Now Gap to enter India, mulls strategy

28 Jan,2013

By Rasul Bailay & Chaitali Chakravarty


Gap Inc, the largest casual wear retailer in the United States, is readying plans to open stores in India sometime next year, making it one of the highest profile global brands to set up shop in the country after it threw open the single-brand sector to foreign firms.


News of San Francisco, California-based Gap’s entry into India, a country that it has used as a sourcing destination for the past 14 years, comes at a time its Swedish rival H&M is in the process of filing for government approval next month to start a fully-owned subsidiary in the country. The two, however, trail Spain’s Zara, which has been operating in the country since 2010 and has, according to industry insiders, built up a strong albeit small franchise.


The company, which owns global brands such as Gap, Old Navy, Banana Republic, Piperlime and Athleta and reported sales of $14.5 billion in 2011, has put in place a team headed by its US veteran Rajiv Malik to give shape to its entry strategy for India. Gap entered China more than two years ago through a fully-owned subsidiary.


Mr Malik has said that India is among the large major countries where Gap was not present. “We will probably be here next year. India is a market for us in the future,” said Mr Malik, who is the general manager for sourcing for Gap in India. Formerly a vice-president for global production for Gap in the US, Mr Malik was despatched to India eight months ago with the aim to open its stores in the country.


Asked whether Gap, which began life with a single store in 1969 in San Francisco and now has more than 3,000 outlets in 90 countries, would choose to go solo or have a local partner, Mr Malik said the company was yet to make up its mind. “We are not decided and we are in the process of getting to that point,” he said. Gap presently sources more than $500 million worth of products out of India each year.


However, another person familiar with Gap’s India plans said it will go solo in the country, where the $58 billion annual textile and apparel market is set to explode to $141 billion by 2021, according to a study by consulting firm Technopak Advisors. Of this, the apparel market is valued at around $40 billion, of which modern retailers control just 17%, according to Technopak.


After six years of restricting foreign ownership in single-brand retail companies to 51%, India removed this sectoral cap in January 2012 and allowed global firms such as IKEA and Zara, which sell a variety of products under a single label, to set up fully-owned companies in India. The original policy change came with a requirement of 30% local sourcing, but the government last September diluted that condition after overseas firms raised concerns that it was not feasible.


More than one dozen single brand retailers are said to be sizing up the Indian market for entry, many of them in various stages of researching, partner scouting or filing for government approvals. Some of these include shoemaker Sketchers, French apparel retailer Celio, luxury brand Prada and Japanese fashion brand Uniqlo.


French sportswear retailer Decathlon SA and Thailand-based designer Lotus Arts de Virve have also applied under the single-brand retailing window, while Sweden-based H&M, one of Europe’s largest apparels and accessories retailer, is in the process of applying for a fully-owned local venture.


A recent approval for Sweden’s IKEA Group, widely viewed as a test case of government intentions, will encourage more single-brand retailers to India’s promising retail market, analysts say. IKEA’s proposal involves a plan to invest Rs 10,500 crore in India over the next 25 years.


Global brands such as Zara, Mango and Tommy Hilfiger, some of them already present in the country as joint ventures or franchisee with local partners, have been quite successful in India.


Overwhelming response to Zara in India had prompted its parent Inditex Group to bring its upmarket brand Massimo Dutti to India, but that proposal has now gone into cold storage due to regulatory issues. Tommy Hilfiger has sought permission to open 500 stores in India in the next five years, hoping to capitalise on its growing popularity in the country. Germany’s Esprit, which late last year decided to exit India after failing to crack the market, is “evaluating various options” to relaunch in India, a spokesperson for Esprit said.


Source:The Economic Times

Copyright © 2013, Bennett, Coleman & Co. Ltd. All Rights Reserved


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