It’s Gap’s turn now to slash prices in India

With India’s fast fashion growing leaps and bounds and European apparel chains such as Zara and H&M seem to be winning the battle against other global giants. Taking cue US apparel chain Gap Inc is positioning to win over odds. The San Francisco-based Gap, which owns iconic global brands such as Old Navy and Banana Republic, is yet to create a winning formula in the price-sensitive South Asian nation, where affordable fast-fashion is rapidly expanding with increasing disposable incomes and urbanisation. Looking at the current dynamics, US label Gap finally looks to cut prices by 10-15 per cent.

Gap realizes pricing is an issue in India. Most Indian consumers look at the product and the price and compared to other brands and Gap is expensive. Even if products are nice, consumers do not like to pay 50 per cent more than they would for comparable brands. Gap's sales are, at times, even less than 50 per cent of those of Zara and H&M, says a industry experts.

The strategy for future

India's branded apparel market was valued at around Rs 140,000 crores in 2016 and expected to clock in Rs 250,000 crores by 2020, according to consultancy firm Wazir Advisors. Mall owners say Gap, which entered India in May 2015 through a franchisee agreement with Arvind Lifestyle Brands, 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 per cent.

But Gap did not follow suit. Gap's products are 40-50 per cent more expensive than those of Zara and H&M, and higher costs, in part, are traced to the US company’s sourcing procedures. Gap buys about 20 per cent 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 per cent by directly shipping to India merchandise manufactured in South Asia, says an industry hand.

Is franchisee a better option?

Zara and H&M continue to move forward regardless of seasonal or small hiccups, taking risks and local challenges in their stride. A franchise arrangement (like GAP) is ultimately a temporary arrangement and 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. There is upfront investment and no store will become profitable or recover the investment immediately.

So, if one builds 10 stores, one has to wait a few years to build the next 10. Zara and H&M have already earmarked investments for India and have a strong global model that allows them to expand internationally. Gap, which was once an icon of buttoned-down khaki collars in the 1990s, is today struggling to create the right clothing selection, a global trend that is reflecting in India too, analysts say.