While Gap Inc. has struggled for years to reclaim its former glory in the mall, the global clothier has enjoyed virtually consistent gains in one area: e-commerce.
It started investing a decade ago in its U.S. online sites, gradually speeding them up and, by 2008, blending its namesake, Old Navy, Banana Republic and other chains under one cyber-umbrella to encourage cross-shopping. It bolstered the e-business by adding specialty shopping sites for shoes and athletic wear.
Now, faced with growing economic uncertainty and skittish consumers, Gap is betting heavily on e-commerce beyond its U.S. home base. Tuesday, it officially launched its Canadian e-tailing sites for its three main chains. Earlier this month it rolled out its sites in the U.K. and will do so in China later this year. By the end of 2010, it will offer shipping to 65 countries.
"We are a big growth engine for the company," said Toby Lenk, president of Gap's online division. "We're the little engine that could."
Gap badly needs an engine of growth. For much of the past decade, it has grappled with fashion missteps, shifting leadership and savvier rivals such as teen retailer Abercrombie & Fitch and Swedish fast-fashion expert Hennes & Mauritz (H&M).
To turn itself around, three years ago Gap hired a new chief executive officer: Canadian retail superstar Glenn Murphy, who had steered Shoppers Drug Mart Corp. to new heights. At Gap, he has improved profit by shaving costs, closing underperforming stores and re-focusing the key chains. But the mainstream Gap - which accounts for about 40 per cent of overall sales - still suffers.
Mr. Murphy keeps a close eye on e-commerce, as part of his big international expansion. In 2008, Gap acquired online-only Athleta, which emulates popular yoga chain Lululemon Athletica. It also is boosting its online selling by expanding its high-end Piperlime site, which started with shoes but today is more like a virtual department store carrying accessories and apparel also. Now Gap is mulling moving these cyber-businesses beyond the U.S., Mr. Lenk said.
Not everyone is as bullish as Gap's executive team about the e-commerce bet. "Until traffic picks up [in]the mall, we remain cautious," Randal Konik, retail analyst at Jefferies & Co. in New York, warned in a report last Friday.
Still, the numbers show that Gap is making headway. Last year, online sales made up about $1.1-billion of revenue or about 10 per cent of its U.S. sales. Growth in the online business is far outpacing that in its conventional retailing: in its second quarter, Gap's virtual sales jumped 15 per cent, while overall sales rose just 2 per cent.
E-commerce profit margins are also attractive; pre-tax operating profit for the online business is about 22 per cent of sales, almost twice as much as the company's store profit, Mr. Lenk said. And Gap has benefited from its strategy of linking its various chains' sites. It sends shoppers to its own cyber-stores rather than a rival's if they can't find an item, he said. After it introduced its cross-shopping strategy in mid-2008, customer spending per purchase rose 8 per cent.
"Before, they might click to a competitive brand," he said. "Now they're more likely to stay in the [Gap]family."
Even so, Gap faces hurdles in international markets. In Canada, e-tailing lags far behind that of the U.S., with only about 3 per cent of overall retail sales here generated from e-commerce, according to Statistics Canada.
And 51 per cent of Canadians are still concerned about fraud and online security in making purchases, market researcher NPD Group data shows.
While few apparel retailers in Canada sell their goods online, the market is getting more crowded. Fashion and sporting goods retailer Sporting Life and men's wear specialist Harry Rosen are among the more recent contenders, while Sears Canada and Roots are established e-tailers.
Gap is counting on its foray into e-commerce in Canada to further shake up the market. "By virtue of us doing what we're doing it will help the online apparel market grow," Mr. Lenk predicted.