Clash of the Fashion Titans: Gap Inc vs Fast Retailing

This is the third part of 'Clash of the Fashion Titans', an ongoing series from FashionUnited that compares key fashion retailers from around the world. Fast Retailing, Japan's biggest clothing retailer has announced on Monday plans to list in Hong Kong to continue expanding its brand

in the area and allow its stock to be more available to a bigger selection of investors. This announcement highlights the Fast Retailing expansion strategy, which aims to become the largest clothing retailer in the world by 2020. In order to achieve this goal, Fast Retailing will have to displace the third largest clothing retailer in the world, better known for its main brand which 'brought American casual style to the world', Gap Inc.

For several years now rumors of a possible acquisition of Gap by Fast Retailing have been circulating, with the latest speculation of private talks emerging last year February. Ashma Kunde, Apparel analyst at Euromoniter International, believes that although "the acquisition of Gap would certainly propel [Fast Retailing] to becoming the world's number one apparel retailer... I doubt it will happen. Gap Inc neither wants nor needs to be acquired. It itself has been making acquisitions (most recently, luxury boutique chain Intermix) and has a strong multi-channel, multi-brand, multi-market strategy in place."

So if Gap Inc isn't willing to be acquired by Fast Retailing, what strategies has the American apparel retailer been enforcing to make sure it stays ahead in its home market? Last year apparel retailers in the US were faced with a difficult year. Euromonitor International reported that due to "increasing input costs" pushing prices up and an increase of "bargain-hunting shoppers" pulling prices down, fashion retailers struggled "to find a middle ground". With production costs rising at escalating rate and the "invasion of the US apparel retail space by UK firms such as Topshop and Boden, the landscape in apparel in the US is changing".

Gap witnesses a "strong turnaround" in the US

Gap, the largest specialty retailer in the US in the world, has been hard at work at finding the right balance. While other American fashion retailers such as Aeropostle, Abercrombie & Fitch and American Eagle Outfitters have faced a dismal year due to weak apparel sales and fierce competition from overseas 'fast-fashion' retailers, Gap has "performed relatively better than its peers" thanks to its "sharp response to changing fashion trend," according to Trefis, a Boston-based research firm. Kunde believes that the renewed interest in its products contributed to the "strong turnaround" that Gap Inc has witnessed in its sales performance since 2012, along with strong marketing campaigns.

"Additionally, Gap Inc is focusing on smaller brands to gain further market share in the US. Brands such as Athleta, Piperlime, Intermix, GapKids and babyGap have done reasonably well so far, and the US market provides sufficient room for future expansion," reported Trefis. In 2012, Gap Inc hired a new creative director for its main brand Gap, Danish branding consultant Rebekka Bay, to help improve its product assortment, which had been lacking over the past years as the company tried to keep up with retailers like Zara and H&M. Her first official collection, S/S 14 for Gap, has been hailed as a modern return to the basics that once gained the brand global recognition.

One fast growing specialty retailer who has managed to capture the worlds attention with its basic, yet technological design-driven collections is Uniqlo, the driving brand of Fast Retailing. Uniqlo was the first company in Japan to establish an SPA (Specialty store retailer of Private label Apparel) model that included all stages of the business, ranging from design and production to final sale. In 2005 Uniqlo opened its first stores in the US, before opening its first global flagship store in Soho, Manhattan. "Our universal products, every day basics of exceptional value, world class customer service and modern, bright stores will create a brand new group of Uniqlo fans [in the US]," commented Larry Meyer, CEO of Uniqlo US and senior vice president at Fast Retailing, in a recent press release.

US:

a "big focus" for Uniqlo

Kunde highlights Uniqlo's performance in the US, noting that it has been "a big focus for the company." She adds that Uniqlo has "taken a measure approximately to retail expansion by focusing on the East and West coasts, launching large-scale flagship stores in prominent city locations". Uniqlo recently revealed plans to open five new stores in the US by Spring/Summer this year, bringing its US store total to 23, which will help the brand increase its presence in the country. "[We] are eager to bring the Uniqlo experience to even more communities throughout the United States," added Meyer. Although some experts have expressed concern about the grouping of Uniqlo stores, which has left a gap in the Mid-West of the US, Meyer argues that grouping stores in one place creates marketing synergies, adding that Uniqlo's online US site helps counter the lack of physical stores.

Kunde adds that "digital marketing and a solid omni-channel focus has brought back relevance to the Gap brand in the contemporary [US] market." In order to connect with its younger American audience, Gap launched a styled.by campaign with a number of international bloggers from around the world, who post photographs of themselves with their favorite Gap pieces. Kunde believes that this was "an excellent initiative" that truly appeals to previously lacking millennial consumers. Uniqlo has also tapped into digital marketing to connect with its American audience. In 2012 the brand launched its Uniqlo People Campaign on a number of social media networks to help promote the fall opening of its San Francisco and New Jersey stores. The campaign featured a number of prominent chefs, athletes, writers and artists who follow the brands 'Made for All' philosophy. Uniqlo has also been enlisting the aid of artists such as Japanese designer Tomoaki 'Nigo' Nagao, founder of A Bathing Ape, who is now creative director for Uniqlo's designer collaboration UT line to help promote their collections and increase brand awareness in the US.

 

Turning to Uniqlo's home market of Japan, the country has also become "an important part of Gap Inc's growth strategy". In a previous press release concerning its global expansion plan, the company stressed the importance of its presence in Japan. Euromonitor International mentions that "apparel in Japan is a highly established competitive landscape with many different brands by both domestic and international players," adding that apparel specialist retailers are the "dominant channel for distribution".

Gap

Inc witnesses "success" in Japan

Old Navy, owned by Gap Inc, has been doing well in Japan, as the company opened an additional 20 stores throughout the country last year. The apparel retailer offers casual clothing at a lower price range than its sibling brands Gap and Banana Republic, which has made it popular among its Japanese peers. "Our success in Japan shows us there is an appetite for more Old Navy stores in the country," commented Stefan Larsson, global president at Old Navy. Analyst Matthew McClintlock from Barclays predicts that Old Navy will continue "to accelerate annually" from the 20 new stores opened last year. Gap Inc also managed to tap into the local market by collaborating with Japanese Singers Erika Hashimoto and Miu Sakamoto for its style.by campaign, another marketing move which helped increase brand awareness among its younger consumers and helped "anchor the company's presence in Asia," says Kunde.

With 856 Uniqlo stores operating in Japan as of end of August 2013, the brand seems to be doing well, "very well, considering it already has such a strong position in an industry as fragmented as apparel," states Kunde. Planet Retail, global retail data agency, believes that Fast Retailing record annual revenues and profits in 2012/2013 were due to "the success of its flagship Uniqlo brand" store in Japan, "strong marketing campaign," as well as the brands "international expansion". With an increasing demand for good value products, Fast Retailing's lower price brand GU "has been a big driver of sales in Japan," concludes Kunde. "With prices lower than that of Uniqlo it targets a broader consumer base, and has more of a fast fashion flavor than the technical approach of Uniqlo," which has earned the brand many fans in Japan.

With more and more retailers competing with each other, brands need to remain innovated in order to survive and really combine their offline presence with their online one. Online retailing has become more and more competitive in Japan as consumers become more comfortable using online shopping sites and applications. By relaunching their e-commerce platform in Japan last year, Gap Inc has managed to secure its position in the highly competitive realm of online sales. McClintlock adds that "e-commerce represents approximately half of total company traffic," for Gap Inc. He stresses that Gap's introduction of 'reserve in store' in the US "is one of the first omni-channel initiatives that directly converts e-commerce traffic into brick & mortar store traffic".

Uniqlo's brand innovation anchors its position in Japan

Nevertheless, despite the threat of overseas and online competition, Uniqlo has managed to keep its rank as Japan's top retail brand because it is "a veteran of redefining exceptions," commented Alex Murray, Strategy director at Interbrand brand consultancy agency. He adds that by "delivering new value to consumers, it changed perceptions of what fast-fashion meant".

Looking at the global stage, Kunde contends that Gap should maintain its focus on its own offerings and "shouldn't try to compete with fast fashion directly. It's American heritage and focus on casual style will be its differentiating factor on the global stage. It is taking steps in the right direction by merging its focus on basics and casual wear with an awareness of current fashion trends. This enables the brand to focus on its classic denim, khakis and knits, but translating them in a way that fits seasonal fashion trends. She also believes that Uniqlo should focus on its own unique style and not get too lost in competing with other specialty retailers. Uniqlo "does have a unique business model. Instead of fast fashion, it focuses on bringing high quality clothing at affordable price points. Like Gap, Uniqlo's product assortment is geared towards basics, but with technical innovation and functionality being the big selling point. Its Heat Tech range has been a star performer globally."

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