Can Gap, Inc. Fill the Luxury Gap?

gapWith its purchase of Intermix announced last week, Gap, Inc. hopes to benefit from the addition of a multi-brand specialty retailer of luxury and contemporary women’s apparel and accessories.

It’s a strategy that is pulling Gap — known mainly for its casual, urban chic and active wear brands for men, women and children — into a highly competitive sector.

Intermix, which operates 32 boutiques across North America, will see its visibility and resources enhanced, thanks to Gap’s large global footprint and net sales of $14.5 billion in 2011. Intermix already has relationships with such designers as Yves Saint Laurent, rag & bone, Diane von Furstenberg, Helmut Lang, Sergio Rossi, Givenchy and Herve Leger, to name a few,   

An article in The Wall Street Journal notes that Gap plans to double the number of Intermix stores, followed by a push to expand overseas, as part of an effort to compete with such “fast-fashion rivals” as H&M and Zara. Annual sales for Intermix are approximately $130 million, according to a source quoted in the Journal article, which also reports that Gap will be closing 20% of its North American namesake stores.

The company offers its products under the Gap, Banana Republic, Old Navy, Piperlime and Athleta brands in 3,000 company-operated stores, e-commerce sites and more than 300 franchise stores.

How do some marketing experts view Gap’s acquisition, especially with regard to its ambitions in the luxury sector? “I suspect that the benefits of this purchase are not primarily in gaining a foothold in the luxury market, but in energizing and uplifting its existing brands,” says Wharton marketing professor John Zhang. “There is a good deal of synergy here in terms of product developments, sourcing and distribution channels…. Doesn’t Intermix focus on the young and fabulous?” he asks. “Gap surely focuses on the young and aspiring fabulous. It seems to be a good fit.”

Should Gap, given its aspirations to move into the luxury market, be concerned about the weak economies of many foreign countries, especially in Europe? “Economic woes obviously do not affect all income brackets equally, and both high-end and low-end stores tend to do better in bad times,” Zhang notes. Also, “Intermix is a niche player. Its sales are too insignificant in the grand scheme of things to overly worry about macro-economic factors.”

Erin Armendinger, managing director of Wharton’s Jay H. Baker Retailing Center, agrees. “The luxury sector is already crowded, but Intermix has a narrow and clear segment that they speak to. In return, they have a loyal customer base, and if they continue to be clear in their merchandising and marketing, their customers will stay with them. In addition, others — like Barneys [a chain of luxury department stores headquartered in New York City], which used to be more in this niche — are moving a bit more mainstream.”

She describes Intermix not as “’high fashion’ but [more as] contemporary” — i.e., younger – “and a little rock-and-roll. It is definitely closer to Piperlime [Gap’s online fashion boutique] than Gap. That being said, I think Gap is planning to keep the Intermix brand intact and utilize their infrastructure on the back-end.” The challenge will lie in “Intermix not losing who it is. With the founders on board, I am hopeful that it won’t, but you never know what happens when entrepreneurs meet a big corporate parent” — a reference to Gap’s decision to keep Intermix co-founder Khajak Keledjian on as creative director.

Gap’s strategy, Zhang notes, clearly has potential. Even with this acquisition, consumers won’t be associating Gap merchandise with high fashion or luxury. “It’s why Gap is not selling luxury goods and Intermix [is]. It would be a harder job for Gap to develop its own luxury brand.”

 

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