China Herald: Why Gap is failing in China

Fashion retailer Gap did not gain much traction in its first year in China, writes business analyst Shaun Rein in CNBC. To survive, it needs to adjust its brand image. China defines 'middle class' different from the US.

Shaun Rein:

Gap’s first problem in China is its brand image. It is not positioned as a luxury brand, hence could not demand its share of the $13.6 billion worth of luxury goods sold in 2010. Nor is it seen as a value for money brand by the majority of China’s price sensitive shoppers.

In other words, Gap has fallen into the middle class image trap like many foreign retailers including Marks and Spencer. These retailers tried to target China’s 350 million strong and rising middle class but have surprisingly attempted to evoke the same images and aspirations of America’s middle class. China’s definition of middle class is very different from America’s.

Unlike in America, no one in China views themselves as truly middle class, where they and their offsprings will work in their blue-collar jobs and watch their salaries only marginally beat inflation rates and visit Disneyworld every few years. Instead, everyone believes they or their children are destined to go from rags to riches. After all, just about everyone knows someone or even has a relative who was a farmer 10 years ago and now owns multiple villas and drives a Mercedes. There is a “can do” attitude that is electrifying the country, similar to conditions that gave rise to the baby boomers in post World War II America...

And on the optimistic side:

Gap is by no means facing the trouble that Mattel’s [MAT 27.99 0.50 (+1.82%) ] Barbie store did (it eventually shut) or American Apparel, [APP 0.91 0.02 (+2.25%) ] which is having serious problems for creating fashion lines that were far too sexy for the local market in China. Younger Chinese women like cutesy: think Hello Kitty or Snoopy. But in order for Gap to capture what is becoming the must-win market for retailers, it is going to have to consider changing its sales channel strategy and either crafting a new image or introducing brand lines to the marketplace.