Franchisee Route Best For India
Last month, Gap Inc forged a franchisee pact with Arvind Lifestyle Brands to open Gap branded stores in India. The US fashion apparel brand plans to make its India debut early next year and roll out 40 stores in the coming years. Mr. Ismail Seyis, head of franchise for the Gap said about its decision to pick a franchisee partner in India rather than having a wholly-owned or a joint venture here and the importance of the Indian market for the California-based fashion retailer.
Edited excerpts: What made Gap go for a franchisee partner in India while the company could have done a fully-owned subsidiary or a joint venture here?
It was a very conscious decision to take the franchisee route. Our feeling is that this route provides the right balance for us. We obviously maintain control over the brand, products, the experience, the environment. While we have known Arvind as a partner for decades through our sourcing business. They have the knowledge and expertise in doing business and managing real estate, and it made a lot of sense for us to leverage that expertise and knowledge in a market like India.
But you could have done that through a joint venture as well. Have you adopted franchisee partnership a strategy in other emerging markets?
Yes. For example, last year we launched in Brazil, one of the most talked about BRIC markets, through a franchisee relationship. Russia, Australia and South Korea are some other large markets where we have taken the franchisee route. Today we are successful in each of those markets and franchisee route has proven as a way to venture into a market and speedily as well. So having the experience in some of the big emerging markets, we feel it is a model that works for us and we feel that is right one for India.
What about China?
In China we have a wholly-owned business.
So different strategies for India and China?
Whenever we review any opportunity, the key component is finding the right partner. That plays a big role where we decided to go wholly-owned or franchisee. In Arvind we felt we have the right kind of partner with the right kind of skills and experience and the critical mass to look for real estate in the market.
Is there a provision under your current agreement with Arvind to turn the franchisee into a joint venture?
It’s not a part of the agreement right now.
What kind of survey did you do in the Indian market and what are the findings?
We have been looking at the market for years and collecting a lot of data to try to understand the consumer and try to understand the real estate environment. We felt the consumer awareness for the brand was highest in any consumer research we have done in any of our emerging markets. So that has given us a lot of confidence. We felt the consumers, the demographics in India were right. You have a young population which is very fashion conscious. The retail consumption has obviously been growing at an incredible rate. We have put together a robust expansion plan that we thought we would be able to put together.
Where does India rank in terms of market potential for Gap?
It is definitely up there among our biggest emerging markets where we are today along with Brazil, Russia and Australia. It is a market we definitely see in our top ten in future or even greater.
Do you think you are late to enter the market?
Our feeling is that it is about the right time. There is a good pipeline of real estate that is coming forward, which is important to get the critical mass and your footprint in the market. We feel it is the right time in terms of consumers and the growth in middle class you have seen in the last five-ten the years and the appetite for fashion. We don’t feel we have missed the boat.
One of your rivals, Zara has been very successful in India. Any lesson from their success here?
Only positives, obviously. Zara has been there for a while. Marks & Spencer has been there for a number of years as well. You hear about M&S will continue to expand and that is only positive. Zara is great indication for us about the acceptability of fashion and sort of what is that local consumer’s fashion sense like. We feel very excited about the fact that Zara has been accepted by the local consumers. That gives us a lot of confidence that it is a right market and we would be successful in India.