Gap sells Greater China business for $40 million amid fiscal woes

On November 8, Chinese e-commerce solutions provider Baozun announced the acquisition of Gap’s Greater China business in an all-cash transaction of 290 million RMB ($40 million). The acquisition of both Gap Shanghai Commercial and Gap Taiwan Ltd will go into effect in the first half of 2023.

According to the agreement crafted between the two parties, Baozun has been exclusively authorised by Gap to manufacture, promote and sell Gap products in Greater China through its omni-channels, and has the right to design products in China. The arrangement can last up to 20 years with an initial period of 10 years that can be renewed twice for 5 years at a time.

The decision to sell off its China business came as a response to declining sales performance in the flagship brand as well as with the Old Navy chain, coupled with China’s stringent zero-covid policy. In fact, according to Baozun, Gap Shanghai reported a net loss of 256 million RMB ($35.34 million) after tax in 2021, compared to 456.3 million RMB ($63 million) in the previous year. As a result, in 2022 alone, the American clothing retailer cleared and shut down stores in several cities throughout China, including Beijing, Shanghai, and Guangzhou.

“The core reason for Gap’s retreat in the Chinese market is that the online business layout is not enough,” said one independent industry analyst. “Its offline channel only covers China’s first-and second-tier markets. There is no online business layout and breakthrough in the small-town and rural markets. Its product series failed to cater to local consumers like local brands.”

By partnering with market experts like Baozun, therefore, the Gap Group hopes to connect with new and existing customers and provide them with personalised and service-oriented experiences. Since 2018, Baozun has been working closely with Gap on its e-commerce business. This prior cooperation makes Baozun the ideal candidate to acquire Gap’s China business, as both parties are familiar enough with each other and can use online channels as the basis for subsequent business adjustments.

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