Gap Heads To $40 By Expanding South Of The Border

by Trefis Team
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Gap Inc.
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Specialty retailer Gap Inc. (NYSE:GPS) plans to open its first stand-alone store location in Mexico. [1] Previously, Gap operated in the country through a partnership with Mexican department-store chain Distribuidora Liverpool, S.A. DE C.V,  which allowed Gap’s merchandise to be sold through the “store within a store” concept in Liverpool’s department stores.

The new stand-alone store will open in the Interlomas Mall, which sits in the northern suburb of Interlomas just outside of Mexico City. The 10,000 square foot store will house Gap, GapKids and babyGap collections. We believe the move is inline with Gap’s strategy of aggressive international expansion. Gap competes with other specialty retailers like Aeropostale (NYSE:ARO), American Eagle (NYSE:AEO), Abercrombie & Fitch (NYSE:ANF) and Urban Outfitters (NASDAQ:URBN).

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Gap’s stand-alone store in Mexico signifies its focus on aggressive international expansion

As the competition heats up in the domestic market, Gap is banking on international expansion to fuel its growth ahead. With a focus on expanding its Latin American footprint, the move of opening a stand-alone store in Mexico signifies the company’s brand recognition in Mexico, and Gap’s continuing focus on providing American style to Mexican consumers. As summed up by Stefan Laban, managing director of strategic alliances for Gap Inc.

A stand-alone store is the natural next step for expanding our presence in the country. Consumers responded positively to our initial product offerings in Mexico, so we believe there is tremendous opportunity for us in the market for this store and beyond.

Additionally, Gap has also announced to open new stores in Colombia and Uruguay in order to further consolidate its positioning in the Latin American region. The company now plans to open stores in Bogota and Medellin in Colombia this October, along with the opening of the first Gap store in Uruguay later this year.

Consumer confidence in Latin American countries is at historic highs in Mexico, according to Focus Economics. In July 2012, consumer confidence in Mexico rebounded to its highest level since March 2008. We believe growing consumer confidence in these markets should serve Gap well as this will eventually translate into an increase in Gap’s revenue per square foot going forward.

Trefis maintains a $39.62 price for Gap’s stock, which is nearly 10% ahead of the current market price.

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Notes:
  1. Gap to open its first store in Mexico, Source: Gap’s investor relations []
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