the retailer has added 14 more in the Greater China area and intends to have 45 by the end of 2012.

Redmond Yeung

SHANGHAI — Amid rumors of a slow start for Gap Inc. in the China market, Redmond Yeung, president of the retailer’s China operations, said all is going according to plan for the American brand as the company seeks to make its mark in the fast-growing country.

Sitting down with WWD in a boutique hotel neighboring Gap China’s Shanghai flagship on Nanjing Road — the city’s most famous shopping street — Yeung painted a picture of gung-ho expansion in the world’s biggest potential retail market. Since opening its first store 16 months ago, Gap has added 14 more in the Greater China area and intends to have 45 by the end of 2012.

“So far, we have found Chinese consumers love the brand. We studied the market for a long time before we entered the market and tried our best to find out what people want to wear and where they like to shop,” Yeung said. “Overall in the last 16 months we have learned a lot. We can’t say we know everything, we are still learning from the customer.”

Despite the rate of the brand’s store openings in China — Gap China can already be found in first-tier cities such as Shanghai, Beijing and Hong Kong, as well as second-tier cities, including Tianjin, Hangzhou and Wuhan — this is just the beginning of Gap China’s journey. If the predictions of the brand’s China president are to be believed, the potential for Gap in China is virtually limitless.

“If you look at China there are 110 cities with a population of one million or more, and all of them have room for a Gap store there somewhere,” Yeung said.

Despite the rosy outlook from the company, the word around China’s retail business grapevine is that the American brand is lagging behind European midrange international heavyweights Zara and H&M, which found an eager public when they entered the Mainland China market long before Gap did in 2006 and 2007, respectively.

The Inditex Group, which includes Zara, has more than 250 stores in China, in 42 cities, while Swedish retailer H&M boasts 86 stores on the Chinese mainland, and another 11 in Hong Kong.

“It takes a lot of commitment to succeed in China today. And the competition is quickly growing tougher as there are so many players moving there. It’s already tough today, but it will be a great deal tougher in 10 years,” H&M chief executive officer Karl-Johan Persson told WWD.

While there is hot competition vying for the freshly minted renminbi filling the pockets of China’s nouveau riche, Yeung is adamant that Gap chose the right time to enter the market here. He claimed the brand’s years of research prior to opening a store in China meant it was better prepared for success once it did finally arrive.

“I don’t think we came into the market late because if you look at the golden age of the twenty- and thirtysomethings in China, that population is growing so fast and that is the population we are aiming to reach. If we had come in earlier, we may not have had the size of the market for us to cater to. Right now I believe we came in at the right time,” he said.

Yeung echoes Persson’s sentiments about a long-term commitment to China, and said Gap China is taking a long view in regard to building a competitive business model in one of the world’s largest consumer hubs.

“China is a big country. It’s not a country for people who aren’t committed to it. If you are looking at the total overall apparel market, the Chinese market is already the second largest in the world, so we are prepared to invest and to be here for the long term,” he said.

While Yeung may be bullish about Gap’s situation, Paul French, a senior analyst at Mintel, is one observer who believes the brand is struggling. French was invited by Gap Inc.’s U.S. board to participate in a roundtable when the group visited Shanghai recently and said he believes Gap China needs a thorough overhaul if it is to find success with Chinese consumers.

“I’m going to call it, like everyone else I know is calling it, that they’re not doing very well. If they show me some numbers that say they are doing well, I will be the first person to admit I got it wrong,” French told WWD. “We don’t have any numbers from them and if no one will give me a number, I’m always suspicious.”

The biggest problem with Gap China, according to French, is the same challenge the brand is facing elsewhere in the world; young, fashion-conscious consumers have moved on. This hypothesis is supported by anecdotal evidence from the brand’s two Shanghai stores, which don’t appear to be attracting bumper crowds, despite their prime locations on premier shopping streets in the city.

“I’m just not seeing any interest in it on the street level, no chatter about it online, in the magazines, or anything like that,” French said. “The young people that I talk to seem to be paying it no attention whatsoever.”

Whatever the reality of the situation is, Gap views China as an important market where it must succeed to help ensure its long-term future as a global retailer.

“Gap is a lifestyle, a freedom of how you live and how you mix and match your apparel, we are good at that and people here have embraced that,” Yeung maintained. “The long-term vision we have is that this is one of our most important markets in the world, outside of the U.S.”