Gap to open 20 new stores in China

American fashion giant plans to open nearly one new shop a week in China in the next six months as it joins other international brands seeking growth in Asia

PUBLISHED : Monday, 13 August, 2012, 12:00am
UPDATED : Sunday, 12 August, 2012, 9:24pm

Gap, the iconic American fashion brand, is set to expand by almost one new store a week in Hong Kong and on the mainland over the next six months - despite rapid rent rises that have forced some retailers to close their stores.

Shanghai-born Redmond Yeung, president for greater China at Gap, told the South China Morning Post in an exclusive interview that he aimed to open 20 more stores in Hong Kong and on the mainland over the next six months, which would bring its total number of stores in China to 45.

Gap is joining a new wave of expansions by international brands in Asia, and China in particular, including Abercrombie & Fitch, Burberry and MaxMara.

It comes at a time when a slow economic recovery in the United States and a worsening debt crisis in the euro zone have forced Western consumers to tighten their spending.

Last week, Abercrombie & Fitch launched its first store in Hong Kong's Central district, where the American fashion label agreed to pay more than US$1 million in monthly rent for its store.

"This [China] is a market for us in terms of international expansion. It's a cornerstone market where Gap must be," said Yeung, who held senior positions at American retail giant Best Buy and fashion firm Ports before he became the top boss for China at Gap in early 2010.

At present, sales in Asia contributed about 8 per cent to Gap's group revenue, Yeung said. To support its fast expansion in China, the San Francisco, California-based company would add 1,500 employees, mostly store staff, in the next six months in China, he said. Currently, Gap has about 2,000 staff in China.

"In mainland China, our consumers are growing so fast … I think that means there's still a lot of room for us to grow," he said.

When asked if senior Gap executives might see fast-rising rent as the main challenge to its business growth in China, Yeung said: "Everybody wants to get a prime location. The way the market always goes is in cycles. There are some cycles that are very expensive."

"As long as there are still people who pay the rent, there must be a reason. It's all about supply and demand. Retailers and landlords always have a love-hate relationship," added Yeung, who grew up in Hong Kong and Canada.

In this latest round of competition among international companies for business expansion in China, some have been losers and were forced to close their stores as they could not afford the high rent, which would eat into most of their profits.

Earlier this year, British fashion brand Burberry replaced struggling mobile phone maker Nokia as the tenant in a prime location in Causeway Bay, one of Hong Kong's busiest shopping areas that is popular among mainland tourists.

Yeung said Gap was "comfortable so far" with its business performance in China.

"If you look at what we did in the last 20 months, the performance of our stores allows us to feel very comfortable to expand further," he said. "If you look at the next six months … at that speed, without reasonable success, no one will invest [in more stores] so I can tell we are very happy with the performance of our stores."

Gap is not alone in the rate of its expansion. Luigi Maramotti, chairman of Italian fashion brand MaxMara, said last month that he believed Chinese consumers were now better able to afford luxury products, thanks to the country's fast economic growth in the past decade.

MaxMara also planned to grow in China by at least one new store a week over the next six months, he said.

Gap's Yeung said that about 26 per cent of the company's products were made in China and then sold worldwide.

He believed Gap would at least maintain that ratio of products being made in China, despite rising labour costs in the world's No2 economy.

"China is improving. The products coming from China are getting better and better. There are not a lot of places in the world which have the capability and volume that you can have in China. So China is not going to go away," he said.