While specialty apparel retailer
) has enjoyed steady growth in the U.S. for the past few years, it
has struggled in European markets. The company's namesake brand's
revenues in Europe have come down from $703 million in 2010 to $691
million in 2012 despite continued expansion. Also,
revenue per store has decreased at an average annual rate of more
than 3% during this period. On the other hand in the U.S., while
the brand's revenues have declined due to store consolidation, its
revenue per store has improved by close to 4% every year, with 2012
being the strongest.
dismal performance in Europe can be attributed to the prevailing
economic weakness in its key markets such as France and the U.K.
While the economies of Germany and Russia present good
opportunities for expansion, Gap Inc cannot ignore its existing
markets as they are among the biggest apparel markets in Europe. In
this analysis, we take a look at how Gap Inc can ensure its growth
in these regions. While unfavorable economic headwinds still impact
the U.K.'s apparel market, its large size and positive growth
forecast looks favorable for the retailer. In France, growth
in e-commerce and a change in shopping trends offer a silver lining
. Overall, the brand operates close to 200 stores spread
across the U.K., France, Italy and Ireland.
Our price estimate for Gap Inc. at $50
implies a premium of about 30% to the market price.
See our complete analysis for Gap Inc.
France Can Get Better
Due to the economic slowdown, the apparel market in France has
remained stagnant for the past four years. As purchasing power has
declined due to high unemployment and low wages, French shoppers
have been holding back their spending on apparel. Instead, they are
spending on essential needs such as food and healthcare products.
However, the men's apparel category showed some encouraging signs
in an otherwise weak apparel market in 2012. According to
Euromonitor, French men are highly particular about what they wear
in terms of clothing, fragrances and cosmetics. Moreover, they tend
to spend more on apparel products compared to women. There has been
a change in the shopping trend in the region as more men are buying
apparel for themselves while historically, women used to shop for
can leverage this trend to facilitate the sales of its men's
products in the region.
Additionally, fast-fashion and affordable brands have become a
viable option in France, which is evident from the success of
Vivarte, KIABI Europe and Hennes & Mauritz.
can revive its sales by remaining responsive to changing fashion
trends and offering products at competitive prices. Also, online
retailing continues to grow at a robust pace despite the lull in
the overall apparel industry. With online shopping becoming easier,
and as buyers have access to a greater variety of products, French
shoppers are making more purchases through e-commerce websites.
can take advantage of this trend and promote its direct-to-consumer
channel aggressively in the region.
The economy of France is showing some signs of improvement with
renewed consumer confidence. In the second quarter of 2013, the
country's economy expanded by 0.5% which was its best gain since
January 2011. Even as investments dropped, the rise in consumer
spending and increased business output drove the region's
better-than-expected growth. However, French GDP growth remained
flat in the third quarter suggesting that the economic environment
is still uncertain and retailers might have to struggle in the near
future. In all, the apparel market in France totals roughly $50
The U.K. Market Is Growing
Due to low disposable income, high promotions and changing shopping
trends, the apparel market in the U.K. witnessed only marginal
growth in 2012. Shopper's not only lowered their spending on
apparel products but also started buying clothing and footwear that
can be used for multiple occasions. However, the market remains
large at around $59 billion and has seen positive growth for the
past four years despite the economic downturn. Growth is likely to
accelerate going forward fueled by growing online retail sales. The
U.K. apparel market is expected to grow at a compound annual growth
) of 3% through to 2017, which will bring it to $69 billion.
Lately, a number of brands in the U.K. have focused on
multi-channel retailing by primarily targeting e-commerce as a
channel. They have been updating their websites to handle more
traffic and make shopping experience more convenient. This
move makes sense given that about 72% of adults used the Internet
for shopping in 2013, compared to the 53% figure in 2008. Moreover,
Internet access through mobile devices has doubled over the last
three years. Growing brand promotions through social media channels
and the launch of new product portfolios are likely to have a
positive impact on the apparel market.
can take assurance from these factors and remain focused on the
region for long term benefits.
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