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)?

Is Starbucks a cannibal?

This story regarding Starbucks’ launch of an instant coffee brand (Via) is rather concerning. In particular, this quote regarding a ‘taste challenge’:

“The initial commercials will promote a “taste challenge” that will take place at Starbucks stores from this Friday to Monday. Customers who participate will be able to try a cup of brewed coffee and a cup of Via, to see if they can tell them apart.

“We’re convinced a majority of people won’t be able to tell the difference,” said Mr. Schultz, who explained that he has secretly been serving Via to people at his office and home for months and that they haven’t realized they were drinking instant coffee.” 

Surely, if customers cannot readily taste any difference between the instant coffee and the considerably more expensive version brewed in-store, then Starbucks has broken their own business model. 

Will the purported ambience of their stores (i.e. the ‘café experience’) and the wider range of coffee flavour choices be sufficient to overcome any losses from customer flight to instant? 

Also, doesn’t pushing this product out into the retail space allow other competitors (i.e. diners etc) scope to advertise “Starbucks coffee in house”. 

Unless Starbucks is looking to abandon its retail cafe network down the track and take on Nestlé etc in the grocery domain, this looks a very dangerous move.

Bye bye barrier

Today’s announcement that the two big Aussie supermarkets can no longer negotiate exclusive or restrictive tenancy agreements with shopping centres is long overdue.

So many shopping centres being locked up by Woolworths or Coles has previously served as a very considerable barrier to new entrants in this market. It has helped to protect the profits of these two giants and limited consumer choices.

Greater access should assist German entrant Aldi considerably, and may lure other international players down under. Of course, there will be considerable late mover disadvantages to overcome in terms of economies of scale etc.

One interested aspect will be to see how the dominant mall operator Westfield deals with all this.

Will it reduce their revenues from the supermarket chains? Presumably there was some premium for exclusivity, but this may have been traded off against the certainty of income streams from long-term anchor tenant agreements (with said income used to fund expansions and upgrades of the centres).

Or will they now be able to ratchet up supermarket rents on the threat of offering spaces to rivals (incumbent or new)?