Gap tailors plans for billion-dollar mainland business

BEIJING - Gap Inc expects China to become a billion-dollar business in three to four years as the largest US apparel-chain operator speeds up expansion in the country, said David Zoba, the retailer's senior vice-president for global real estate. 

The retailer, which has eight stores in China, aims to lift the number to 15, including its first shop in Hong Kong, by the end of its fiscal year on Jan 31, Zoba said in an interview in Shanghai on Wednesday. 

Gap plans to have up to 45 namesake stores in the country 12 months after that, he said. 

The company is shifting its focus to the global market to reduce dependence on North America, where consumer confidence slumped unexpectedly in October to the lowest level since March 2009. 

The operator of more than 3,000 shops is competing against Hennes & Mauritz AB and Inditex SA's Zara in China's clothing market, which will more than triple to 1.3 trillion yuan ($205 billion) by 2020, according to Boston Consulting Group Inc. 

"China will be one of our most important markets," said Zoba. "We're trying to get China to be a $1 billion business as soon as possible. I think that can be in three to four years." He declined to provide current revenue figures for China. 

Consumers in the world's most populous country will spend more on clothes as households with annual incomes of at least 74,000 yuan surge to 140 million by 2020 from 50 million in 2010, Massachusetts-based Boston Consulting said in a report in July. 

Gap's eight stores in China are in Beijing and Shanghai, where it opened its first shop in the country a year ago. 

While continuing to focus on big Chinese cities, the company plans to have about one-third of its stores in smaller cities in the vast central and western areas, where incomes are growing more quickly, Zoba said. 

"We think second-tier is a great opportunity because the middle class is growing faster," he said. "It may be starting from a lower base, but is growing more rapidly as urbanization occurs." 

Total spending on apparel in China was about 400 billion yuan in 2010, according to Boston Consulting. Per capita spending on clothing among urban consumers aged between 14 and 45 was 1,150 yuan in 2010, compared with 5,770 yuan in the US and 5,020 yuan in the UK, according to the report. 

Labels such as Calvin Klein, owned by New York-based PVH Corp., also plan to expand to smaller cities in China and be "well-established in all three tiers" over the next five to 10 years, Tom Murry, the brand's president and chief executive officer, said in an interview in Beijing on Thursday. About half of its business in China currently comes from sales in the big cities, he said. 

Calvin Klein expects growth of 50 percent or more in China this year and of about 50 percent in 2012, Murry said in a separate interview. He didn't specify whether he was referring to sales or profit. 

The label sells through about 200 standalone stores and 350 other points of sale in China, he said. 

"We see growth every day" coming from the small cities, said Murry. "We all know what's happening through all over China, GDP growth of nine percent again this year, still very robust growth." 

Gap, based in San Francisco, is forecast to have little-changed sales this fiscal year, according to 26 analysts surveyed by Bloomberg.