Gap Inc. (NYSE:GPS) recently announced that it will be restructuring its brand management by naming individual leads for its different business segments.  We expect that this strategy will allow the individual segments to focus more on gaining market share in their respective markets. In addition, Gap also announced recently the its online shopping sites in Japan.  It already operates its e-commerce channel in North America, China and Europe.  With the expansion of its online platform to world’s third largest economy, we expect this to contribute to Gap’s long term outlook.
Online Platform Will Help Expand Gap’s Asia Business
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Gap recently announced the launch of online shopping platform in Japan, offering Gap, GapKids, babyGap and Banana Republic products.  Retailers are quickly realizing the important of e-commerce both domestically and abroad, and with this decision, Gap now has online sales platform in all of its major markets. The retailer will provide several benefits such as free shipping for purchases above 6,000 yen, free in-store returns within 30 days, and the details of design and fabric of its apparel online. 
According to Gap’s filings, the revenues from Asian business contribute about 5% to its total revenues.  Given the fact that Gap has recently debuted in China, we believe that the majority of its revenues in Asia come from Japan. 
As China and Japan are the largest economies behind the U.S., they provide significant growth potential for the retailer in Asia if it is successful. The introduction of the online sales channel in tech-savvy Japan should help the retailer’s growth in the region. Moreover, the retailer is planning to expand in China by opening several new stores by the end of fiscal 2012.  The internet and franchisee business contributes about 26% to the company’s value according to our estimates with almost no contribution from Asia.
This segment needs to be strengthened from long term perspective as online shopping is emerging as a popular trend. IMRG expects an annual growth rate of 10-15% in online sales in the U.S., the United Kingdom and Japan, with Europe being the largest e-commerce market in the world. 
New Global Brand Management Structure Might Help In Gaining Market Share
Under the new global brand management structure, Gap named individual leads for the divisions such as Banana Republic, Old Navy, Gap stores etc.  A particular segment’s global stores operations, internet business and franchisee business will be brought together under the single management of that segment. Due to the anticipated growth in China, the chairman and CEO will directly oversee the operations in the region.  The new structure will be implemented with the beginning of the fiscal year 2013. According to our estimates, Banana Republic constitutes about 18% of the company’s value, Old Navy and Gap stores about 28% each and the rest is taken up by internet and franchisee business segment.
With the focus becoming segment specific, the individual teams will be more responsive to the changing needs of the customers in different markets and segments. Although this might not bring out any immediate financial benefits, the decision will allow the retailer to implement different strategies in accordance to the trends of different segments. This will ultimately help Gap improve its market share.
Our price estimate for Gap Inc. at $ 40, implying a premium of about 10% to the market price.Notes:
- Gap Inc. Restructures Brand Leadership For Global, Digital Growth, brand channel, Oct 16 2012 [↩] [↩] [↩]
- Gap Inc. launches e-commerce sites in Japan, fibre2fashion, Oct 11 2012 [↩] [↩] [↩] [↩]
- Gap’s SEC filings [↩]
- Global e-commerce sales will top $1.25 trillion in 2013, internet Retailer, June 14 2012 [↩]
- Gap Inc. Creates Global Brand Management Structure to Drive the Company’s long term growth, Financial Post, Oct 16 2012 [↩] [↩]