October 20, 2010, 2:29 PM

The world according to Gap

Mark Brohan

Research Director

If there’s any “gap” in Gap Inc.’s multichannel business, there’s no doubt where the void will be filled: online and overseas.

Every year around mid-October at Gap’s annual analyst meeting in New York, Gap Inc. Direct president Toby Lenk provides a briefing on what’s new with all things online. For me, this is an event not to be missed. For starters, the e-commerce update is about as detailed as Gap gets on these types of things. For another, Lenk’s briefing is a look at the current mindset of what the big chains should be thinking about when it comes to their web channel.

This year’s briefing didn’t disappoint, beginning with the fact that Gap, No. 23 in the Internet Retailer Top 500 plans to nearly double web sales in the next three years by going even more international.

Gap is counting on its European expansion and an earlier acquisition of Athleta to help the chain double its annual web sales to $2 billion by 2014 and use its web channel to generate $500 million in yearly operating income, the company says.

Gap, which last month launched dedicated e-commerce sites for U.K.-based customers of its Gap and Banana Republic apparel brands, expects to be up and running on the web in 10 European nations by the end of the year.

“After crossing the $1 billion threshold in net sales in fiscal 2008, Gap is working to reach $2 billion in annual sales and $500 million in operating income by fiscal 2014,” Lenk told Wall Street analysts. “This growth will come from a variety of sources.”

Gap now has an online presence in 80 countries and in 2011 Gap will launch web stores for its Gap, Banana Republic and Old Navy brands in Japan, Lenk told analysts.

To reach $2 billion in annual web sales within three years, up from 2009 web sales of $1.12 billion, the company will continue to grow overseas, leverage its investment in Athleta, an active apparel retailer Gap acquired for $150 million in September 2008, and add new lines of merchandise to Piperlime.com such as more apparel, exclusive collections and men’s fashion. “To gain market share in North America, the company plans to test another Athleta store next year and continue driving the growth of Piperlime,” says Lenk.

It’s pretty clear that the web is driving any and all growth at Gap these days. In the second quarter ended July 31, Internet Retailer calculates the web accounted for 7.8% of total sales compared with 6.9% in the prior year. More important, the web accounted for nearly one-half—$34 million—of Gap's total growth in sales of $70 million in the second quarter.

Gap certainly isn’t the first big online retailer to count on overseas expansion for growth—but it is among the most ambitious. Overseas growth in 2011 will include the launch of web stores for 17 countries on Gap’s European platform. That’s in addition to the launch of stores in 10 European countries scheduled through the end of this year.

Gap plans to localize currency and languages on its international sites in early 2011, offering transactions in euro currency on the European continent and pounds in the U.K. “We’ve already localized language up in Canada for French and English,” Lenk said. “We’ll localize language in any country where it’s important enough—Italy, France, Germany. We have that capability.”

Gap also plans to continue expansion into China, including introducing multichannel operations, and expects to roll out Gap Online in Japan, he said.

That’s a busy agenda for anyone, even for as big a retailer as Gap, which generated online sales of $1.12 billion in 2009. But what’s the alternative? Answer: None. Unlike some other chain retailers who remained almost entirely focused on stores despite having a growing web channel of their own, Gap sees what the future holds online and overseas and is moving aggressively.

While other chains are worried about squeezing more sales from their stores in Kokomo and Walla Walla, Gap is looking ahead and out to conquer the world—online.

If you are in the chain retailing business and want to create your own or a bigger online window to the world, give a listen to Gap’s global strategy here: Gap webcast.  

You and your CEO will be glad you did.


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