Gap Inc.- case study Jan Giza, Anna Kędzierska, Hanna Suwała, Marcin Witkowski

About the company Gap Inc. is an American multinational clothing and accessories retailer. The clothing company was

established by Doris & Donald Fischer in 1969. In reference to Generation Gap they named the

company “GAP”. Firstly they were selling jeans and casual T-shirts, then they expend their offer. They

launched GapKids, and few years after BabyGap. Moreover they acquiesced Banana Republic , and

start to expense to Europe. In 1992 it was second largest selling apparel brand in the world. Then

Gap launched the new brand Old Navy, and started expansion to Japan.

Gap Inc. portfolio consists of few brands. The main one offers casual clothes for people in every age.

It has also several sub-brands: GapMaternity, GapKids, BabyGap and GapBody. Banana Republic is an

upscale clothing retailer with fashionable designs. Old Navy is a discount brand, with models similar

to ones that can be found in Gap. Next brand, the online footwear retailer is Piperlime, which has

been created in 2006.

In 2007 Gap Inc. was struggling with some financial problems and public relation problems, due to

slowing U. S. economy and child labor scandal.

Analysis

We have conducted external and internal analysis of Gap Inc. company. Starting with the external

one, we used PESTEL framework, Porter’s five forces framework, competitors and market analysis.

PESTEL results are as follows:

Political influences

o Foreign markets make it harder to enter for American brands

o Lower taxes in developing countries

Economic influences

o Slowing U.S. economy

o (2007 - beginning of the financial crisis)

o Increasing participation of developing countries in the global apparel market

o Moving production to developing countries

o Rising cotton price

Social influences

o Social opposition to child labor

o Costumers prefer designer jeans, even if they have to pay more

o Differences between American style of dress and other nations’ style

o Little expected population increase

o Consumers are looking for attractive designs

o “Fast fashion” trend

o Buying clothes on the Internet

Technological influences

o New fabrics

o Faster production

o Developing e-commerce

Environmental influences

o Production of clothing often pollutes the environment (chemicals used to produce

fabrics)

Legal influences

o The labor law in developing countries, enabling lower cost of employing workers

o In the European Union - require clothing manufacturers and importers to identify

and quantify the chemicals used in their products (the Registration, Evaluation,

Authorisation and Restriction of Chemicals (REACH) regulations enacted 1 June 2007)

After conducting five forces framework, we discovered that threat of entry is high(need for novelties-

teens & young adults, low costs of entering the market, still some niches (eg. clothes for elder

citizens)), the bargaining power of buyers is moderate (diversification of clients, retail sales, low

switching costs), the threat of substitutes is low (diversification of the offer, jeans always in style),

the bargaining power of suppliers is moderate (diversification of suppliers-each no more than 4%,

image influencing issues like child labor) and the extent of rivalry between competitors is extremely

high (A&F with nearly the same range of brands, European companies well developing in Europe,

new production countries arising- Bangladesh, Vietnam and Zara offering similar range of products at

lower prices).

Results of main competitors analysis are shown in the table:

Strategic groups

As it’s shown in the graph, U.S. economy for few years is slowing down.

Source: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=1

There are some stable and changing aspects in market. Stable and changing market aspects are, for

example: Jeans as safe product with quite stable demand, we can find different accessories that go

with jeans, and changes in the way of wearing jeans to more elegant . What about consumers? For

them clothes’ cuts and labels are getting more important so Gap’s outlets are rather unsuccessful.

Moreover, now consumers are ready to pay more for designer jeans so there is less demand for

Gap’s jeans. And what’s also important, Gap’s jeans are more in American taste than the taste of

other nationalities, so it is totally unsuccessful outside the American market.

We can observe low birth rate in developed countries, but pregnancy and childbirth are celebrated

there more than ever. As we can see in population trends in Russia there is baby boom, in India,

there are most babies in the world, in UK rise number of mothers over 40. Women wait longer to

have children and families are getting smaller, that’s why people can spend more money for

children, and are able to pay more per one child.

The internal analysis shown… Revenue and income

Operating income is increasing while non-operating income is increasing.

Profit ratios shows that GAP Inc. do not have competitive advantages.

Profit ratios shows that GAP Inc. do not have competitive advantages.

Cash flow analysis shows lack of growth tendencies, but investors value Gap Inc. above competitors.

Gap Inc. blocks of competitive advantage (build from it’s capabilities) are:

Customer Responsiveness

Possibility of exploring new, more functional garments (eg. Non-iron shirts)

Unique jeans design

Highly recognized brand name

Ability to increase loyalty of customers through loyalty program

Ability to suit different customers' tastes

Innovation

Ability to produce income without increasing the operating activity

Ability to control manufacturing process in terms of the Code of Vendor Conduct

Efficiency

Recruitment of competent ones for managerial posts

Attracting new employees, mainly graduates and students

Ability to create casual atmosphere in working environment

Ability to draw highly qualified managerial staff

After the above analysis we have done SWOT, based on which it was created TOWS.

Strengths Weakness

Highly recognized brand name

Big design team

Big amounts of cash

Broad network of stores

Effective use of inventory program

Developed control of manufacturing process

Online store

Attractive employer brand

Low profitability

Poor effects of investments

Decreasing sales

Decreasing margin

Low efficiency comparing to competitors

Competition between group brands

Limited marketing

No specific image (Gap)

High borrowing capacity

Highest in business price-to earnings ratio

Financial liquidity

Inventory system

Clear management structure

Good reputation among suppliers

Experience in selling clothes for different age groups (children, adolescents, adults)

Endangered reputation among customers- child labor issues

Opportunities Threats

Consumers’ attention towards CSR policy

“fast fashion”

e-commerce development

diffusion lines trends

jeans are always in style

Eco- and high quality trend

Ageing societies in developed countries

Higher birth rate in the BRIC countries

Rising cotton price

Cloth design is more important than price

Slowing U.S. economy

Slow target growth

Market and culture differences

Low market entry cost

Low customers’ switching costs

Lower birth rate in Europe and Japan

Aging societies in Europe

Development of European companies

TOWS

Recommendations As a result of the analysis shown above, we have managed to create some recommendations. In our

opinion, GAP Inc. needs to gain competitor advantage. To achieve this goal, we recommend two

groups of actions. First one would be changing model of retail and marketing, consisting of:

Hiring fashion designers to develop more design clothes answering consumer needs. (in 6

months’ time)

Frequent collection changes, like ZARA: changing collection every two weeks. (in 2 years’

time)

Change of target group to reach unexplored niches and developing target markets. (long-

term plan)

o Seniors: Release clothes collection dedicated for elderly people.

o Aware mothers: Release ecofriendly clothes collection for children.

o Fashionable young people: Release clothes collection in cooperation with well-

known fashion designers.

The second direction would be a change in financial management. As for that we recommend:

Invest in on-line marketing instead of traditional one, to reach marketing goals with lower

cost. (in 6 months’ time)

Acquisitions in U.S. market (Ross Stores Inc.) to increase sales. (in 2 years’ time)

Investors value your company more than competitors, so it’s important to keep it that way.

(long-term plan)

Negotiate better prices for cotton using good relations with suppliers. (long-term plan).

Read more: http://www.businessweek.com/stories/2006-08-25/bubbling-over-at-gapbusinessweek-

business-news-stock-market-and-financial-advice

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=1

http://www.indeed.com/cmp/Gap-Inc/reviews?start=80&lang=any

http://www.indexmundi.com/commodities/?commodity=cotton&months=120