Gap Inc.

Gap is a retailer store in family clothing industry in U.S., which was founded in the year 1969 by Doris and Don Fisher as a San Francisco jeans store.  The company deals with five brands that are Gap, Old Navy, Banana republic, Athleta and Piperlime. In the 1990s the company was performing well in the sector before assuming a declining growth rate due to accumulated debts, decline in quality and a style wane. The U.S. family clothing industry is competitive with both major and small companies that are domestically owned and additional international entrants from Sweden, Japan and Spain. Gap Inc. is faced with a big challenge of diversifying to other different parts in the world and clearing its accumulated long-term debt.

1. Assess the strength of competition in the U.S. family clothing stores industry with a five-force analysis. How fierce is, the competition and what are the most critical elements.

Rivalry among competing sellers is high. Competition in family clothing industry is very high. Many companies in the industry both domestic and international are all fighting to provide products that match with customer needs and states. There is a change in market share with new entrants slowly taking control of the market and having a wide range of competent designs as well as access to low-cost of production through contract manufacturers.

Competitive pressure from buyer bargaining power: High

The consumers have power due to the presence of stiff competition and therefore, dissatisfaction from one provider will lead to a provider switch. Competitive pressure from supplier bargaining power is high. All the providers in the industry depend on external manufacturers that are situated in Asia and South America to supplier their products. The manufacturers may expose the providers to risks of negative publicity through unethical or partner’s illegal operations such as poor working conditions, child labor as well as poor pay. The manufacturers control the product being delivered in terms of quality and quantity and it is essential to family clothing providers to have a wide selection of family wears in order to attract buyers.

Competitive pressures from substitute products: Medium

The family clothing industry has less substitute products such as from department store industries competitors and internet retailing. With technology, people have moved to internet retailing so as to such for discounts and closeouts that locally providers may not be providing. This has enable the purchase of products even if there is no a nearby store.

Potential of new entrants: Medium

Competition in the family clothing industry is intense, this has prevented entry of new companies, but the changing trends in U.S. market have attracted new entrants from Sweden, Japan and Spain. The new entrants have emerged due to the changing trends among the youth between the age of 18 and 24 years.

2.   What factors are most critical to success (KSF’s) in the U.S. family clothing stores industry? 

My analysis has indicated that consumers in the clothing industry are faced with many options from different providers. The high number of providers means that Gap should adopt certain success factors to survive in the industry. Some of the key success factors are;

• Developing a new product lines that capture the latest trends in fashions
• Availing the products in the market
• Developing good consumer brand loyalty
• Have broad network of retail stores
• Move towards internet retailing

3. Develop an un-weighted competitive strength assessment of Gap and the four other major competitors in the U.S. family clothing stores industry using the methodology presented in Chapter 4 table .4. Based on the results, who is in the strongest overall competitive position? Who is in the weakest position?

From my analysis above, it is clear that Gap is facing a stiff competition from TJX companies though it is still the leading competitor. On the other hand, American Eagle Outfitters appears to be the weakest competitor.

4. What is Gap Inc.’s strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Gap is taking? What type of competitive advantage is Gap trying to achieve?

Doris and Don Fisher, the founders of Gap Inc has the goal of “make it simple to find a pair of jeans” The strategy of Gap focus in the attainment of this goal. Gap Inc. allows her consumers to purchase their products through internet retailing as well as from their chain of retail stores found in different parts of the world. Gap provides consumers with five brands of products to choose from. The consumers can choose from any of the following brands:

Gap allows consumers to have a variety of products that are casual and high fashion at different prices. The brands are categorized in a manner that satisfies the needs and tastes of different consumers. The customers do not have to go the retail stores to make their purchase; they can do it through the internet and get their delivery right at their doorstep. The company provides latest fashions and discounts for loyal customers who make frequent purchase of products. Approximately ninety-eight percent of Gap customers who place an order through mail received their product within twenty-four hours after placing the order. No extra charges for consumers who buy through the internet retailing as well as the time limit for product collection after placing the order. This is because the company does delivery. The business model of Gap Inc has set aside huge amounts of money that are channeled towards marketing of the products. The reason for extensive marketing is to attract customers as well as develop brand loyalty. Since Gap is operating in a competitive environment, it should develop a strategy that outcompete that of the competitors.

Key elements of strategy:

• Make available wide varieties of casual and fashion ware for consumers
• Redesign the website and online presence of the company
• Provides the customers with the opportunity of making their purchase through the internet
• Creating a website that is efficient, with greater functionality and one that gives a more convenient shopping experience
• Increase the amount of money allocated to marketing as well as advertising, this will enable the company to attract new customers and develop brand loyalty and awareness
• Lastly, focusing on creation of the new product lines as well as production units so as to meet customer tastes and needs, instead of relying on contract manufacturers for their products

The competitive advantage that Gap is trying to achieve is to avail variety of casual and fashion wares for their customers and more convenience in internet retailing. They are doing this by increasing their product line as well as redesigning their website to provide for a convenient shopping experience and online presence.

5. What conclusions do you draw from a SWOT analysis of Gap? What is the overall attractiveness of its situation?

The SWOT analysis above indicates that Gap still and is in a good position. Despite the weak financial position of the company, Gap remains the strongest company with a chunk of opportunities to explore. This opportunity provides the company with a chance to grow as well as fast track the changing trends in the market. The use of technology as a means of selling, for instance, internet retailing has the potential of increasing the company’s customer base as well as accelerate growth in revenues.

The SWOT analysis has also pointed out to the fact that competition is mounting in the industry. The competition is from both domestic and international companies, this is a big threat to the company, and therefore it should look out and develops new ways that can be implemented to counter the competition.

6. Compute GAP yearly revenue growth, cost of goods sold/revenue and profitability. What are your comments and what is your overall appraisal of Gap’s financial performance?

Please refer to Appendix I

From the above analysis, it is clear that the growth rate of Gap has been declining since 2006. The highest rate of declining was recorded in the year 2009, where the growth rate was -7.85%. In the year 2010, the company recorded some improvement in the growth rate; it managed to record a growth rate of -2.32% which was better compared to the one for the previous year.

The net income indicates a steady increase though the increase had fallen from $1,113 million in 2006 to $833 in the year 2008. The profitability of the company has stayed in between 5-8% for the period. This indicates that despite the fall in revenue the company still makes some profits.  Cost of goods sold increased between 2006 and 2008 but it has since decline, and percentage revenue has remained in 60% zone, this varies every year but with a few percentages. The operating expenses have since been reducing with its percentage of revenue hitting a low of 25.74% in the year 2006.  In addition, return on asset has since assumed a fluctuating mode with no steady rate being visualized. 

Analyze the revenue of GAP three main brands and the US versus International. Compare them to the same ratios for the industry, TJX, Ross, Abercrombie & Fitch, and American Eagle.

Please refer to Appendix II

The main three brands of Gap are Gap, Banana Republic and Old Navy. From the analysis Gap brands sales more in United States than in the international markets. Gap brand has the highest international sales, followed by Old Navy and Banana Republic. The same ratios are also similar for the other companies like TXJ companies, Ross stores, Abercrembie & Fitch and American Eagle outfitters.

7. What is the performance of Gap outside the US? What are their strategies and what challenges do they face in expanding outside of their main market?

The analysis found out that the performance of Gap in other countries of the world is fair. The fairing well of its performance is associated with the use of technology, that is, internet retailing enabling consumers to search for their products through the catalogue before making a purchase. The success in foreign nations is also attributed to the change of strategies and product lines to suit the target market needs. It is also attributed to the company’s reputation and the wide range of products.

Gap plan to enter the international marketing will be based on the price levels where the products in these markets will be charged at a moderate price and consumer tastes will be identified through market research. The target population for the company will be the youth between the age of 20 and 35 years. This is because the target population is conscious with the changing fashion trends in the market. The company will also use franchising agreement to penetrate into these new markets.

Some of the challenges that the company will face in other market include cultural factors, for instance, some countries may not welcome the products wholeheartedly due to cultural barriers. The other challenge will be infrastructure; this may limit their distribution of products, since customers have to make an online purchase that is delivered by the company to the customers’ doorstep. In addition, development of brand loyalty and awareness may be costly to the company given the fact that the company is facing difficult financial situations and currently undertaking cost or expenditure cut strategies.

8. What are the main issues facing Gap three main brands in 2010?

The main issues facing the three brands of GAP are a decline in quality, a wane in style and lack of popularity. The brands GAP, Banana Republic and Old Navy as per my analysis have in the recent past exhibited a decline in quality. The products quality is below the required and expected quality by customers. This has affected the customer brand loyalty as well as the volume of sales. The main cause of low quality brands is the accumulating long-term debts. On the other hand, most of the company style or fashion is outdated with brands still getting into the market in the old fashion. This renders the brand outdated hence difficult for customers to purchase. The popularity of the products is also failing due to expenditure cuts on product design and development.

9. What recommendations would you make to Gap senior management to improve upon its turnaround strategy? What actions are necessary to restore the competitiveness of its core Gap, Banana Republic and Old Navy brands? What international strategy would you recommend?

In order to have Gap Inc back to its glory of being the perfect sync the company should strengthen its website to facilitate internet retailing. This strategy of online retailing will serve as a strategy as well as a promotion tool. This will provide customers with a wide range of products to choose from. The customers should have as many options as possible. This should be attained through regular update and review of the website catalogue.

Gap should introduce new product lines for casual and fashion apparels that will be in a position of responding immediately to the change in tastes and preferences in the market. The response time should be reduced and reliable and convenient after-sale services provided to customers with no extra cost. This should be put in place by January 1, 2012.

In order to continue to grow customer base the company should embark on extensive marketing and product promotion. Other incentives such as discounts, coupons among others should be utilized to attract more customers. This should be coupled with brand improvement and development. The company should employee experts and experienced workers in product design; this will ensure improvement in quality and increase competitiveness of the products.

The company should expand its operations as well as the market population, this will help the company create demand for its products and reach many customers as possible. This will see a growth in company revenues and sales.

The company should employ a penetration pricing strategy as well as franchising agreements with leading stores in target countries to facilitate entry in to the new market.

Appendix I: Gap Financial Analysis

Appendix II: GAP brands Analysis in $Millions