Gap store, Manhatten

(Reuters) - U.S. clothing retailer Gap Inc (GPS.N) opened its first store in mainland China on Thursday, the first of its four planned stores in the country, as it banks on rising Chinese incomes to prop up soft demand back home.

Gap, which saw its same store sales in the United States rise 2 percent in October, said recently it was focusing on finding more sales online and outside due to its mature U.S. market and its still cautious consumer spending.

Gap opened its 1,140 square metre flagship store in Shanghai on one of the city's busiest shopping streets, Huaihai Road. The firm will open another store in the city over the next few weeks and open two stores in Beijing on Saturday.

Gap will also open a store in Hong Kong in the third quarter of next year.

"China has a long runway and bright future, a growing middle class that is going to keep growing and a love of brands," John Ermatinger, Gap's Asia Pacific president, told Reuters on Wednesday referring to China's growth potential.

Gap also launched its Chinese online store last weekend, www.gap.cn, hoping to lure buyers from the country's 420 million strong online citizens.

"Since our stores will be in Shanghai and Beijing initially, we want it to be able to extend our reach to many consumers throughout the country," Ermatinger said.

"As of last night we had 350 customers and we are shipping across the country into tier 3 and 4 cities, we are absolutely jazzed about the type of reach and access," he said.

The company said it expects online and international sales to account for more than 25 percent of net sales by the end of fiscal year 2013, up from 19 percent at the end of fiscal 2009.

Gap, which operates its namesake stores, Old Navy and Banana Republic, said it expects to be in 80 countries by the end of 2010, compared with 25 at the start of the current fiscal year, aided by online sales and third-party deals.

Ermatinger said the company does not have concrete plans to roll out Old Navy and Banana Republic in China just yet, but will focus instead on making the Gap brand known.

ALTERATIONS FOR CHINA

Known for its denim jeans and quintessential American style, Gap lost customers in the 1990s due to merchandise mistakes and a drop in quality.

Although the firm has made many fashion and quality improvements, Gap has not consistently lured back those shoppers to regain consistent higher sales at the chain.

For the China market, Ermatinger said intensive research was conducted into the psyche of the Chinese consumer over a 12 to 14 month period to ensure its market entry was smooth.

As such, some changes to Gap apparel may be made.

Following the preference of the Chinese consumer, Gap baby one-piece jumpsuits that traditionally open up at the shoulder in North America, may have buttons or zippers down the front instead in China, Ermatinger said.