The clothing and accessories retailer, Gap Inc. has announced its plans to expand its Athela and Janie & Jack brands outside the United States.
Gap Inc. plans to grow these two brands through its franchise business. This means that Gap will allow outside partners to license its brand names. These partners would then be able to operate stores for Gap Inc. in different regions across the world where it doesn’t have a firm footing or solid understanding of the business culture.
The announcement came after Gap Inc. said that it has plans to divide into two publicly traded companies. One would solely be devoted to Old Navy. The other would be made up of Gap, Athleta, Hill City, Intermix, Jack & Janie, and Banana Republic.
The company said it would with shop-in-shop and online formats. It would open brick-and-mortar stores once it has found suitable partners to work with.
“Given the premium, gift-worthy children’s looks of Janie & Jack and the versatile, sustainable women’s performance apparel of Athleta, we feel the two brands will resonate with customers in new and existing markets internationally,” said senior vice president of Gap Inc.’s global franchise and strategic alliances division, Roy Hunt.
For years, Gap Inc. has been licensing its namesake Gap, Old Navy, and Banana Republic brands in about 40 countries. The very first Gap franchised store opened in Singapore back in 2006. This has resulted in over 500 franchise-operated locations worldwide. This is in addition to 35 e-commerce sites.
In the past three years alone, Gap Inc. has managed to open 100 new franchise locations around the world. Within the United States, all stores are still owned and operated by the company.
Earlier this year, Gap Inc. announced that it has partnered with AR Retail S.A., a member of Grupo Promerica. The partnership will bring 45 Gap, Banana Republic, and Old Navy stores in the Caribbean and Central America in eight years.
There’s a huge opportunity for Gap Inc. to grow its franchise business in the European, Asian, and Central American markets.
“If you think about it, the primary benefit we have in doing this is we are not investing our own capital. The partner is investing capital to build out the business,” Hunt adds.
Gap Inc. has found itself struggling in the United States. In August 2019, the company reported that its fiscal second-quarter sales fell short of expectations. All of its brands suffered a drop in demand.
The company has been facing competition from other retailers like H&M and Zara. Sales at all Gap Inc. stores that have been operating for at least 12 months and its websites were down 4%. The figure was worse than the 3.1% anticipated decline.
Athleta, a women’s active apparel brand, was acquired by Gap in 2008 for $150 million. While it has been under Gap for over a decade, it has been under the radar compared to the other brands the company owns.
Over the past six years, Athleta’s revenue has grown at a 23% compound annual growth rate. In the last fiscal year, it earned almost $900 million.
With the growth of the women’s athleisure market, Gap is taking advantage of the boom. In 2018, the sales of activewear clothing in the U.S. was around $55 billion. Compared to 2017, sales, there was a 10% increase in 2018.
“For the company, Athleta is a strong point of proof in their ability to incubate smaller niche brands. Hence their accumulation of the smaller Hill City, Janie & Jack, Intermix concepts, which combined, represent 3% of total sales,” adds Boruchow.
It plans to build new stores and grow the brand’s online presence by promoting a more environmentally friendly image and inclusivity to reach more women. The brand hopes that by 2020, 80% of its clothes are made from sustainable fibers.
Gap Inc. is also focusing on opening more Athleta stores but it hasn’t said anything about how big the expansion plans are.
According to Wells Fargo analysts led by Senior Analyst Ike Boruchow: “Management views the concept as an important growth driver at Gap Inc. in the coming years, as they are accelerating investments into marketing, store expansion, outlet, digital and international opportunities.”
In March 2019, Gap Inc. announced that it has acquired the high-end children’s fashion line Janie and Jack from Gymboree Group Inc. for $35 million. In January, Gymboree filed for Chapter 11 bankruptcy.
Following the announcement, Gap Inc. released a statement saying: “We are excited about the potential opportunity to acquire Janie and Jack, a leader in children’s specialty retail. We believe this transaction will provide Gap Inc., with the opportunity to expand customer base in a desirable category with a loyal brand following.”
With its franchise business accelerating more recently, Gap Inc. is set to take advantage of the momentum for some of its brands in the overseas market including the planned expansion of the Athleta and Janie & Jack brands.