Gap to Expand Into China in 2010 With Flagship Stores in Beijing, Shanghai

Gap Inc., the operator of the U.S. clothing chain of the same name, plans its first stores in China by year-end, aiming to lure shoppers in the world’s fastest- growing major economy with its blue jeans and khakis.

Shanghai and Beijing will get two Gap brand outlets each, with three in Gap’s larger flagship format, the San Francisco- based company said today in a statement. Gap also will begin selling clothes online to Chinese customers.

“There are a lot of other foreign brands in the country, but there’s not a real American brand with the full expression as to what casual apparel can be,” John Ermatinger, president of Gap’s Asia Pacific region, said in an interview. “We’re very confident” China’s consumers will like Gap clothes, he said.

Gap Chief Executive Officer Glenn Murphy has sought to fuel growth by expanding overseas as he closes North American stores. May sales at stores open at least a year climbed 8 percent internationally, eight times the pace of total sales.

In the quarter ended May 1, Gap closed 18 stores in North America and opened four, while opening five and closing one internationally. The company has 89 percent of its locations in the U.S. and Canada.

China offers the retailer an economy that grew throughout the global recession and expanded 11.9 percent in the first quarter, more than triple the pace of the U.S. Chinese consumers also may have more buying power after China’s central bank signaled this month that it would end a two-year peg to the U.S. dollar.

Chinese Currency

“The issue around the currency didn’t play into our decision making,” said Ermatinger, who came to Gap in 2006 from Nike Inc., where he oversaw development of the shoemaker’s business in China and other Asian countries. “It’s just that it’s the third-largest apparel consuming country in the world, and we weren’t part of it.”

This year, the retailer also plans to open Gap and Banana Republic stores in Milan, begin an online shopping site for the U.K., Italy and other European countries, and start a franchise location in Australia.

Gap will open more stores in China after studying the tastes of shoppers at its first four sites, Ermatinger said. The company has already spent more than four years researching the market, and that scrutiny suggests Gap’s clothes for children will sell well because of China’s one-child policy, he said.

“That one child is adored with a lot of attention,” Ermatinger said. “Given how strong our kids and baby business is, we think it’s going to be a high percentage of total sales.”

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

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