Looking again at Coach — which, honestly, I do like — investors can see the problems that come with overdiversifying. In one period, Coach wanted to grow its international business and its brand-new men’s line. Both did grow, but the energy and resources taken to expand in unknown cultures and to market to a whole new customer group meant even less was focused on the core business.
Smart overseas growth
Finally, Gap’s focus on its core has given it a new way to focus on international growth, while companies such as Lululemon have been very slow to move internationally. Lululemon thinks about international expansion in the same way that it thinks about American growth. First it feels the country out, then it puts down a showroom, then it sees what interest is like, then it builds a distribution center, and on and on the list goes. It’s not a bad way to expand — in fact it’s a very safe way to expand — but it is mind-numbingly slow. The company wants to begin “pre-seeding activities” in 15 countries over the next two years. Great, but how is it going to sell the actual product?
The heavy focus on operations means slow-moving expansion. Instead of taking that approach, Gap has realigned its businesses around the brands. The manager of Banana Republic in the U.S. manages Banana Republic in Europe as well. The obvious risk is that the manager knows only one region and missteps in the expansion. But the upside is that the company thinks about brand before it makes moves in new countries. That means a better customer experience and stronger sales for Gap.
I’m expecting this week’s earning release to be excellent, and I’m going to be looking for international growth from Athleta and domestic growth from Intermix throughout 2013.
The article How Gap’s Focus on Brand Made the Difference originally appeared on Fool.com and is written by Andrew Marder.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Coach and lululemon athletica and owns shares of Coach.
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