Gap Strengthens its Chinese Outpost - Analyst Blog

Gap Inc. ( GPS ) recently announced the opening of its first flagship store in Hong Kong and has further plans of opening stores in the Chinese territory. These new store additions reflect the company's intention to further expand its global presence by increasing its store counts in China through company-operated stores, franchise and online channels.

Gap opened a 15,000 square feet store in Hong Kong's Central District. The store is spread over four floors and has a Chinese architectural touch for creating an inviting and inspiring environment for customers, who have the luxury to shop from a wide array of collections from Gap, GapKids, babyGap, and GapBody. In addition, Gap has also announced to open new stores in Shanghai, HangZhou and Tianjin in coming few weeks.

In a drive to boost international operations, Gap consolidated its foreign business under one umbrella, while operating from London. Lackluster sales in North America compelled the company to explore business in other shores. In order to counter the domestic market saturation, Gap is aiming to generate 30% of total sales from its overseas operations and online business by 2013.

To achieve this end, Gap is making huge investments in the world's largest populated country, or China. China has a tremendous growth opportunity as the company believes that the consumers in China have greater appetite to spend. Moreover, it is anticipated that the retail sales in China will increase over two-folds by 2015 from 15.4 trillion yuan last year. The company has revealed that by the end of fiscal 2012 it is going to increase its number of stores five-folds in China to 45 stores, up from the current count of 9 stores.

Gap is a premier international specialty retailer offering a diverse range of clothing, accessories, and personal care products for men, women, children and babies. Its flagship brands include Gap, Banana Republic, Old Navy, Piperlime and Athleta.

Gap intends to increase its market share in the $1.4 trillion global apparel market and hence is focusing on enhancing its franchise store base counts. Over the last five years, the company has increased its franchise store count to about 200 that spread across 26 countries. Moreover, with this announcement, the company's presence has expanded in 32 countries. Further, Gap wants to increase its franchise store base counts to about 400 by 2014.

Gap competes with national and local department stores and discount stores, such as American Eagle Outfitters Inc. ( AEO ) and The TJX Companies Inc. ( TJX ). Currently, the company maintains a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Our long-term recommendation on the stock remains 'Neutral'.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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