Gap to enter Australia, first store in Melbourne by end of June

American retailer Gap has signed an agreement to bring its brand to Australian shores following years of speculation, in the latest sign US companies are flocking to the local market attracted by the strength of the franchising sector.

But while there should be enough demand for the company’s product, one retail expert wonders whether it will struggle to compete against Australia’s fashion-conscious market.

It comes as a number of other American retailers, including the NexCen brand of food and beverage chains, are in the process of location-scouting and finding potential franchisees.

Gap confirmed its plans overnight with the company signing a franchising agreement with Brand Republic, a subsidiary of Busby Holdings Australia. Stefan Laban, vice president of strategic alliances for Gap, said in a statement the first location will be in Melbourne’s Chadstone Shopping Centre and will open before June.

The agreement states that Brand Republic will purchase merchandise from Gap and that it must adhere to the company’s standards.

“The country has a strong retail sector and an underserved market of consumers who appreciate the casual, American style that Gap represents. We’re confident that we have the right partner to help us bring Gap to consumers in Australia, given their success bringing other international brands to the Australian marketplace.”

It is understood the company hopes to open up to 15 stores within three to four years. Currently it operates in 24 different countries and operates 136 franchised stores, with the majority company-owned.

Phil Bonanno from Good Year & Partners says Gap’s decision to enter the Australian market is a testament the country’s strong franchising system.

“I think it’s well documented Australia has the strongest franchising market in the world. Why not tap into that? I think they see that while the opportunity here is big, it’s not huge, but franchising internationally will offer some growth for the company. Australia is attractive for a number of reasons, it’s a safe market.”

But Bonnano says he will be interested to see how Gap prices its products in Australia, as it is known in the US for its “extremely competitive” prices, and wonders how it will stack up against Melbourne’s crowded fashion scene.

“If you think about what built their business, it was all about having an incredibly competitive cost base. It was always quite cheap. But my concern is, in that I liken it to Starbucks, is that Australia is a very fashion-forward market so I wonder where the appeal will be overall.”

Starbucks struggled to compete with Australia’s strong coffee and cafe culture, forcing it to close over 100 stores last year.

“Chadstone is one of the strongest fashion outlets in the country, and I think they will do fine in the certain segments of demand but for the fashionistas, I wonder if they will see it for what it’s worth. I’ll closely be watching the cost points.

Gap is looking overseas as its home finances continue to suffer. It has lost market share to competitors, such as H&M, as it recently reported that comparable store sales fell by 3%, compared to a drop in 2008 of 12%.

But Bonnano says the company will be able to leverage pent-up demand for the company from Australians who have either shopped at Gap overseas, or have simply been aware of the brand.

“I definitely think there is an element of awareness and part of this is reflected in Australians’ consumer travel affairs. They know what is going on. They do have brand recognition here, and internationally, not just in Australia, they are moving to cash in on that.”

Gap is looking to open its first stores in China and Italy soon, while there are already locations operating in Asia, Latin America and the Middle East.