Fashioning a comeback: Gap rebrands in China with Baozun

Once the cornerstone of many Americans’ closet, Gap has fallen from its pinnacle of cool. Lacking standout products, the San Francisco-based apparel brand has faced years of slumping sales, most recently reporting a 14 percent year-on-year decline globally in the quarter ended July 29. The retailer has encountered even more roadblocks in China, where it struggled with late market entry, localization and substandard products, on top of a wave of store closures during the pandemic. Gap needs a win. Cue ex-Mattel executive Richard Dickson. On August 22, the former toy giant president officially assumed the role of Gap Inc.’s new CEO, filling the spot Sonia Syngal had left vacant since July 2022. Although Dickson lacks a fashion background, the executive has established himself a reputation for reenergizing nostalgic Mattel-owned brands like Barbie and Hot Wheels, something the fashion icon could use. But will Dickson be “Kenough” to put Gap back on track? Here is a closer look at Gap’s challenges over the years and its efforts to regain cultural relevance in China and abroad. How Gap fell out of fashion: A quick recap Gap’s denim jeans and classic logo hoodies were ubiquitous in the 1990s. Offering relaxed and reasonably priced staples, the brand could be found at almost every suburban American mall; by 1999, it had more than 2,000 stores globally. But this was a blessing and a curse. Overexpansion became a financial burden, particularly as malls lost customers to e-commerce. Fast fashion brands like Hamp;M and discount retailers like TJ Maxx also started to take off in the early 2000s, selling affordable runway-inspired apparel that lured away Gap’s core consumers. As aesthetic preferences changed, Gap struggled to win over the next generation of shoppers. These problems were compounded by retail challenges in China. Despite entering the country in 2010, the denim maker lacked e-commerce penetration in markets outside of first and second-tier cities. It didn’t help that fast fashion rivals were gaining steam as well, with domestic brands now accounting for roughly 70 percent of market share, according to Daxue Consulting. Amid these difficulties, Gap Inc. decided to sell Gap China to e-commerce solution provider Baozun for 50 million in February 2023. The e-commerce service provider is now responsible for the brand’s business operations in Greater China and figuring out how to unlock its potential. Refocusing on products And unlock it has. As part of the agreement, Baozun gained exclusive rights to design, manufacture, promote, and distribute all Gap products in the region. This has enabled the company to address a glaring problem in Gap’s China strategy: a lack of market-specific products. “It is critical for us to interpret the DNA of the Gap brand in a way [that is] relevant for China, rather than simply copying and replicating Gap globally,” said Sandrine Zerbib, President of Baozun Brand Management, on an earnings call in May this year. “We’ve put together a design team with a new art director. We base our designs on more data insights and execute with a much shorter supply chain cycle.” In February 2023, Gap launched its first local collaboration with the niche Wuhan-based label Attempt, offering elevated basics with an industrial twist. And in July this year, Gap China unveiled a new campaign called “I am Gap” featuring three new clothing collections for Chinese youth called Modern Preppy, Urban Workwear and Premium Blue, offering collegiate charm, functional fabrics, and neutral basics, respectively. “Granting Baozun design rights for Gap products in China highlights the significance of localized designs for Chinese consumers,” says Elisa Harca, co-founder and CEO of China influencer marketing agency Red Ant Asia. “China-exclusive collections can reshape Gap’s image by showing a commitment to current trends, fostering cultural affinity, differentiating from competitors, and appealing to a broader demographic.” “China-exclusive collections can reshape Gap’s image by showing a commitment to current trends, fostering cultural affinity, differentiating from competitors, and appealing to a broader demographic.” Rebuilding Gap China’s youthful image Speaking of trends, Gap China’s revamp couldn’t have come at a better time. The back-to-school basics that once made it popular in the 1990s are now back in style thanks to young consumers’ love of American retro aesthetics and urbancore. On Xiaohongshu, the campaign hashtag #Iamgap has over 4 million views, with celebrities and KOLs alike tagging the fashion house in their outfit inspiration posts. “The way Gap China leveraged the ‘American campus style’ and urbancore trend is smart because KOLs are part of the PR strategy, which enabled them to share their new tone and new message,” says Anaïs Bournonville, co-founder of French-Chinese agency Reverse Group. “To reestablish cultural relevance, brands like Gap should go a step further and implement consumer understanding and partner with local KOCs.” This includes addressing larger concerns like China’s economic slowdown to avoid appearing disconnected from reality. “A lot of topics on Xiaohongshu mention the price of Gap products, that are perceived as too expensive. [Gap] should have leveraged KOCs to explain the reason behind the pricing, show they understand current money constraints and communicate with their potential customers,” Bournonville says. An uncertain future Thanks to these efforts, Gap China is off to a good start. In February and March 2023, Gap China generated 25.9 million (189 million RMB) in revenue while gross margin reached a new record of approximately 55 percent, a 10-plus percentage point improvement from a year ago on a comparable basis. Although revenue fell 30 percent YoY, this was largely attributed to Lunar New Year falling in January instead of February this year, and the closure of 86 stores before Baozun took over, stated the company. But even in new hands, Gap China has its work cut out. Baozun itself is still reporting losses on an operating and net basis, albeit narrower in the second quarter of this year. Plus, its previous challenges didn’t magically disappear, particularly the stiff competition that has driven fellow fast fashion labels out of the market, including sister brand Old Navy. And of course, there’s the matter of parent company Gap Inc.’s new boss. “There is a total lack of fashion expertise and international experience in the current top management. Hence, [Gap Inc.] had no idea how to operate successfully in foreign countries like Europe or China,” says Fabio Becheri, a marketing executive who had previously worked at Kering and Gucci for almost 20 years. “The new CEO should aim to emphasize long-term growth with a product and merchandising-centric strategy, emotional marketing, and inventory control, fostering sustained success.” But Bournonville believes the CEO change is unlikely to have a major impact on Gap China itself, unless Dickson “takes a new road.” Gap is just at the beginning of its transformation. How it does in the coming years will either offer other brands a playbook on making a comeback, or a lesson on what not to do.

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Fashioning a comeback: Gap rebrands in China with Baozun