China to­day is the sec­ond-largest ap­parel mar­ket in the world. In five to 10 years it is be­lieved that China will be big­ger than the US. That’s just a ton of op­por­tu­nity, and that is why you see all the global com­peti­tors com­ing here.”

China Daily (Canada) - - FRONT PAGE -

In Fe­bru­ary, one month be­fore its first-year an­niver­sary in China, Old Navy served as a spon­sor of China’s an­nual New Year’s Eve gala, a huge en­ter­tain­ment event that fam­i­lies around the coun­try watch to­gether at the one time of the year when ev­ery­one has a va­ca­tion. Gap, its trendier sis­ter brand, was also a spon­sor.

“It was a pro­mo­tion where Old Navy gets men­tioned and you shake your phone and mar­ket­ing and cam­paign mes­sages ap­pear,” said Mike Barnes, Old Navy’s gen­eral manager for Greater China.

“Just in that one night — one shake — we got over 800, 000 shakes of peo­ple on WeChat. That’s a stag­ger­ing num­ber when you think that we only have eight stores here.” At the time, it only had seven. It is tar­get­ing up to 15 by Christ­mas.

West­ern ap­parel and fast­fash­ion brands have been flood­ing the Chi­nese mar­ket in the last few years. Many, like Zara, H&M and Gap, have suc­ceeded. Some, like Bri­tain’s Marks & Spencer, have erred. A fair chunk ac­cel­er­ated their migration to on­line sales in the sec­ond half of 2014.

Con­sult­ing firms like A.T. Kear­ney pre­dict that China’s ap­parel sec­tor could grow by 15 per­cent a year un­til 2020 — spurring a feed­ing frenzy from for­eign brands.

“China to­day is the sec­ond­largest ap­parel mar­ket in the world. In five to 10 years it is be­lieved that China will be big­ger than the United States,” said Barnes. “That’s just a ton of op­por­tu­nity, and that is why you see all the global com­peti­tors com­ing here.”

He told China Daily about build­ing up Old Navy’s data­base of China-based cus­tomers with cam­paigns such as one last year where shop­pers were asked to guess the num­ber of flip flops in­side a fish tank and scan a QR code to reg­is­ter.

“You get that for­mula right, and it seems to work re­ally well,” he said. “For us right now, WeChat is su­per im­por­tant, as is mo­bile mes­sag­ing. The cus­tomer be­comes sort of an in­sider. Weibo is im­por­tant, too. The speed at which dig­i­tal and so­cial moves here is crazy.”

An­other “Su­per Cash” cam­paign, where cus­tomers earned “Old Navy money” that they could ei­ther share with friends via so­cial me­dia or re­deem off fu­ture pur­chases, was so suc­cess­ful it may even be trans­ferred to the US.

“Shar­ing with friends — that is some­thing we have never been able to do in the US,” said Barnes. “It is an ex­am­ple of where China is lead­ing the way.”

Art Peck, the new CEO of Gap Inc, which also owns Ba­nana Repub­lic, Ath­leta and In­ter­mix, dis­cussed the shift from bricks and mor­tar to on­line and mo­bile un­der the term “Re­tail 3.0” in an in­ter­view with Fast Com­pany.

Pick­ing up on this thread, Barnes said: “In mar­kets where you have a store pres­ence, you have a stronger on­line busi­ness. Is there show­room­ing go­ing on? Sure. Right now we see a need for both to ex­ist. But it is rapidly chang­ing.”

Gap Inc re­ported global on­line sales of $2.50 bil­lion for fis­cal 2014, up from $2.26 bil­lion a year ear­lier. Although it does not dis­close coun­tryspe­cific fig­ures in Asia, me­dia re­ports claim its China rev­enue hit $300 mil­lion in fis­cal 2013, a num­ber the group was ex­pect­ing to see triple by 2016-17.

In China, to­tal on­line re­tail sales surged 53.6 per­cent in 2014 to 2.8 tril­lion yuan ($450 bil­lion), ac­cord­ing to a March 31 re­port by Knight Frank. This ac­counted for 10.6 per­cent of all re­tail sales in the coun­try, up from 7.6 per­cent in 2013.

Both Gap and M&S now have on­line stores on Tmall. com and, the coun­try’s lead­ing on­line mar­ket­places. M&S saw cloth­ing sales on the for­mer spike 200 per­cent in the last quar­ter of 2014. In Jan­uary, it launched a new ded­i­cated kidswear store on Tmall of­fer­ing over 300 lines.

“Con­tin­u­ing our ‘ bricks & clicks’ strat­egy, we are lever­ag­ing e-com­merce to strengthen brand aware­ness and reach across the coun­try,” said a spokes­woman for M&S China.

Swe­den’s H&M launched an on­line store in China last Septem­ber and Spain’s Zara fol­lowed suit on Tmall, the largest B2C web­site in China, in Oc­to­ber.

Old Navy has also jumped on the Tmall bandwagon as it finds non-tra­di­tional mar­ket­ing meth­ods to be the new nor­mal in this coun­try of 1.4 bil­lion, half of whom now live in cities.

“Our com­mer­cial plan is in­te­grated, whether it’s so­cial, dig­i­tal, omni-chan­nel,” said Barnes. “All the pieces should tie to­gether.”

Gap Inc re­cently re­ported that its first-quar­ter global net sales con­tracted 3 per­cent yearon-year to $3.66 bil­lion — it did not ex­plain why — but there is no doubt that Old Navy’s global suc­cess led the con­glom­er­ate’s for­tunes last year.

The mother ship posted net sales of $16.44 in 2014, up 2 per­cent from 2013. Gap’s sales were down 5 per­cent dur­ing that pe­riod. Old Navy’s rose by the same mar­gin.

In fact, one of the largest ap­parel brands in the US — Old Navy is big­ger than Levi’s, Adi­das and Gap — will re­mem­ber 2014 as one of its most suc­cess­ful years to date in its home mar­ket, where it has over 1,000 stores.

Now it must see if it can gain enough trac­tion in China to carry Gap if the same hap­pens here — af­ter first en­joy­ing a nice lit­tle piggy-back ride into the mar­ket.

“Brand aware­ness of in­ter­na­tional fast fash­ion brands has rapidly im­proved in China in re­cent years,” said Regina Yang, direc­tor and head of re­search and con­sul­tancy at Knight Frank Shang­hai.

“They have been suc­cess­ful be­cause their small in­ven­to­ries and quick turnover al­low them to quickly adapt to chang­ing con­sumer de­mands.

Fast fash­ion sells be­cause the brands of­fer lower prices, fash­ion­able de­signs, im­me­di­ately avail­able trends, high prod­uct va­ri­ety and a strong global im­age.

Even though me­dia re­ports claim it takes H&M and Zara three months to get new prod­uct ideas into their stores — or 10 months in Gap’s case — clothes can go from the cat­walk to the shelf in as lit­tle as four weeks.

This clearly ap­peals to Chi­nese con­sumers, who are known to be more fash­ion­for­ward and big­ger risk-tak­ers than their Amer­i­can coun­ter­parts. Of­ten, the younger gen­er­a­tion leads the way.

“Though both Gap and Old Navy are con­sid­ered lower-grade and in­ex­pen­sive among Amer­i­can con­sumers, their prod­uct lines and price points are at­trac­tive to Chi­nese youth,” said Chi­ang Jeong­wen, a pro­fes­sor of mar­ket­ing at CEIBS, China’s top-ranked busi­ness school.

Old Navy’s China busi­ness ap­pears to be flour­ish­ing de­spite it will­fully tram­pling over some of the golden rules for suc­cess here — it re­fuses to lo­cal­ize its prod­ucts, for ex­am­ple — and at least some credit is due to Gap.

The twins are so tight they even share a head of­fice in Shang­hai. Gap ar­rived in the Mid­dle King­dom in 2010 and Old Navy, the self-styled king of “Amer­i­can edited fash­ion”, came in March 2014. There is no rea­son to as­sume Ba­nana Repub­lic won’t be join­ing them down the road.

Gap opened its 100th store in 2014 and re­ported brand aware­ness of over 70 per­cent in 2013. What­ever tra­vails it has ex­pe­ri­ence in China, Old Navy is un­likely to re­peat any of its mis­fires.

“When I have a ques­tion, I’m not hav­ing to go to a com­peti­tor or try to fig­ure out what they did. I can just walk right out­side my of­fice and say, ‘What did you guys do?’” said Barnes.

Chi­nese so­ci­ety is built on net­works of per­sonal re­la­tion­ships known as guanxi, and this is Amer­i­can guanxi at its best.

“We can lever­age like crazy and draw on Gap’s ex­per­tise in terms of all the op­er­a­tional set­ups, the lo­gis­tics set­ups, the real-es­tate knowl­edge and the in­fra­struc­ture that is al­ready built,” he said. “This means we can use a re­ally small team.”

At their airy, sun­lit of­fice, a bill­board for Old Navy’s spring cloth­ing cam­paign shows a group of friends in a jeep in the US. The quintessen­tially Amer­i­can theme is backed by the tag “Good Looks Ahead”. All of its mar­ket­ing cam­paigns are global.

“No, we’re not go­ing to do a China spring road trip,” said Barnes. “The cam­paign is work­ing great here.” Even its best-sell­ing prod­ucts are the same in both coun­tries. Go fig­ure.

Old Navy be­gan its in­ter­na­tional jour­ney in 2001 in Canada and, later, Puerto Rico. It has been in Ja­pan for al­most three years, but its 40-plus stores there are likely to be dwarfed by the brand’s pres­ence in China be­fore long.

Its sweet spot is that it caters to the whole fam­ily, some­thing which dis­tin­guishes it from ri­vals like H&M and Ja­pan’s Uniqlo.

Me­dia re­ports show China to be H&M’s fastest-grow­ing mar­ket and the source of 50 per­cent of Uniqlo’s sales. Abercrombie & Fitch and Le­vis tar­get a younger, more male de­mo­graphic.

But this re­fusal to change the game plan and bend to lo­cal tastes has proven a costly mis­take for mid­scale re­tailer M&S, which has sup­plied gen­er­a­tions of Bri­tish kids with school uni­forms. It en­tered China in 2008.

The brand, equally fa­mous here for its im­ported food, had to re­cal­i­brate af­ter mak­ing a litany of mis­takes from day one. It now plans to close five of its sup­port­ing stores in tier-two cities in the Shang­hai re­gion.

It erred by fo­cus­ing too much on Shang­hai and try­ing to copy its Hong Kong road map, where it has suc­cess­fully op­er­ated for two decades.

“When the first store in Shang­hai opened, we saw that the cloth­ing sizes were large and don’t fit Chi­nese. M&S also ad­mit­ted that it had mis­un­der­stood the lo­cal mar­ket,” said Yang.

“The prices are high for the main­land and many of the gar­ments look like they are de­signed for mid­dle-aged peo­ple and old women,” she added.

Ac­cord­ing to a spokes­woman for the brand’s China op­er­a­tions, M&S will en­ter key cities such as Bei­jing and Guangzhou from 2015-16, where its grow­ing e-com­merce busi­ness shows it has strong brand aware­ness.

“For the long term, M&S is in the process of eval­u­at­ing po­ten­tial part­ners,” the spokes­woman added.

Yet all three brands — M&S, Old Navy and Gap — are pros­per­ing from their baby and kidswear lines, partly be­cause of the per­ceived safety of for­eign gar­ments in China. At one of Gap’s stores next to an Ap­ple flag­ship in Shang­hai’s Hong Kong plaza, its kidswear lines dom­i­nate most of the win­dow dis­plays.

Gap plans to add 25 to 30 stores in China this year, de­spite China’s GDP slow­ing to 7 per­cent, the slow­est in decades. Old Navy opened its lat­est in Wuhan, a wealthy city in Hubei prov­ince, a cou­ple of weeks ago. It is ex­plor­ing the op­por­tu­nity to open an­other in Hangzhou, an af­flu­ent city in Zhe­jiang where Gap al­ready has four stores.

Many fast-fash­ion brands and other mid-priced re­tail­ers are ex­pected to con­tinue en­ter­ing and ex­pand­ing in sec­ond-tier cities this year, Knight Frank re­ported.

“Tra­di­tional tier-two cities are ris­ing and be­com­ing the new tier-ones be­cause of the strong pur­chas­ing power of their res­i­dents,” said Mia Kuo, se­nior manager of com­mu­ni­ca­tions for Gap Greater China.

“We don’t want to build above our brand aware­ness,” said Barnes. “We don’t want to get into real es­tate that doesn’t sup­port our eco­nomic model. If we do those two things well, we will suc­ceed.”

Barnes, who was born in Las Ve­gas, over­saw Old Navy’s suc­cess­ful move into Canada and seems the very em­bod­i­ment of the life­style it pro­motes.

When China Daily first met the 46-year-old last sum­mer, he was play­ing pool at an Amer­i­can-themed sports bar while his wife and daugh­ters tucked into some fast food. The whole tableau was one of a whole­some Amer­i­can fam­ily.

For one store open­ing in Shang­hai last Au­gust, he flew over a troupe of Amer­i­can cheer­lead­ers. For its China launch, the brand brought over a march­ing band, a gi­ant gum­ball ma­chine and other pieces of Amer­i­cana.

It was a very Amer­i­can script — and it to­tally worked. Some­how, Old Navy didn’t have to change for China. China changed for it.

“It’s that as­pi­ra­tional Amer­i­can thing,” said Barnes, re­fer­ring to the road trip cam­paign. “It ap­peals to ev­ery­one.”

Old Navy’s gen­eral manager for China

Con­tact the writer at matthe­whodges@chi­nadaily.



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