Home > Uncategorized > Good for Gap, Bad for…?

Good for Gap, Bad for…?

As usual, the news of a company closing something in the U.S. and opening something else in China gets spun as a sign of relative U.S. decline. Journalists can’t seem to get over the “trade-as-a-sports-competition” analogy, where a win for one side must mean a loss for the other side.

Gap is closing stores in the U.S. and opening new stores outside the U.S. Bad sign for the U.S., right?

But take a closer look:

  • Gap says it’s reducing its square footage by 10% but reducing stores by over 30%. That must mean it’s closing its smallest, presumably least efficient stores. A 10% reduction focused on the worst performing locations isn’t as bad as “stores closing in the U.S., moving to China” sounds.
  • If Gap didn’t have access to foreign markets, it would have to chose lower-performing investments in stores in the U.S. It’s likely the trend that’s bringing greater market access for U.S. retailers in places like China is simply opening up better investment opportunities for Gap.
  • There is almost certainly an export component of this move that benefits the U.S. Domestic suppliers of services (legal, design, systems, and even management) are more likely to get more business from growing foreign stores than from struggling domestic ones.

It’s not necessarily bad news for anyone. Chinese consumers get more choices, and a U.S. company gets additional, better product markets.

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