American fashion retailer Gap Inc has renewed interest for a possible foray into India`s speciality clothing market with a business development team from the $14-billion giant visiting several domestic corporates with presence in lifestyle retailing.
The development comes after its global rival Spain`s Inditex – which dislodged Gap Inc as the largest international apparel retailer – saw robust opening for its flagship Zara stores in Mumbai and New Delhi. Zara`s large format stores in two of the country`s most popular shopping destinations, Palladium Mall in Mumbai and Select CityWalk Mall in Delhi, opened with an aggressive pricing strategy attracting significant customer interest.
Gap team`s visit last month follows its recent announcement to enter China with initial stores in Shanghai and Beijing expected later this year. Gap Inc – which operates stores under the same name, Banana Republic and Old Navy – will be tracking international growth markets more aggressively given the sluggish consumer sentiments in the core US market.
Gap is still said to be in exploratory talks and has had meetings with multiple retailers and corporates with interests in retail and real estate including Reliance Retail, Arvind Ltd, Aditya Birla`s Madura Garments and K Raheja Corp that runs department store chain Shopper`s Stop among others.
Gap is predominantly a mall-centered apparel retailer in the US, but it could be tweaking the real estate strategy in newer markets like China and India, where it would go in for high-street locations. Indian regulations do not allow Gap to own more than 51% stake in mono-brand retail stores, with the other option being hitting the market with franchise stores initially.
In 2007, The Economic Times reported that Gap was holding fairly serious discussions with Reliance Retail for India entry. However, the talks petered off with the onset of the economic recession, which seriously crippled Gap Inc and its expansion plans. Gap is likely to be wooed by several Indian retailers as it starts pursuing the local market opportunity once again.
Inditex`s Zara launched in India through a joint venture with Trent Ltd, which is a part of the diversified Tata Group. The Zara stores are sporting probably the sharpest price tags anywhere in their international operations, as they seek scale in a market that has not seen many international fashion brands flourish. "Zara prices in India are indexed almost on par with its home market Spain. Zara`s international operations sport higher prices as merchandise is shipped from Spain. In this case, they seem to be taking a conscious hit as the aggressive pricing absorbs the import tariffs that are at 40%," a chief executive at the Indian unit of a global fashion retailer said.
But Gap might not be ready to peg itself so aggressively in India, as it would not be in a position, like Inditex, to absorb costs on its balance sheet.
There have been past instances of global designer brands, like Esprit, Tommy Hilfiger, and more recently, Diesel making a good debut as there is always a pent up demand. But the challenge lies in sustaining the momentum as they expand beyond the top metros. That`s probably why Gap`s passage to India will be a long drawn affair in contrast to relatively quicker decision making on China.