By Alokananda Chakraborty
US clothing retailer Gap is all set for its second coming in India, this time on the back of a partnership with Reliance Retail, the deal for which was signed earlier this month.
The announcement to sell its brands in the local market via a long-term franchise agreement came nearly two years after Gap parted ways with its master franchisee for India, Arvind Fashions. The partners said it was a mutual decision, following “circumstances arising after the outbreak of Covid”.
Experts, however, believe there was more to it. For one, Arvind probably wanted to cut its losses. Gap, on the other hand was running out of patience, frustrated at not getting a bigger pie of the $7-billion western branded apparel market in India that is tipped to grow to $16.6 billion by 2026. That, they pointed out, might explain the alacrity with which Gap signed up a new partner.
Many believe Reliance could be the ideal fit for Gap’s global expansion plans. Ankur Bisen, senior partner and head, retail, consumer products and food, Technopak said, every brand evaluates its strategy from time to time and aligns partnerships in accordance with its priorities. “This Gap-Reliance partnership is just that,” Bisen said, adding Gap possibly was looking for a more aggressive partner. “Maybe Gap felt it wasn’t getting the right sort of attention the brand needed.”
Angshuman Bhattacharya, national leader (consumer product and retail sector), EY India, observed that brands like Gap have huge potential in India and there is a huge void in the ready-to-wear segments for kids, men, and women. “There is a large unorganised market that is witnessing conversion into branded, driving double-digit growth for these segments,” Bhattacharya said. Indeed, the branded kids’ wear segment is pegged at a chunky $3 billion.
Moreover, the e-commerce adoption wave has also expanded the reach and consumption of brands. “Softer real estate prices promise to deliver better unit economics for retailers to drive value,” Bhattacharya explained, adding that while the potential of the huge middle class has been around for two decades, digitisation is now driving a rapid inclusion curve for brands to build scale.
Reliance Retail will introduce Gap brands through a mix of exclusive and multi-brand stores and on digital platforms. For now, Gap’s other popular brands like Banana Republic and Old Navy are not part of the deal. Industry observers also said Gap may have other issues to handle as the market has seen an increase in competitive intensity with brands like Zara making deep inroads already.
While all Reliance Retail partnerships have not been runaway successes, it has been the most successful brand aggregator till date. Harminder Sahani, founder and managing director of Wazir Advisors said the company has all that it takes — convenience store chains, supermarkets, specialty and online stores — in its repertoire. “So the partnership with Reliance will give Gap both the reach and the scale it is aiming for,” he said. Sahani said Reliance Retail has a proven track record in operating efficient omni-channel retail networks, scaling local manufacturing and driving sourcing efficiencies.
Internationally, Gap is not exactly in a sweet spot as it reels from execution issues with Old Navy, its biggest brand. With consumers ditching casuals and athleisure for formals and partywear, product assortment at Old Navy “continues to be out of sync” with the shift in preference, Gap executives said during a recent earnings call.
Will brands like Banana Republic and Old Navy follow suit? “When they do, the obvious choice would be Reliance Retail,” said an observer.