Global Economics

Gap Tries on European Style


Slide Show >>Gap, the all-American casual clothing brand, is adding some local flair to its European business. In a bid to boost sales in its British and French stores, the San Francisco company is for the first time hiring designers to work on the ground in Europe instead of in New York with its core design team. The 30-person crew will work in London and should start rolling out its first items to European stores in mid-2007.

When it comes to fashion, it seems that classic chinos no longer cut it on the Continent. Gap (GPS) has realized that if business is to boom internationally, it cannot rely on selling U.S. styles to consumers half a world away. In the year ended last January, Gap's total sales fell 1.5%, to $16.02 billion. But in Britain and France, Gap's two European markets, the plunge was 6.1%, to $825 million. "We need to get closer to our European customers to meet their unique needs, while keeping to the essence of our brand," says Stephen Sunnucks, president of Gap Europe. Already last year, Gap moved its European buying, planning, and marketing functions to London.

TOUGH COMPETITORS. It's a move many European shoppers will welcome. "I only ever come here to buy basics like T-shirts," says Carolina Desalvo, 24, browsing in a Gap store in central Paris. "But I think their so-called fashionable lines are really out of date -- all little boxy jackets and skirts in dull navy and cream colors."

Gap has already made a stab at catering to European tastes. For the past 18 months, its New York designers increasingly have been tailoring certain items for exclusive sale in Britain's 120 and France's 35 Gap stores. Last December, it launched a cashmere collection for women in Europe that sold like hot tea on a chilly London morning. But it was available stateside only in a less-expensive and thus more U.S.-friendly cotton-cashmere mix. European men have been catered to as well. For its European stores, Gap recently started cutting its V-necked sweater with a deeper V and a sharper silhouette, which has proved popular with the locals.

But the problem, say market observers, goes deeper than anything that can be solved by merely tinkering with Gap's traditional offerings (see BW Online, 4/18/06, "Gap Goes Global"). The retailer, which entered Britain in 1987 and France in 1993, is being squeezed on all sides by new players in an increasingly ferocious European retail environment.

FAST-FASHION INCURSION. In Britain, Gap is facing enormous competition in its core clothing offerings from supermarket chains such as Wal-Mart (WMT) subsidiary ASDA and the country's largest retailer, Tesco. Tesco, which sells $1.5 billion worth of jeans, classic underwear, and casual clothes each year, recently added 100 new execs to its 400-strong clothing team in a bid to double the sector's revenue over the next few years. And it has recently announced it is working on a new upmarket line for the fall.

"Gap cannot compete with such rivals on cost, and is facing increasing pressure over the quality of the clothes," says Deborah Fitzgerald, a retail specialist at the British Design Council, a publicly funded advocacy group.

In both Britain and France, the pressure coming from trend-led stores is just as intense. The rise of so-called fast-fashion brands like Zara (see BW Online, 4/4/06, "Zara: Taking the Lead in Fast-Fashion"), owned by Spanish company Inditex, and Sweden's H&M has changed the face of the European clothing market. These retailers, which can churn out cut-price copies of catwalk pieces in under two weeks, have risen from nowhere to dominate the market in less than a decade.

"WARDROBE STAPLES." According to a study by U.S. consulting firm Bain & Co, fast-fashion companies make up 12% of the British clothing retail market and 8% in France. This compares with just 1% of the $181 billion American apparel market, according to New York market research firm NPD Group.

Officially, Gap doesn't compete with the likes of Zara and H&M (see BW, 3/27/06, "H&M: It's the Latest Thing -- Really"). "Gap does wardrobe staples, not high-fashion, high-turnover pieces," says Fitzgerald. "But the reality is: European fashion tastes are increasingly dictated by these fast-fashion brands."

Besides, one of Gap's most successful Europe-exclusive items last year was its take on one of the hottest trends in 2005. Skinny jeans -- a softer denim version of the drainpipe trouser popular decades ago -- were made famous by British supermodel Kate Moss and launched in British and French Gap stores last summer. They've been selling well ever since. One year later, the trend has reached the U.S. magazines, and will launch in North American Gap stores in the coming weeks.

IDENTITY GAP. No doubt, Gap can come up with pinch-hitting styles when it needs to. But critics say it must develop a stronger overall style both in the U.S. and in Europe if it's to ride the latest downturn in demand.

"[It] seems to be steadily losing [its] identity in the marketplace," writes analyst Mark Montana in a recent report for U.S. research firm CL King & Associates. In fashion-obsessed Europe, that's a real danger.

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