Will The Gap head down under?

Rumours abound that US clothing retailers, The Gap and Abercombie & Fitch, might be set to open stores down under. This sent me off to chat with an Honours student in our department who has spent the past six months exploring the international expansion patterns of various major retailers, including The Gap.

Here’s a little email interview I did with our newest retail expert Sakshi Banerjee:

André: How international is The Gap?

Sakshi: The Gap is actually not that international in comparison to its counterparts such as Zara (Inditex) and H&M. The focus of The Gap has always been its home market, the US. Though it has begun to internationalise, the majority of its sales (around 82%) are still generated within its home market. In comparison, H&M derives less than 10% of its sales from its home market and Inditex around 50%.

André: How many countries does The Gap operate in currently?

Sakshi: The firm has stores in six countries – The USA, Canada, The UK, Ireland, France & Japan. Here’s a link to their store (and brand) counts. They have recently started expanding by franchise, mainly in the Middle East where such an entry mode seems to be compulsory.

André: Why has it taken so long for them to get down here?

Sakshi: The reason for the lateness of their entrance in the Australian market can be attributed to a number of factors. There are organizational factors. The Gap’s high dependence on its home market and home region (NAFTA) have meant that they have been slow to expand outside their natural comfort zone. Country characteristics of Australia such as its geographic distance, being in the southern hemisphere (switched seasons) as well as its small consumer market have meant that Australia is not seen as high priority market to enter/expand to.

André: How likely do you think it is that they will indeed open down here?

Sakshi: The likeliness of them opening an actual store is very slim. The costs, the risk, and the pressure on their supply chain as well as the pressure on designers to produce alternative seasons’ clothes mean that the likelihood of them opening is very slim. And as for Abercombie and Fitch, their clothes are already being carried in certain stores in Australia, so there might not be that much to gain.

André: Do you think this would attract the other big fashion retailers to Australia too?

Sakshi: I do not believe that this will attract other major fashion retailers. Inditex has explicitly stated that it will not be coming to Australia and currently H&M is more focused on expanding their presence in the Asian markets.

André: Thanks Sakshi.

Anyone else got questions for Sakshi (or me)?

Aussie Cannibals Part One – Jetstar eats Qantas

My recent post regarding Starbucks’ potentially damaging shift into the packaged coffee market (see it here), has got me thinking about such issues more generally. In particular, I have been contemplating a couple of prominent Aussie examples.

The question is whether product or brand extensions, especially within the same (or very similar) market space might be more harmful than initially assumed.

I’ll start with Qantas (our national airline), it created the separate Jetstar brand and business back in 2003 in response to low-cost domestic competitors. The split was a logical means to circumvent a whole range of legacy restrictions in terms of labour practices, existing assets etc., and the split brand was good insurance against any immediate damage to corporate contracts, price premiums etc.

What has got a bit more complex is the move to shift the brand into the international arena, namely Asia. Numerous traditional Qantas routes have been shaved back in terms of frequency, with the gaps filled by decidely low-frills Jetstar flights. It remains unclear how financially viable this move is, and how it places Qantas versus full-service rivals in the region.

While the wording stinks of snobbery, there is certainly some substance in this quote from an Age article:

”Qantas is destroying its brand name,” a former Qantas executive says. ”It is cross-subsidising Jetstar like you won’t believe.”… “The low-fare market is the blue-singlet boys – the fellas going up [to Asia] for the bucks party – and the silver hairs…It’s the newlyweds and the newly deads. It’s just a flying bus service making its money from ancillary services”

The issue with air travel is that the market segments are not quite as simple as they first appear. A given Qantas plane has a mix of passengers cross-subsidising each others’ seats. Removing first and business class passengers hurts the viability of economy class. Flying solely economy class routes (as with Jetstar) must be hurting Qantas economy business.

Just as importantly, contributing to the downgrading of the air travel experience may create an unbreachable chasm in buying behaviour. Qantas will pushed up against higher service, but price-competitive mainstream Asian and Middle Eastern airlines, with considerably lower scope to tap into any jingoistic local market preferences.

Put simply, cheapskate Aussies will fly Jetstar internationally (especially when given little choice first time round on some routes), while more service-seeking Australians may dawdle off to Emirates, Singapore etc.

Might this have been a short-term move than hurts Qantas in the medium-to-longer term?

Following in the footsteps of Genghis

I’m a little swamped with teaching commitments (and a head cold) at the moment, so you haven’t been hearing much from me. I still have time to read an occasional blog however, and I was charmed by this one from the Airport Economist, Tim Harcourt.

He offers some insights into the experience of an underexamined emerging economy, Mongolia, and its increasing engagement with the global economy. The claims regarding the possible impact of Aussie mining firm Ivanhoe’s development of copper and gold mining in the country blew me away:

According to Chad Blewitt, Ivanhoe’s chief financial officer (on secondment from Rio Tinto), the project will “double Mongolia’s GDP of $US5 billion and the mine deposit will become one of the fifth largest mines in the world.” Blewitt believes “this place could be like Dubai in five years time, but they’ve got to manage the revenues and ensure that they have the right skill mix in the labour market to make it all happen.”

Such a transformation is well worth keeping an eye on…

Oh, and the lessons about Genghis Khan (sorry, Chinggis Khaan) are fun too.