Gap sells its China business after 12 years | Mint

Gap sells its China business after 12 years

The deal will allow Gap to serve the market through a more asset-light, cost-effective model and to benefit from the local and technology expertise of Baozun (Photo: Mint)
The deal will allow Gap to serve the market through a more asset-light, cost-effective model and to benefit from the local and technology expertise of Baozun (Photo: Mint)

Summary

Sale of Gap’s business to e-commerce retailer Baozun for up to $50 million comes as retailers struggle under China’s zero-tolerance Covid-19 policy

Gap Inc. will sell its business in China and Taiwan to Chinese e-commerce services provider Baozun Inc. for up to $50 million, bringing an end to a bumpy 12-year foray in the region.

Baozun, which is listed both on the Nasdaq and in Hong Kong, said Tuesday that it had signed a deal to acquire Gap Greater China, a unit of San Francisco-based Gap, in an all-cash transaction with a primary consideration of $40 million, subject to adjustments within a limit of $50 million. The deal, expected to be completed in the first half of 2023, is subject to regulatory approval.

Gap said separately that Baozun, which runs e-commerce and store operations for a variety of brands in China, will operate its stores in the Greater China region under a franchise agreement, adding that the move is the result of a strategic review of its worldwide businesses announced two years ago.

The deal “will allow Gap to serve the market through a more asset-light, cost-effective model and to benefit from the local and technology expertise of Baozun," Mark Breitbard, president and chief executive of Gap Brand, said.

The deal comes as Gap is struggling with years of slumping sales at its flagship brand and, more recently, problems at its Old Navy chain, which accounts for more than half of total revenue. In September, The Wall Street Journal reported that Gap planned to cut about 500 corporate jobs in the U.S. and in Asia to cut expenses.

China’s zero-tolerance policy to Covid-19, and the widespread and unpredictable lockdowns that have sprung from it, has been particularly hard on bricks-and-mortar businesses in the country. Consumer spending has plunged and economists have reassessed their growth forecasts for the world’s second-largest economy.

Gap first entered China in 2010 with four stores located in Shanghai and Beijing, and expanded to 100 stores by 2014 across China and Taiwan. Some of those stores have closed in recent years.

Like many Western retailers, the company hit snags navigating the changing and politically charged consumer landscape in China. In 2018, the company came under fire on Chinese social media for selling a T-shirt depicting a map of China without Taiwan, disputed islands in the South China Sea and parts of the semiautonomous regions of Tibet and Xinjiang. The company quickly apologized. China claims the self-governing island of Taiwan as an integral part of China.

More recently, the company’s business has shown other signs of trouble. In a filing with the Hong Kong stock exchange on Tuesday, Baozun said the purchase includes Gap’s Shanghai and Taiwan subsidiaries. The Shanghai company last year reported a net loss of 256.1 million yuan, equivalent to about $35 million, while the Taiwan company lost 200 million New Taiwan dollars, equivalent to about $6.3 million, Baozun said.

Vincent Qiu, Baozun’s chairman and chief executive, said the acquisition would accelerate the company’s evolution into a “technology-driven, omni-channel commerce player."

 

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