Gap to Benefit From Google’s Challenge of Amazon?

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Gap Inc. (NYSE:GPS) is the parent of the Gap, Banana Republic and Old Navy retail clothing chains and could benefit from Google’s (Nasdaq:GOOG) planned challenge to Amazon‘s Prime (Nasdaq:AMZN) with an e-commerce extension of its Product Search service, which helps shoppers find products on the Web. According to a Wall Street Journal report, the search engine company is in partnership talks with retailers including Gap, Macy’s and OfficeMax to establish an online shopping service offering next-day local delivery.  [1]

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Gap’s third-quarter profits fell 36 percent on sagging sales at its Gap unit and Old Navy chain, but the specialty retailer is hoping for a robust holiday sales season to lift fourth-quarter results. In addition to the pre-Black Friday opening of about 1,000 U.S. stores on Thanksgiving, the company launched Shop Yourself Social, a cross-branded campaign social networking campaign aimed at helping shoppers find the best deals on holiday gifts.

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In store for the future

In addition to the Google prospects and its holiday focus, the San Francisco-based company is looking to increase its share of the highly fragmented U.S. market for retail apparel (it currently has a 7.5% slice of the marketplace). One of its most promising businesses is its Athleta brand, a women’s athletic clothing company acquired for $150 million in 2008. Altheta sportswear was once available only in catalogs and online but now has nine retail stores, with more locations bound to come.

The U.S. may account for 80% of Gap’s business, but its revenues in North America have declined in each of the past six years due, in part, to weaker sales caused by shoppers turning to trendier brands (its regularly discounted prices have also hurt profitability). The American apparel giant has responded by shuttering and downsizing poor-performing stores—it plans to close almost 200 of the nearly 900 U.S. stores that it operates by the end of 2013.

Going Global

The company is also setting its sights on foreign business. Internationally, Gap last year opened its European flagship store in Italy’s fashion capital Milan, and offers shipping throughout the continent via its European e-commerce sites. The company has said it plans to triple its number of stores in China to about 45, to open stores in three Latin American countries, and has already also expanded its presence in Africa with stores in Egypt and Morocco.

Gap’s strategy to offset slumping U.S. sales by reducing reliance on the soft, shifting market by expanding overseas is a positive move that should keep the company positioned well for long-term growth.

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Notes:
  1. Google Targets Amazon’s ‘Prime’ With 1-Day Delivery, The Wall Street Journal, Nov. 1, 2011 []