Gap - Case Analysis
Case Analysis and Strategic Recommendations for GAP Inc - Gap - Case Analysis introduction. , Introduction The Gap was founded in 1969 by husband and wife Don and Dorris Fisher. It started in down town San Francisco as a Levis retailer who also sold records. From the beginning, the Fishers wanted the company to have a unique image. They wanted shopping for jeans to be a fun and easy experience as opposed to the difficult and unexciting experience that was present in the 1969 jeans industry. The Fisher’s opened their first store with $63,000. It made 2 million dollars in the first year.
In 1970, the Fisher’s incorporated opened a second store and a corporate headquarters and Gap Inc. was born. By 1973, Gap Inc. operated 25 stores including some in the east coast market. The next year, Gap Inc. began selling private label clothing and The Gap store known today came to life. Gap Inc. grew rapidly through the 80’s and hit a huge peak of success in the 90’s. Led by CEO Millard Drexler, Gap Inc. helped redefine affordable fashion and was responsible for a series of impactful and innovative ad campaigns that included celebrity appeal and an all- American vibe.
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Gap Inc. acquired Banana Republic in 1983, which was once a safari-themed boutique and is now a multi-million dollar retailer focused on business and business casual attire. In the 90’s, Gap Inc. launched its largest domestically contributing brand, Old Navy, which contributes over a billion dollars in sales every year. Old Navy is a discounted clothing retailer that sells denim and cotton basics at affordable prices. Drexler left the company in 2002 and is now the CEO of J. Crew. For the past 10 years, Gap Inc. as restructured its vision and has expanded into over 20 countries. The expansion has been met with difficulties and the domestic brand is not thriving as it was in its glory days. The success of the 80’s and 90’s may not be enough to carry Gap into the new age. It is important to take a step back and analyze the industry as a whole as well as Gap Inc. ’s present strengths and weaknesses before strategizing for the future. Approach to analyze the Firm’s strategic position: To determine GAP’s current strategic position, an Internal Analysis and External Analysis is performed.
Through this process I have understood the Strengths, Weaknesses, Opportunities and Threats for GAP by its external, internal and competitor environments. SWOT Analysis: Strength, Weakness, Opportunity, Threat (SWOT). A SWOT analysis guides a firm to identify the positives and negatives inside their organization (S-W) and outside of it, in the external environment (O-T). Developing a full awareness of your situation can help with both strategic planning and decision-making. Internal Analysis: To begin the strategic management process, we are required to conduct an internal analysis.
This involves identifying the business’ strengths and weaknesses, by analyzing its competencies. Strengths: Based on the case and external research, below are the concluded strengths of GAP. Global brand recognition:? GAP is globally recognized as american style, pop culture and the emotional affinity. Stores located in worldwide? GAP has 3,095 stores in worldwide as of January 30, 2010.? Company-owned stores are located in United States, United Kingdom, Japan, Canada, France and Ireland.? Franchisees-owned stores are located in other countries such as Turkey, United Arab Emirates ans so on.
Franchising system easily to expand Gap store internationally. GAP has franchise agreements with unaffiliated franchisees to operate Gap or Banana Republic brand stores worldwide. Multiple brands and brand extensions for a wide range of segments? GAP has 5 distinct brands such as Gap, Old Navy, Banana Republic, Piperlime and Athleta and? brand extensions such as GapKids, babyGap, gapbody and GapMaternity. GAP is very well known in the industry for its creative advertising and marketing strategies. Weaknesses: Based on the case and external research, below are the concluded weaknesses of GAP.
Nearly all merchandise depend on third-party vendors, which is outside of the US.? Approximately 1000 vendors in 60 countries. 27 percent is produced in China.? Third-party vendors can cause products shortage, shipment delay and increased costs. Huge store base including unaffiliated franchisees: ? Gap is limited to keep up with fashion trends, to train some methods and to control quality. Less attractive in trendy clothing: ? Gap’s product lines are less attractive clothing to consumers who are interested in trendy clothing than competitors Uncontrollable production processes: ?
Control of production processes is a key factor among fast fashion retailers. External Analysis: The second part of the SWOT analysis, involves in identifying the business opportunities and threats. Based on the case study in the text and external research, I have identified opportunities and threats are factored in to recommend strategies, as I took advantage of opportunities and reduce the risk of threats. Opportunities: Based on the case and external research, below are the concluded opportunities for GAP.
Global new market in Europe and China: GAP is planning to open the stores in Italy and China and additional outlet stores in Europe and Asia. Penetration of Cross Channel Sales: ? Gap has introduced web-based stores and has two additional online-based stores. Sales related to Athleta in 2009 increased 9 percent while total sales of Gap decreased 3 percent. ?Online sales in 2008 increased 14 percent compared with 2007. Difficult anticipation of fashion trends and changing consumer preferences? Many companies has experienced to misjudge the market. An area of particular growth especially in the U. S. s the plus size market as obesity is rising. Gap Inc. ’s current product mix doesn’t adequately capitalize on this market potential. Increasing the sizes available in Gap Inc. stores will help it create a competitive advantage against rivals like Zara who do not cater to this demographic. Threats: Based on the case and external research, below are the concluded threats for GAP. Economic downturn is directly affecting apparel business.? Continuing economic downturn could make consumer spending remain depressed for an extended period. Global specialty apparel retail industry is highly competitive.
Competitors like? J. crew, Abercrombie & Fitch, Urban Outfitters, etc. are increasing their market share by introducing new fashion trends. Emerging fast fashion retailers? H&M, Forever21, Inditex(Zara), Primark? Zara delivers new items twice a week to the stores. The market for prime real estate is very competitive and expensive.? The location of GAP stores is a key factor of its strategy. Industry Trends: Based on the research done by Style Management Briefing, below are some new challenges and new opportunities for apparel manufacturers, retailers and brands. ?Prices are absolutely going to be going up.
It’s a question of when. Retailers have been working hard to keep a lid on prices, but ultimately it’s not possible to hold every price the same in a world where everything that goes into making that item is going up. ?Supply chains need to get creative. The answer to higher costs is not to lower them but to counter them with better efficiencies, new processes and innovative management practices. For buyers, the challenge is learning to handle inflation – techniques like value engineering, cross-costing, negotiation skills with suppliers will grow in importance. The obvious option for retailers is to make investments down chain, at the sources of supply, from getting involved in the purchasing of fiber, spinning, knitting, dyeing and finishing to offering help with financing. But so many have outsourced for so many years that few truly understand who their suppliers are. •The danger for suppliers is that price pressure is so great that they lose customers because they cannot pass on or absorb the rising costs, or that quality ends up being compromised.
Cutting fiber quality, for example, can be a false economy, with the resulting yarn failing to perform as well in subsequent knitting, dyeing, cutting and finishing. •Another worry is that fluctuating raw material prices will lead to a lot of manufacturers going out of business because they don’t have the capital credit lines to support rising raw material costs. And that as a result, retailers should brace themselves for delivery issues in the year ahead. •China’s changing currency policy will exacerbate the impact of wage increases, and the risk of trade conflict with China is growing.
Put these things together, and it’s easy to understand why sourcing teams are scrambling to move beyond China. China will no longer be the default destination. •Finding real alternatives to China is important. Indonesia, Pakistan and much of Bangladesh and India are plagued by unreliable power. Cambodian and Bangladeshi industrial relations are weak. Malaysia and Thailand have serious labor shortages. And totally unexpected political violence has hit historic manufacturing centers such as Egypt and Tunisia. •Differing rates of economic growth and uncertainty about the future could also inflame protectionism in the year ahead. After several years of belt tightening, retailers are also ready to begin experimenting again with new brick and mortar concepts, hoping to appeal to shoppers interested in buying discretionary items once again. •The fragile recovery of many Western economies is mirrored by opportunities in emerging retail markets, such as the BRICs – Brazil, Russia, India and China – and CIVETs – Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. •A growing number of retailers are using the Internet to enter a new market before committing to a bricks and mortar presence.
And the emergence of smartphones and tablet computers means that app technology is expected to be a key resource for fashion retailers. Strategy Formulation: Based on the Internal analysis, External analysis and Industry trends, I recommend GAP to implement the below strategies to excel in serving fashion needs for its customers. To better capitalize on its brand image and recognition. Gap’s 1990s ad campaigns were extremely successful, but the company has done comparatively little to continue to grow its brand appeal during the 2000s.
Worse, it has recently taken steps, such as the failed 2010 attempt at changing its logo that threaten to destroy the brand recognition that it has build up over the years. The Gap brand is one of the company’s greatest strategic advantages, and is a strong competitive advantage that competitors will have trouble matching. This means that, rather than suddenly trying to change its brand, Gap should focus on fully taking advantage of this resource. This will take the form of emphasizing the classic and legendary image, as well as running advertising campaigns that further build up the Gap brand.
While Gap does need (as seen below) to adjust its image, but this can be done by building on its current strengths. I also recommend that Gap, Inc. further strategically restructure its product range by increasing its lineup of plus sized apparel. The market for plus size clothing is growing at a fast pace, especially in North America, where obesity is rising. Even non-overweight people have trouble finding the right fit, with about 43% of American women currently having difficulty finding clothes in their size.
Gap can reach this relatively untapped market by expanding the range of sizes it carries. In addition to being a significant growth opportunity, this is also a potential competitive advantage: Gap’s competitors also do not have an exceptional plus size selection at this time. Another strategy that Gap, Inc. should follow is continued expansion into developing markets such as China and India. Currently, the vast majority of Gap’s stores are in the United States and Europe where a weak economy, including lower wages, continues to hurt Gap’s sales.
In contrast, incomes in countries such as China are currently rising dramatically. According to Mintel, China has a rapidly growing urban middle class of some 100 million people, which has developed from nothing in around 20 years. Gap built its first retail store in China in 2009, and I recommend it continue this strategy in coming years. In addition to expanding into China and India, I recommend that Gap increase its franchising efforts while decreasing its number of company owned retail stores. Gap, Inc. ad 3,036 company-operated retail stores and 227 franchise retail stores in 2011, a change from 3167 company-operated retail stores and 64 franchise locations in 2007. Gap should continue with this strategy. One of the main financial benefits of this strategy is that it will increase Gap’s asset turnover, and thereby its return on equity, by selling the assets of underperforming company stores. Expanding with franchises does not add a large amount of assets to the balance sheet, and exposes the company to fewer risks than do company-owned stores.
Closing some company-owned stores will become increasingly important, as sales per square foot continue to drop. I believe this strategy will net significant cost savings, despite challenges such as monitoring the franchise stores to ensure franchisees are properly handling the Gap brand. I also recommend that Gap Inc. , to continue to be more creative in its advertising and marketing strategies to create a personal experience for customers in various regions. Finally, I recommend building Vision & Mission statements that are consistent with GAP’s corporate philosophy.