Gap takes to the Net in move to outsmart high-street rivalry

IN A significant boost to the credibility of the fledgling Internet retail industry, The Gap, the international clothing chain, has revealed plans to go on-line. By this time next year, computer-literate customers should be able to acquire their casual cotton slacks and T-shirts without ever leaving home.

The move, which emerged yesterday, would be a bold one. Of those Internet retail businesses that have started up in the last five years, few are faring well. Only very selective areas of the market, such as computer software, financial services, compact discs and books, have made much headway. Others, such as IBM's virtual shopping mall World Avenue, have failed dismally.

While many of Britain's 1.25 million Internet-browsing consumers are happy to visit websites, so far they have proved reluctant to pay up for goods.

Jonathan Tikochinsky, electronic selling analyst at research company Datamonitor's, says the wisdom of The Gap's decision rests on two crucial decisions. "The first big question is, will consumers be paying on line? If not, it is simply a catalogue venture, but with the benefit of being cheaper because the company can avoid the expense of catalogue publishing and delivery," he said.

The second important factor, he says, is how the company rationalises its global pricing. For many Internet shoppers, the appeal is the big savings to be made by buying books or music from the United States. With clothing also 30-50 per cent cheaper in the US, any international service threatens to undercut profits in The Gap's British shops.

"The authorities are trying to regulate these kind of tax and export issues and they are mainly doing that by controlling the distribution channels," said Mr Tikochinsky. "So while it may be cheaper to buy American clothes on the Net, later - at the point of delivery - it could cost more."

The Gap is in a good position to take a few risks. Last year, the San Francisco-based company sold pounds 3.7bn of clothing in six countries and, in just a decade of trading, Gap has become a British household name.

The chain started up in the late Sixties but its current incarnation, with its emphasis on preppy, quality basics, has only been around since 1983 when Mickey Drexler became president. Since then the company's progress towards big profits has been slow, but fairly assured.

Exactly what Internet sales will do for The Gap's brand image is unclear. In Britain, home shopping currently has downmarket associations, and The Gap's spartan store style and its clever technique of folding all merchandise - forcing customers to handle it - will both be redundant on the Internet.

It is also unclear how many countries the on-line store will initially serve. Britain, The Gap's most successful international outpost, will be a priority, but the company must set up costly distribution networks if it is to compete with the success of its high street rival, Next.

Mr Tikochinsky sees competition with Next as the key to the company's plans. "Gap may well see the point of undercutting their own sales in British shops because they will also be competing with Next's catalogue sales business."

Business, page 22

VIRTUAL RETAILERS

BOOKS: Best established is Amazon.com - offers more than 1 million titles. Last year had sales of pounds 148m. Recently bought UK internet book retailer Bookpages.

MUSIC: CD Now of the US had sales of $10m last year. However, illegal disc and tape business on the internet is worth pounds 3.7bn, equivalent to 12 per cent of the legitimate market.

DELIVERY AND COURIER BUSINESSES: PC Flowers, Interflora, Federal Express and United Parcel Services operate on-line.

BANKS AND FINANCIAL SERVICES: Assets in on-line customers' bank accounts are predicted to rise to $47bn before 2000. Investment accounts (in mutual funds and shares) are expected to rise from $111bn to $524bn.

MALLS: The longest-surviving British virtual shopping mall is Barclay Square. Last year London retailers set up a site giving access to Regent, Bond and Jermyn Street shops.

SUPERMARKETS: Big brand names such as Tesco and Sainsbury's are testing on-line home-delivery services and expect to be able to attract custom without belonging to a "mall" grouping. Tesco's delivery service costs pounds 5 in its West London trial.