Retail News Update

Sourced From: Economic Times

New Delhi, 25 Sep, 2007: Reliance Retail is in talks with the US-based Gap Inc, the world’s largest speciality retail chain, for a franchisee arrangement for Reliance Retail’s apparel business. Gap Inc operates four of the most recognised apparel brands in the world — Gap, Banana Republic, Old Navy and Piperlime.

While Gap and Banana Republic are mid-premium brands, Old Navy caters to the price-sensitive market. Paperlime is a footwear brand which was launched in 2005. It is understood that in the first phase the arrangement with Reliance will only be for Gap and Banana Republic.

When contacted by ET, the Reliance spokesperson declined to comment. However, a top source said that the initial talks between the two companies have been favourable. “It’s just that Gap has sought some more time to prepare itself for an India entry. There could be a deal later this year or early next year,” a source close to the development said.

Sources say that in the last five to six months, Gap Inc has been approached by over half a dozen wannabe partners. However, it has got into some serious deliberations only with Reliance. “In this case, the synergy are higher. The most important criteria that the brand has for India is the franchisee partner’s ability to operate on a big scale,” the source said.

It is learnt that as of now, the top priority of Gap Inc is to consolidate the position of its two largest brands, Gap and Old Navy, in the existing markets and look for opportunities in emerging Asian markets. In 2006, the company’s management had put it on record that it was not satisfied with the overall performance of the two brands. There have been reports of PE funds looking at a buy-out of the brand as well. It was around that time that Gap started scouting for new opportunities.

According to a source, the company is still not comfortable operating through franchisees and so doing risk analysis involved in this model. Franchising is still an insignificant portion of Gap’s business internationally, though there has been an increased emphasis of late. Starting 2006, the company has entered into franchise arrangements to operate stores in Singapore, Malaysia, UAE, Kuwait, Qatar, Bahrain, Oman, Indonesia and Korea.

In the franchising model, choice of the appropriate partner is clearly the most important concern for the company. In its annual report of 2006, Gap says, “While we expect that this will be a small part of our business in the near future, we plan to increase the number of countries in which we enter into these kinds of arrangements over time as part of our efforts to expand internationally.

The effects of these arrangements on our business and results of operations is uncertain and will depend on various factors, including our ability to successfully identify appropriate partners.” Though Gap does not have any presence in the Indian retail market yet, India has been one of the most prominent sourcing hubs for the retailer.