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Gap has a new plan to grow its Athleta, Janie and Jack businesses overseas

Key Points
  • Gap Inc. says Thursday it's opening up its Athleta and Janie and Jack brands to be franchised outside the U.S.
  • It's already been licensing its namesake Gap, Old Navy and Banana Republic brands to outside real estate partners.
  • Doing this, it's opened 100 franchise locations within the last three years.
Source: Athleta

Gap Inc. has new plans to grow its Athleta and Janie and Jack businesses outside the U.S.

And it will do so by using its franchise business, which allows Gap to license its brand names to outside partners, who then are able to operate stores for the company in regions — such as Central America and the Caribbean — where Gap doesn't already have a strong footing. Or where it doesn't understand all the nuances of different corporate cultures.

"We've come to realize there is local expertise that frankly we don't have," Roy Hunt, the senior vice president of Gap Inc.'s global franchise and strategic alliances division, told CNBC in a recent interview. "But we go through a lot of different steps to make sure we have the right partners. ... For the most part, we are very selective."

Gap has already been licensing the rights to its namesake Gap, Banana Republic and Old Navy brands in nearly 40 countries, amounting to it having more than 500 franchisee-operated locations around the globe. The franchise model is very common in the fast-food industry — for example, with McDonald's and Subway. It's what has allowed a lot of these chains to grow so rapidly.

Gap opened its first Gap franchise store in Singapore in 2006.

Gap said on Thursday, as part of a meeting it was holding with its management team and Wall Street, that it will begin franchising the Athleta and Janie and Jack brands internationally. It said it will start by looking for partners to help it open stores within other stores and build out websites globally. It said it ultimately hopes to find partners to help it open freestanding Athleta and Janie and Jack franchise stores overseas.

"Given the premium, gift-worthy children's looks of Janie & Jack and the versatile, sustainable women's performance apparel of Athleta, we feel the two brands will resonate with customers in new and existing markets internationally," Hunt said in a statement about the announcement.

The growth of Gap's franchise business has accelerated more recently, as the company says there has been more momentum for some of its brands overseas. It says it's opened 100 franchise locations outside of the U.S. within the last three years. Within the U.S., all stores are still owned and operated by the company.

The company also says that a substantial driver of sales overseas stems from Gap's logo-plastered products, which account for nearly 30% of total sales in the franchise division each year. During the busy holiday season, Gap said some international markets bring in more than 40% of total sales from Gap-logo product.

According to Hunt, there's still a huge opportunity for Gap to grow its franchise business in markets such as Europe, Asia and Central America. "If you think about it, the primary benefit we have in doing this is we are not investing our own capital ... the partner is investing capital to build out the business," he said.

The announcement from Gap Inc. comes as the company is in the midst of splitting into two publicly traded businesses, one for Old Navy by itself, and another for Gap's other brands, including athletic apparel brands Athleta and Hill City. Then, Gap acquired children's clothing retailer Janie and Jack's intellectual property, its website, customer data and other assets for $35 million, when the brand's previous parent company Gymboree filed for bankruptcy earlier this year.

The company has been struggling in the U.S., as its apparel brands face heated competition from the likes of fast-fashion retailers Zara and H&M. Gap Inc. sales overall fell 2% in the latest quarter.

It has said that as it shutters some of its underperforming Gap and Banana Republic locations, which have been weighing on the overall business, it plans to open more Athleta and Old Navy stores.

The company as of Aug. 3 had 3,356 company-operated stores and 521 franchise locations globally.

Gap Inc. shares are down more than 25% this year.

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