(Yicai Global) Nov. 8 -- Baozun is paying USD40 million in cash for US apparel giant Gap’s loss-making China operations. The Chinese e-commerce firm’s online strengths could help Gap’s flagging sales in the country recover.

Baozun will acquire all the equity interests in Gap China, the Shanghai-based firm said today. The primary size of the deal is USD40 million, subject to adjustments up to a maximum of USD50 million, it added. The acquisition is still pending regulatory approval and is expected to be effective from the first half next year.

Baozun, which has been Gap’s e-commerce service provider in the country since 2018, will also obtain the rights to manufacture, market, distribute and sell Gap products in China on an exclusive basis for the next 20 years, it said.

“Baozun has helped drive impressive results in our online growth and penetration of the China market in the past four years, and we feel confident about our partner’s future value-creating China-for-China plans,” said Mark Breitbard, president and chief executive officer of Gap.

Gap has performed poorly in the Chinese market in the past two years. The firm has shuttered a number of outlets and its sub-brand Old Navy withdrew from China in 2020.

Gap’s failure in the Chinese market is mainly due to inadequate online business, industry analyst Cheng Weixiong told Yicai Global. The company’s brick-and-mortar stores are limited to the bigger first- and second-tier metropolises and do not cater to smaller cities. It also not as quick to cater to consumer trends as local brands.

Gap Inc.’s overall performance is also under pressure. The San Francisco-based company racked up losses of USD49 million in the second fiscal quarter ended July 31, compared with profit of USD258 million in the same period last year, according to its latest financial report. Net sales over the period slumped 8 percent to USD3.9 billion.

Baozun’s share price [HKG:9991] closed down 1.6 percent at HKD11 (USD1.40) today. The stock has lost 68 percent of its value so far this year. Its US-traded shares [NASDAQ:BZUN] closed flat at USD4.22 yesterday.

Editor: Kim Taylor