Gap Sells Greater China Business for $40M

Baozun, an e-commerce solutions provider based in China, announced on November 8 that it had signed definitive agreements to acquire Gap Greater China, the American clothing firm’s regional division, in an all-cash transaction of $40 million, subject to adjustments within a limit of $50 million. The acquisition is expected to be effective in the first half of 2023.

Gap owns six brands including leisure fashion brand Old Navy, mid-to high-end urban clothing brand Banana Republic and women’s sports brand Athleta. Gap opened its first store in China in 2010 and now has more than 200 stores. In 2020, Old Navy withdrew from the Chinese market due to poor development.

Some analysts believe that the sale of Gap Greater China was to be expected. News emerged last year that Gap planned to sell its business in Greater China, and that many potential buyers were engaged in negotiations. At that time, it was rumored that one of the potential buyers was SHEIN. The deal has now finally been settled.

After operating in the Chinese market for more than 10 years, Gap failed to seize the dividend of rising domestic consumption. Compared with Uniqlo’s 800 stores in China and Zara and H&M’s 500 to 600 stores, the number of Gap stores is not high.

In terms of the development of Gap itself, its performance has also declined in recent years. According to the performance data of the first quarter of fiscal year 2022 ending April 30, 2022, the company’s sales decreased by 13% year-on-year to $3.5 billion, online sales decreased by 17% year-on-year, store sales decreased by 10% year-on-year. It also reported a net loss of $162 million.

In its “Power Plan 2023,” Gap mentioned that it will continuously adjust retail stores in the next three years, and close its brand stores such as Gap and Banana Republic, which are no longer profitable. By the end of 2023, about 80% of Gap stores will be opened outside shopping centers. In addition, the group will start digital transformation in an comprehensive manner, and the proportion of online revenue is expected to exceed 50% by the end of 2023.

“The core reason for Gap’s retreat in the Chinese market is that the online business layout is not enough,” one independent industry analyst told Yicai. “Its offline channel only covers China’s first-and second-tier markets. There is no online business layout and breakthrough in the small-town and rural markets. Its product series failed to cater to local consumers like local brands.”

Founded in 2007, Baozun has the advantage of online operations and has represented many well-known brands. In December 2018, Baozun became the e-commerce service provider of Gap. According to the agreement, Gap grants Baozun the right to manufacture, market, distribute and sell Gap products in Greater China with local creation capabilities on an exclusive basis. The duration of these business arrangements totals 20 years, with an initial term of 10 years that can be renewed twice with each renewal of a five-year term.

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Baozun now provides a range of e-commerce services including IT, digital marketing, customer relations, online shop operations, warehousing and logistics, to help the brand implement its e-commerce strategy in China. In recent years, Baozun has also been trying to get rid of its dependence on the original profit model, including its dependence on Alibaba‘s Taobao. As part of a strategic plan to drive sustainable growth, Baozun has established Baozun Brand Management (BBM) as a new business line that intends to engage in longer and deeper relationships with brands.