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All About Gap’s $40 Million China Deal

Gap Inc. continues to lighten its international operational structure, inking a $40 million deal with Chinese e-commerce service provider Baozun Inc. to acquire its Greater China business.

Baozun’s interest in Gap’s China business is to further its development of Baozun Brand Management (BBM), a new business line to leverage its technologies servicing brands to engage in deeper relationships with those brands. Baozun said it believes its China-for-China strategy and technology and data-driven approach in product and consumer operations “will empower” Gap’s China business for sustainable future growth.

“Technology is at the center of our strategy, and it is our competitive advantage,” Vincent Qiu, Baozun’s chairman and CEO, said. “With Gap’s brand equity and significant size in Greater China, BBM will start at a higher point to bridge the digital commerce/brick-and-mortar divide at scale and do what few have done in retail.” Qiu said BBM plans to add retail talent, supply chain capabilities and IT systems to build an ecosystem that would also help serve its other brand partners.

“We are deeply committed to our customers in Greater China and know that it is a market with enormous potential for our brand,” said Mark Breitbard president and CEO of the Gap brand. “The growth that we are unlocking through local partnerships with market experts like Baozun is allowing us to not only connect with new and existing customers, but to provide them with personalized, service-oriented experiences.”

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Breitbard has been moving Gap’s international operations toward an asset-light model in the aftermath of Covid. The review of operations was part of a global restructuring process that began pre-pandemic. The restructuring eventually included the move to close 175 North American mall locations so Gap could focus instead on off-mall locations.

Gap first looked to lighten its asset load overseas in October 2020. Breitbard, at the time, said Gap was looking to “amplify” its “global reach,” but in “asset-light ways.” Eight months later, Gap said it would close 19 doors across the U.K. and Republic of Ireland. Over 50 Gap-branded stores, e-commerce operations and outlet stores were not impacted by the U.K. closures. By September 2021, Gap disclosed Next Plc as its new franchise partner through a joint venture, the same month that Gap was set to shutter its remaining 81 sites across the U.K.

Breitbard said then that the joint venture gave Gap the benefit of Next Plc’s “extensive omni platform and their e-commerce expertise” as the U.K.’s No. 1 online apparel retailer. The deal, which Breitbard said advanced Gap’s asset-light European strategy, included selling Gap product on the Next Plc website and in Gap-branded shop-in-shops at Next Plc flagship locations, but not any freestanding Gap stores on British high streets.

One week later, Gap signed a deal to cede its French operations to Hermione People & Brands, the retail arm of FIB Group via a franchising agreement. And in November 2021, Gap agreed to have Italian apparel retailer OVS take over and operate 11 Gap stores across Italy.

As for China, Gap has closed stores across more than 15 Chinese cities since the beginning of 2022. The first Gap store in China opened in 2010.

The Gap-Baozun all-cash transaction has an initial consideration of $40 million that’s subject to customary closing conditions and certain adjustments, with an outside deal limit of $50 million. The transaction is expected to close in the first half of 2023.

In addition, Baozun and Gap entered into a series of business arrangements that gives the former the right to manufacture, market, distribute and sell Gap products in Greater China, and create exclusive product for the local market. The arrangements have an initial term of 10 years, and can be renewed twice. Each renewal term is for a five-year period.