US label Gap finally looks to cut prices by 10-15% in India

US label Gap finally looks to cut prices by 10-15% in India

European apparel chains Zara and Hennes and Mauritz (H&M) appear to be winning against their trans-Atlantic rival Gap Inc less than two years after the US Fashion Label began operations in India.

The San Francisco-based Gap, which owns iconic global brands such as Old Navy and Banana Republic, is yet to stitch together a winning formula in the price-sensitive South Asian nation, where affordable fast-fashion is rapidly expanding in kilter with increasing disposable incomes and urbanisation.

“Pricing is an issue: At the end of the day, the consumer looks at the product and the price. Compared to other brands, Gap is expensive,” said a top executive at a Maharashtra mall that has a Gap store. “Even if your products are nice, consumers would not like to pay 50% more than they would for comparable brands.” Most of the prominent malls are privy to the business of these brands, with which the mall-owners have revenue-sharing agreements.

Gap’s sales are, at times, even less than 50% of those of Zara and H&M, according to the business head of a prominent suburban Delhi mall that is home to all three brands. Mall owners say that Gap, which entered India in May 2015 through a franchisee agreement with Arvind Lifestyle Brands Ltd, was doing relatively well for a few months until Stockholm-based H&M opened in October 2015.

The European firm introduced its aggressive global pricing strategy in India, prompting incumbent local leader Zara to slash prices by 10-15%. But Gap did not follow suit, market watchers and mall owners say. Gap’s products are 40-50% costlier than those of Zara and H&M, and higher costs, in part, are traced to the US Company’s sourcing procedures. A source said that Gap buys about 20% of its products sold here from India and Bangladesh. However, these products are first shipped to global sourcing hubs of Hong Kong or the US and then sent back to India, limiting Gap’s ability to lower prices.

Now, Gap is looking at dropping prices by 10-15% by directly shipping to India merchandise manufactured in South Asia, said the source. India’s branded apparel market was valued at around Rs 140,000 cr in 2016 and is expected to swell to Rs 250,000 cr by 2020, according to consultancy firm Wazir Advisors.

Investment Edge, a former senior Gap US executive, who was familiar with the company’s India entry strategy, said that both Zara and H&M have the advantages of securing investments from their parent companies. By contrast, Gap’s decision to appoint a franchisee in India seems to signal a temporary arrangement, he said, requesting anonymity.

Zara and H&M continue to move forward regardless of seasonal or small hiccups, taking risks and local challenges in their stride,” said the former Gap executive. “A franchise arrangement (like GAP) is ultimately a temporary arrangement and the franchisee is only going to make a limited investment because it has to see profits within the franchise agreement terms and only that profit will fuel further growth.’’

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