American stores go bananas for UK despite the gloom

Banana Republic is leading a new fashion invasion from the States, in defiance of economic forecasts

A new crop of US retail chains is vying to convert the special relationship between British consumers and American brands into cash by launching themselves into the UK market. The fashion press is in a frenzy, but retail experts are dubious that this latest American invasion will end happily, given the gloomy outlook for retail spending.

Just 13 days into the new year and already the City has seen calamitously poor Christmas trading updates from Marks & Spencer, Next and Dixons. Shoe retailers such as Dolcis and Stead & Simpson are battling administration and Sir Stuart Rose, M&S's chief executive, has warned that trading will remain tough until well into 2009.

Nevertheless, Banana Republic, Gap's younger, chic-er sister, is one of a clutch of retailers to have earmarked London as the first outpost of their expansion into Europe.

Intermix, a New York-based boutique chain, Theory, a designer clothing brand, and Anthropologie, an older version of Urban Outfitters, are all scouring London for potential sites. They follow on the heels of Abercrombie & Fitch, the brand beloved by US college students, which opened last Easter. A&F is also seeking sites for its younger-focused Hollister chain.

Steve Sunnucks, the president of Gap Europe, said customers had been clamouring for the group to launch Banana Republic in Britain for years. "The timing of the opening was led by the considerable interest and awareness of the brand in the UK, combined with a great location on London's Regent Street becoming available."

The chain, selling preppy, upmarket office wear, will open a three-storey outlet in late March in part of the old Dickins and Jones building, also occupied by Armani Exchange.

Despite the hype building up ahead of Banana Republic's arrival – fashion magazines have tipped its opening as the event of the spring – some retail experts are sceptical about its prospects. Although the chain is the best-performing of Gap's stable of brands, which includes Old Navy, it had a poor Christmas, missing its targets with a 1 per cent drop in underlying store sales in December compared with the previous year.

It also had a rollercoaster 2007. Its underlying sales, a key measure that strips out the boost from any new space opened, either failed to grow or fell for five months of the 12. In addition, although Banana Republic is popular with Britons flexing their credit cards in America – giving it unusually strong brand recognition in the UK for a company with no European outlets – that could change when shoppers discover how much the company intends to charge for its clothes this side of the Atlantic.

A spokeswoman said its ranges would be priced "higher" than in the US, reflecting its desire to be regarded as a premium brand alongside competitors such as Reiss and Jigsaw. It will also have to claw back the higher cost of doing business in the UK. Dresses are likely to cost upwards of £100, at least double their Gap equivalents.

Richard Hyman, who runs Verdict Consulting, a retail consultancy, said: "It will certainly struggle to persuade people of its value credentials. I think it will be very difficult for them."

Even analysts backing Banana Republic to succeed, including Bryan Roberts, of Planet Retail, believe it could find this year tough going. "If you had to pick a time to enter the UK clothing sector it probably wouldn't be 2008," he said.

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