Old Navy Debuts in China with Very American Outlook

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It may be prominently billing itself as “from San Francisco,” but it was Los Angeles’ USC Trojan marching band that performed at the March 1 opening of China’s first Old Navy store.

The rainy Shanghai opening featured other bits of Americana like cheerleaders, the stars and stripes, a giant gum ball machine, Caucasian bellhops in tails, and vintage cigarette girls. A man dressed as a giant camera snapped photos of visitors under a giant scoreboard—Old Navy vs. Guest—that lit up the floor. Others handed out hundreds of shiny blue and white balloons. A fire engine red, double decker tourist bus emblazoned with the Old Navy logo sat outside the store.

Localization may be all the rage for businesses in China, but there was nothing about the Old Navy opening that was Chinese. The store’s signs are all in English. In fact, Old Navy doesn’t even have a Chinese name. That appears to be the brand’s strategy for China, though it is likely a doomed one.[more]

“Old Navy. San Francisco, California” reads the huge English-only sign at the store’s new location on tony West Nanjing Road. The 22,000 sq. ft. store offers the same family clothing found at its US locations.

Shanghai’s Old Navy will be followed by four more in China’s Tier 1 cities this year. Old Navy’s parent, Gap Inc., also intends to expand its number of Gap stores to 111 in 2014 and there is desire, though no concrete plans, to bring Gap’s other store, Banana Republic, to China as well. The international push is all part of Gap Inc.’s omnichannel approach to retailing expansion, giving equal attention to its physical and online retail hubs. But while China’s spending on clothing is booming, Old Navy may face a more difficult future in China than compared to other brands. 

In Old Navy’s home market, the brand fits into a niche: cheap, bland clothing for budget-conscious and plus-size-seeking customers. But in China, none of those attributes will apply, especially the budget-conscious part. Thanks to taxes, clothing at stores in China (like H&M and Gap) regularly cost more than their US counterparts. Though, judging by the prices in its new China e-store, Old Navy’s prices will be a hair lower than many of its competitors.

Old Navy will face Uniqlo and H&M, the wildly popular fashion retailers that both have a better finger on the pulse of China’s fashion tastes. (China is H&M’s fastest growing market; and half of Uniqlo’s sales come from there.) Meanwhile, Old Navy says its China stores will make “current American fashion essentials accessible for every family.” China may look to the US for many things—motorcycles, alcohol, movies—but “current American fashion essentials” is not one of them.

And it’s not just Uniqlo and H&M. Old Navy also faces the Dutch chain C&A and Spain’s Zara. Then there is Esprit and Bossini, Benetton, Adidas, Levi’s, Lee, Nike, Jeanswest, Giordano as well as China’s increasingly popular homegrown brand Metersbonwe. And, of course, Old Navy will even directly face off against Gap.

The one way that Old Navy’s five stores—and its new China website—could pay off is as showrooms for their stateside locations. It’s well known that Chinese travelers spend thousands of dollars more overseas than their counterparts. This is true, in part, because of how expensive duties make items in their home market.

For years now, luxury retailers have eaten the cost of huge rents in swanky downtown Shanghai to maintain flagship stores that function more or less as showrooms. The travelers then pick up the goods, for less, on their next trip to Paris. But studies show that Chinese travelers are increasingly hitting up outlet malls. Outlet mall company AWE Talisman said it saw its Chinese visitors numbers more than double last year. The company added that those Chinese shoppers spent 50 percent more than its other shoppers. If Old Navy could make travelers aware of its brand, there might be some serious growth potential. 

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