As Gap snaps up designer US chain Intermix, Retail Week looks at why it has moved into the luxury sector.

Why are we talking about it?

US fashion giant Gap acquired the designer chain Intermix for $130m last week from co-founder Khajak Keledjian and private equity firm Goode Partners, which owned 40% of the business.  The acquisition is Gap’s first since it bought activewear retailer Athleta in 2008.

What is Intermix?

Intermix, a favourite of celebrities including Kim Kardashian, has 32 stores across North America. It sells clothing and accessories from designers including Jimmy Choo, Yves Saint Laurent and Givenchy alongside the latest up-and-coming designers.

Why has Gap moved into the luxury market?

Gap has been losing ground against rivals such a Zara owner Inditex, as well as H&M, and needs to diversify, according to analyst Conlumino lead consultant Matt Piner.  “Gap has been struggling for some time in the difficult mid-market. Premium offers a good opportunity as it already has mass in the mainstream market. It makes sense for it to look at the high end, high margin market,” he says.

The retailer, which according to Piner has become reliant on discounting, will also benefit from Intermix’s prowess in merchandising, trend forecasting and fashionability which it can introduce into the wider business.

Which other mainstream retailers are making moves into the upmarket sector?

Value players such as Sports Direct have made a play for the luxury market. The sports giant set up a luxury lifestyle division in 2011 when it bought USC and Cruise and it has since added designer indie Flannels to its stable.

Piner says many retailers are opting against acquisition and are instead looking to integrate more premium lines into their offer.

“It’s very competitive in the more value end of the market. There’s a need for mainstream retailers to be more flexible and stretch their price architecture to appeal to other ends of the spectrum,” he says.

Inditex can stretch its price architecture within fascias such as Zara, while Sports Direct and Gap, because of its propensity to discount, is unable to do this according to Piner, so has opted to acquire.

What is Gap’s plan for Intermix?

Gap has a strong record of building its new acquisitions. Athleta, which was an online and catalogue retailer when Gap acquired it, has opened 35 stores in the past two years.

The retailer is eyeing store expansion for Intermix too and with only 32 stores in North America, there is much scope for new shops.  It is also looking to “add significant visibility” and improve its website.

Intermix will continue to be led by Keledjian who becomes chief creative officer and president Adrienne Lazarus, both of which will report into Gap growth, innovation and digital division president Art Peck.