Twenty-five years after opening its first overseas store, Gap Inc. has shifted its expansion into high gear and will combine the four international operations into one in London headed by Stephen Sunnucks.
The four overseas units — Europe, Japan, China and franchising — will soon be under the umbrella of the International division in London, as the San Francisco-based apparel chain hankers for a larger slice of the $1.4 trillion global apparel market.
While Gap’s domestic stores are struggling, the performance overseas has been strong for several reasons: the product appears new and novel to consumers abroad; foreigners may not like U.S. politics but crave American brands, and Gap stores overseas are newer and fresher looking than many of those in the U.S.
“Bringing our four international business units under the leadership of a proven global retail executive like Stephen Sunnucks allows us to leverage resources, operate consistently and grow the business at an accelerated rate,” said Glenn Murphy, chairman and chief executive officer of Gap Inc.
Sunnucks, who joined Gap five years ago, will oversee company-owned and franchised stores in Europe, the Middle East, North Africa, Asia-Pacific and South America — a total of 530 stores in 32 countries. He is credited with growing Gap and Banana Republic in Europe as well as franchise operations.
Gap also said that John Ermatinger, currently president of Gap Inc.’s Asia-Pacific region, will shift to overseeing Old Navy International, with the first priority to roll out the chain in Japan by the end of 2012, a tough assignment considering the recent devastation in the country. The company operates more than 150 stores in Japan and most recently opened a flagship Gap in Ginza. “We now have the international infrastructure in place to launch Old Navy in a cost-effective manner in new markets through our range of channels,” Murphy said. Old Navy currently operates stores in the U.S. and Canada and is sold online in more than 80 countries.
“I don’t think this is the be-all and end-all, but there is a good rationale for this,” Richard Jaffe, Stifel, Nicolaus & Co. retail analyst, said of the international reorganization. “It’s a way to coordinate some of the efforts, focus and streamline, and is indication of management’s commitment to push a little harder on international by putting one person in charge to make it happen.”
“Don’t underestimate how serious Glenn Murphy is about international and franchise stores,” said another analyst, who requested anonymity. “It’s the only way to populate the world. You’re not going to put 20 stores in the Philippines and manage it yourself. These small countries are not worth it. But China is so damn big, it’s worth it there,” where Gap is opening company-owned stores. “Reorganizing international under one guy makes sense. It gives a clearer direction, everyone knows who the boss is, and Murphy knows who to call when he has to. It gives you greater efficiency.…In America, the Gap brand is stale. But overseas, there is some sort of halo around it.”
Gap International accounted for $1.9 billion of the retailer’s $14.7 billion in total sales last year. Gap’s goal is to build international and online sales to at least 30 percent of total revenues by 2013, from 22 percent last year, with China envisioned as the major component. Gap Inc. launched its first company-operated international store in the U.K. in 1987 and sells online in 90 countries.
Sunnucks said he intends to keep the international operation “very lean and very leveraged” and would not expand its London offices or the management structure. “We’re very much working with the team from today but growing the number of stores,” he said.
He added that the reorganization would be completed over the next few months. There will be four regional managing directors reporting to him: Sonia Syngal, previously head of international outlets, will lead the European business; Redmond Yeung will continue as president of Gap China business operations; Stefan Laban, who joined the company last year, will be managing director of franchising, and Robert Frank, a 20-year Gap Inc. veteran, will serve as managing director of Japan. Gap said the restructuring will not lead to any manpower reductions.
In the year ahead, about 190 store openings worldwide are planned, with about 10 in China, including Shanghai, Beijing and Hong Kong, and another 10 in Italy, including one in Rome. Gap plans to double the number of franchise stores to 400 by 2015. Gap outlets will open in Italy this year and China next year. The Gap Global Creative Center in New York was formed last year, to improve the look and quality of products and execute one vision for Gap brand around the world.
Competition is “fierce” in Europe, Sunnucks said. “In each of the markets, we’re facing a set of global competitors — such as Zara and Uniqlo — and local ones, the tried and trusted retailers.”