Banana Republic 'set to launch in China'

Sources say mid-tier American clothing brand has decided China can 'no longer be ignored' and first shop might open in Hong Kong as early as next year

PUBLISHED : Wednesday, 15 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 9:07am

Popular American mid-tier fashion label Banana Republic is set to open its first store in China as early as next year to catch up with the latest wave of expansion by global retailers in the world's No2 economy.

People familiar with the situation said Banana Republic, which was founded in late 1970s by two American designers and later acquired by bigger rival Gap, would most likely open its first store in Hong Kong next year and then gradually expand into mainland cities.

Banana Republic's business focus is currently still on North America, including the United States, its home market, and Canada.

But in more recent years, it has begun to explore opportunities in Asia. Just last month, it added more stores in Tokyo.

If successful, Banana Republic's entry into China would mean a significant shift in strategy for its international expansion. There has been some internal debate on whether Gap, the parent company, should introduce Banana Republic to China, as some executives were not sure if Chinese consumers would like its American design, according to the sources.

"To China, obviously it is a latecomer, and now apparently a decision has been made that China cannot be ignored," one of the sources said, declining to be identified before an official announcement is made.

When asked about the company's plan to open stores for Banana Republic in China, Redmond Yeung, president for greater China at Gap, said: "We're working on it."

But Yeung declined to give an exact time frame.

Banana Republic is set to join a new wave of expansion by international brands in Asia, and China in particular, including Abercrombie & Fitch, Burberry and MaxMara. Even Gap, the namesake brand of Banana Republic's parent company, has already opened 25 stores in China in the past two years.

The expansion comes as 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.

One of the main challenges for Banana Republic in entering China is finding prime locations for its stores.

The company is well known in both the retail and property business for its interest in buying and renovating historic buildings for its retail outlets.

Amid tough competition between retailers, in particular luxury product makers, rent for stores in prime locations in first-tier Asian cities like Hong Kong and Shanghai have risen rapidly in the past year. For example, last week Abercrombie & Fitch launched its first store in Hong Kong's Central district, where it agreed to pay more than US$1 million in monthly rent.

The other challenges might come more on the marketing and branding side. Some industry watchers have raised concerns about the brand's literal translation into Chinese. Republic is considered a sensitive political word in China and the name "Banana Republic" in English is a pejorative term that often suggests a government associated with dictatorship and corruption.