Glenn Murphy wants to play with the big boys.
The Gap Inc. chief executive officer wants to compete on a global level with Inditex, H&M and Fast Retailing, three of the largest vertical apparel operators in the world.
“How do we win against our global competitors?” Murphy asked at Tuesday’s Goldman Sachs 20th Annual Global Retail conference. His answer: delve deeper into international expansion and Internet growth. “We can add approximately 1,000 new stores to the business and [an additional] $1 billion in online sales over the next three years,” Murphy said. “That’s the kind of shift that’s going on at Gap Inc.”
Much of the company’s growth centers on China, where 300 stores will eventually open. The Gap brand will finish this year with 80 stores. “We’re very convinced that China is going to become an outlet market,” Murphy said. More than 100 outlet stores will bow in China in four to five years.
Old Navy, with 1,000 domestic stores to Gap’s 700 units, has potential beyond that of its more established sibling. “Old Navy does a multiple of the sales per store that Gap does,” Murphy said, noting the brand will open 15 to 20 stores in Japan in 2013. Old Navy will enter China in 2014 when an e-commerce site will launch. Old Navy is also eyeing Mexico, Latin America and South America.
“Old Navy is our biggest business,” Murphy said. “One sector that’s consistent around the world is value. It continues to gain a bigger share of the pie.”
Meanwhile, the next three years still hold growth for the Gap brand globally, but mostly through franchises. Gap can eventually be in 90 countries. Banana Republic is set to enter China in 2016.
The ceo didn’t gloss over Gap Inc.’s difficulty to raise operating profits. “We have a top global competitor that has a 20 percent operating profit. We have a massive outlet business with the highest return on capital and the highest return on sales. We have a much more significant online presence than our top online competitor, with the highest return on capital and the highest return on sales. Why can’t we hit that number, because with the advantages we have? We should be able to.”
One answer is to grow online sales by $1 billion through initiatives such as “ship from store,” which exposes consumers to Gap’s entire inventory. “Reserve in store” is being tested in Chicago and San Francisco and personalization of Web pages and feeding in new content is “the key to unlocking conversion.”
Murphy sounded bullish about the growth prospects of Gap Inc.’s developing businesses, Athleta, Piperlime and Intermix. The brands could become global, he said. “People wonder about our acquisition of Intermix. It’s a small business, granted. It gives us a foothold into the luxury business, where there’s been good growth. We believe there’s an opportunity.” He sees stores getting smaller and highly edited. Our ability to seamlessly move between online and store is critical to survive in luxury.”
Here’s a look at what other executives had to say at Day One of the two-day conference in New York.
Kevin Plank, chairman and ceo, Under Armour Inc.
• “We believe we’re a…$10 billion brand that is doing $2 billion in business today.”
• “We continue to see the market compressing and fewer and fewer survivors. And so, we’re dead set on innovating like crazy.”
• “A much larger portion of our revenues has the opportunity to come from e-commerce.”
Michael Kowalski, chairman and ceo, Tiffany & Co.
• “For the first six months of the year, the U.S. has been really the only challenging market that we face.”
• “What we really need to do is continue to elevate the store experience in the United States.”
• “In 2014, we are looking forward to a bit more economic strength in the U.S. but we’re building our plans assuming that we’re going to grow the business again by product and marketing innovation and taking market share.”
David Jaffe, president and ceo, Ascena Retail Group Inc.
• “What we’re trying to do at Ascena is create a new paradigm for retail holding companies. There are other retail holding companies out there, and many of them are very, very successful. Our approach is different. What we have done is grown by acquisition…[and] put together a portfolio of five brands that have, what I believe, are defendable niches.”