We`re growing globally, and just last year, we opened our first stores in China, Australia and Italy. We`re expanding online shopping to customers, too. Today, customers in about 90 countries can buy our products.
Mission and vision
While many things have changed since 1969, the principles on which we were founded have stayed the same: creativity, delivering results, doing what`s right and always thinking of our customers first. According to the Gap.com corporate website, the mission statement of The Gap stores is: “Gap, Inc. is a brand-builder. We create emotional connections with customers around the world through inspiring product design, unique store experiences, and compelling marketing.” In addition to its mission statement, The Gap also has a purpose statement, which is designed to guide the daily actions of its employees. The Gap Purpose is: “Our purpose? Simply, to make it easier for you to express your personal style throughout your life. We have more than 150,000 passionate, talented people around the world who help bring this purpose to life for our customers.” One more piece of guidance provided by Gap Inc. to its employees is its Key Values. These specifically defined values are meant to create a socially responsible retail operation in all of its stores and offices throughout the world. The Gap stores key values are: Integrity, Respect, Open-mindedness, Quality and Balance
Gap, Inc. is a brand-builder.
We create emotional connections with customers around the world through inspiring product design, unique store experiences, and compelling marketing. Our purpose? Simply, to make it easier for you to express your personal style throughout your life. We have more than 150,000 passionate, talented people around the world who help bring this purpose to life for our customers. Across our company and embedded in our culture our key values that guide our success: integrity, respect, open-mindedness, quality and balance. Everyday, we honor these values and exemplify our belief in doing our business in a socially responsible way. For our class we had to revise it using the 9 criteria for a great mission statement- Gap, Inc. is a brand-builder. We create emotional connections with customers (1) around the world (3) through inspiring product design, unique store and renowned ecommerce experiences (4), and compelling marketing. Our purpose? Simply to be a leader in the specialty family clothing (2) industry to make it easy for you to express your personal style throughout your life (7). We have more than 150,000 passionate, talented people around the world who help bring this purpose to life for our customers (9), leading us to achieve a major competitive advantage. Across our company and embedded in our culture are key values that guide our success and continued growth (5): integrity, respect, open-mindedness, quality and balance (6). Everyday, we honor these values and exemplify our belief in doing business in a socially responsible way (8).And just for kicks here the vision statement we created- Gap Inc.`s vision is to be the first choice in family retail clothing while maximizing customer satisfaction and shareholder value. Every day, we look for new ways to connect with customers around the world, provide value to our shareholders and make a positive contribution in the communities where we do business.
Gap, Banana Republic and Old Navy are differentiated by their customer target, merchandise mix and marketing approach, but share a common goal: to deliver customers exceptional style, service and value.
When customers visit a Gap`s outlet, they are not just walking into a store they are entering a brand. At Gap, GapKids, babyGap and GapBody, the primary focus of their real estate strategy is locating and developing stores that provide a comfortable shopping environment and positive store experience for their customers.
Gap Inc. does not directly employ workers in manufacturing facilities. They contract with garment manufacturers around the world. Since its products are on OEM basis, Gap can lower the operation costs in equipment and factories maintenances. The most essential element for apparel companies, the trendy fashion, is the on time arrival. Thus, Gap Inc. operates from demand chain stores to supply chain stores, such as line up with raw materials factories in order to control cost and quality. With its in-house marketing teams for each brand headquartered in the San Francisco Bay Area, they create everything from hangtags and in-stores posters to billboard and TV commercials. As a result, save cost and produce consistent promotion effects. Moreover, the launch of several online stores starting from 1997 has expanded Gap`s market shares in the apparel industry. Firstly, it improved profitability of individual stores. Secondly, it improved the inventory management by stores and brands. Thirdly, it improved the seasonal trends by brand. Lastly, the convenience of online shopping also helps to retain its loyal customers.
In order to support the company`s goal of specific identities for each of the clothing-brand lines, like Gap, Banana Republic and Old Navy, Gap Inc. has organized its internal structure. Through a highly vertically integrated corporate structure, each brand was established as a subsidiary or division of Gap Inc., and that was charged with maintaining complete control of its products. The organization design solves the coordination of internal management, like inventory and logistics controls, production schedules and placing orders etc. It also fosters accountability, specialization and knowledge transfer. On the other hand, through internal horizontally structure, Gap Inc. creates various product lines to target different segment markets, from women to men, infants to teenagers. The differing preferences help in creating and supporting distinct product positioning and branding strategies.
Gap Inc also has to face the threats of new entrants. Competitors are not only from apparel industry, but accessories and personal care products industries as well. The major competitors include Benetton, Ralph Lauren and Tommy Hilfiger. For example, while Benetton core is colorful knitwear, Gap Inc. has built its product lines around a core of khakis and jeans, and tried to start the online business to reduce the competitors at a lower cost.
Though Gap Inc. operates more than 3,000 stores worldwide, it has headquartered in the San Francisco Bay Area and its product development offices in New York City. Third-party manufacturers ship merchandise to its distribution centers strategically placed throughout the United States, Canada, the United Kingdom and Japan. That helps its distribution, operations and offices coordinating and sourcing activities around the globe at a greater degree. Its current strategy focuses on the previous mentioned countries and continuing expansion through company owned and operated stores.
Gap Inc. has created one of the most comprehensive factory-monitoring and labor-standards programs in the apparel business. The combination of diminished price pressure with a strong brand and efficient manufacturing and distribution systems from operating at a global scale generates attractive margins. The extensive retail presence also helps to build up the brand image and strength the brand`s appeals to the local and global target markets. At the meantime, the 24-hour online business provides a broader range of sizes and selections that save customers` time and reduce conflicts between customers and staffs in stores. Gap Inc. creates its loyal customer base that is difficult for another clothing retailers to capture with lower prices. That reduces the price competition. Capability is an attribute of the organization. Gap Inc. ensures to provide excellent service in stores, therefore, all sales associates and other store personnel are trained to answer customers` questions about fabric, fit and fashion. Gap`s global marketing campaign with several well-known stars, like featuring fashion icon Sarah Jessica Parker, celebrates the expression of each individual style. It also creates an opportunity to promote and solidify their brands. Gap Inc. conducts its business with the principle of responsible, honest and ethical manner. They think good corporate governance means going beyond compliance. It means taking a leadership role in instituting and maintaining practices that represent strong business ethics — and ensuring communication consistently with their shareholders, customers and neighbors around the world.
Gap Inc. continues to execute against its strategic priorities of driving earnings by improving margins year over year, improving their inventory turns, flowing their earnings through to cash flow and increasing their returns on capital by optimising the productivity of our store fleet through selective closures and repositioning. With net sales of US$ 3.7 billion for the quarter in 2004, Gap Inc. reported a 9 percent increase over 2003. Comparable store sales were up 7 percent. Banana Republic led the way with a 21 percent increase, while Old Navy and Gap posted increase of 9 and 5 percent respectively. The fiscal 2003 revenues were US$ 15.9 billion.
Gap by far dominates clothing specialty retailer sector with sales six times its next largest competitor, Polo Ralph Lauren. However, Gap has the lowest operating margin and also possesses the highest D/E ratio amongst specialty retailers
Due to Gap`s size, Gap could also be compared to other more general retailers that are of comparable size. These retailers also sell, among other products, clothing and apparel. In comparison to this group, Gap has both a favorable operating margin and D/E ratio.
Fig.1 Business Comparison to Competitors
The Gap, Inc.
Refer to “Company Background”
Specialty Retailer Comps
Abercrombie & Fitch
Markets men, women, and kids apparel of
casual, classic sportswear. Targeted consumers
15 to 50 years of age and kids 7 to 14 years old.
American Eagle Outfitters
Markets men, women casual apparel, accessories
and footwear. Targeted consumers between the
ages of 16 and 34.
Markets women apparel, shoes, accessories,
career and casual separates, dresses, tops, and
Markets casual apparel, accessories and
footwear. Targeted to teens and young adults
Polo Ralph Lauren
Markets men, women, kids apparel, home
appliances, gift items, and fragrance.
General Retailer Comps
J. C. Penney Company, Inc.
Operates 3,800 stores and markets
predominantly family apparel, jewelry, shoes,
accessories and home furnishings.
Sears, Roebuck and Co.
Retails multiple product lines in a wide array of
merchandise and services.
Engaged in general merchandise retailing.
Fig.2 Financial Comparison to Competitors
The Gap, Inc.
Specialty Retailer Comps
Abercrombie & Fitch
American Eagle Outfitters
Polo Ralph Lauren
General Retailer Comps
J. C. Penney Company, Inc.
Sears, Roebuck and Co.
Note: As of 11/29/01
Strong brand awareness – According to market research, the Gap brands have 100% brand awareness in the United States, and more than 70% of US apparel consumers have been in a Gap or Old Navy store in past six months. Fifty percent wear Gap or Old Navy merchandise occasionally, if not more frequently.
Regional diversification – The Gap can hedge the macroeconomics factor by the regional diversification. For example, the sales decline by the macroeconomic recession in Japan has been hedged by bullish macro economy in United States.
Effective inventory management and sourcing – Due to the economies of scale, Gap has the huge opportunities of effective inventory management and sourcing. Currently, Gap operates distribution centers in California, Kentucky, Maryland, Ohio and New York within the United States and in Canada, England, and the Netherlands outside the United States. Two distribution centers are attributed solely to fulfil catalog and Internet orders. Gap outsources 100% of its products from 1,100 suppliers worldwide. Of the merchandise, 80% is produced outside the United States, with China and Hong Kong representing 12% of all goods and 56 other countries for the rest. In 2000, no single supplier had the share of more than 5% of the company`s purchases.
Major economic downturn risk – The US economy has been slowing down since March 2001.
Furthermore, the September 11th event has especially affected Gap by pushing down consumer
confidence, which leads to negative affects on earnings.
Risk from competition – Overall apparel prices have been deflationary over the past several years, and although Gap is not at the high end of the pricing spectrum, Gap competes not only in the aforementioned specialty retailers but also in the better, moderate, “value-based retailers”, such as Wal-Mart, Target and Kohl`s. It will spur the competition and lower the apparel pricing. Deflationary prices place the pressure on Gap to increase sales volume, requiring additional product line extensions and spaces. It may lead to cause “a drain on capital”.
Trend-mismatching risk – As the competition becomes fierce, retailers try to differentiate their own products, which lead to the rapid change of product. It will be more difficult to anticipate, identify and respond effectively to changing consumer demands and fashion trends. Any failure will adversely affect retail and consumer acceptance of its products and leaves Gap with a substantial amount of unsold inventory or missed potential growth opportunities.
Cannibalization risk – Gap potentially suffers from cannibalization amongst its own brands: Old Navy, Banana Republic and Gap.
Currency and political risk – Because all production is outsourced, factory disruptions could materially affect production and timely product delivery. With 80% of merchandise sourced overseas, Gap is subject to social, political and economic risk in each of the countries from which it sources product. Import restrictions, including the changes in such tariffs and quotas could affect the importation of apparel and could increase the cost or reduce supply. Merchandise flow could be adversely affected by political instability and by restrictions in the transfer of funds.
The Gap Company overview Gap Inc. opened it first doors in 1969 with their first store in San Francisco, CA From its humble beginning the brand has expanded to over 3,000 stores across the world Gap has flourished and now has five brands under their parent company Current promotions and strategy Gap has dove into the social media world with creating handles on Facebook, Twitter, LinkedIn, and YouTube Further marketing is conducted through television spots, in-store promotions, e-mail updates and offers
Goals and Challenges Goals To increase brand awareness and visibility though the world of social media further heightening the attractiveness of the Gap image Expand social media campaign efforts to include new innovative and interactive campaign thus sparking excitement in target market Challenges Overcome stigma that Gap is a brand of the past revitalized social media campaign will aid in fueling efforts Make known the wide styling options Gap has to offer beyond the scope of the basic t-shirt and jeans.
Strategy Direction Theme Creative, innovative and stylish Create a sense of community through social media outlets to inform and educate consumers All facets of the company will be streamlined to provide accessibility to all marketing strategy efforts. Each social media platform will contain links and information to all others to create a sense of cohesion
Social Media Facebook Will serve as a platform for users/consumers to post pictures and videos surrounding their Gap experience and adventures. Will also serve as venue for advertising efforts. Our customers will have easy access to communicate to other Gap consumers providing community Twitter Will provide consumers a quick easy outlet to express opinions, comments, and questions surrounding the Gap brand. Will serve as an interactive medium between the company at large and Gap`s target market their current social media strategy In addition, we will implement new forms we will advance the connection with their target market creating community The new creative, innovative and stylish campaign will resonate with consumers, propelling the company to success
CHART 1: STOCK PERFORMANCE
Gap`s stock has had a significant bounce thus far in 2012 with the stock up 36% for the
year (4/10/2012). Despite a poor fourth quarter earnings report, Gap beat industry
estimates helping the stock. Analysts` price target estimates and recommendations
have been on the rise as strong sales thus far in 2012 have analysts believing Gap is on
the right track in regards to its fashion and brand choices. Gap announced in February
2012 that it would buy back millions of shares while also raising its dividend.
20 Gap seems to be price relatively cheaply as a stock with shares trading at 13.6 x 12
month forward earnings, a discount when compared to the current industry median of
17.3 x 12 month forward earnings and a year median of 14.4 x 12 month forward
earnings. Gap`s price to share sale ratio of .8 is also below the industry level of .9 and
the historic multiple of 1. Additionally, Gap`s trailing P/E of 16.17 lags behind the
industry average of 17.78. These factors either indicate Gap is undervalued as a
company or is being valued more cheaply to account for poor recent performance.
Gap is currently priced at $25.23 a share (4/10/2012). The one year target analyst
target is set above this at $27.55. The consensus opinion seems to be neutral on Gap
with 20 out of 31 analysts favoring a hold position on the stock.
Chart A: Gap, Inc. Growth Share Matrix Against Competitors
Chart B: Gap, Inc. Growth Share Matrix Against Gap NA
Chart C: Gap, Inc. Growth Share Matrix Against Banana Republic
Chart D: Gap, Inc. Growth Share Matrix Against Old Navy
Charts 25–‐‑28 represent growth share matrixes, which help to summarize growth and
market share visually. For Charts A and C, only pure apparel firms have been included.
Chart D retains department stores to make Old Navy`s comparison possible. The
Charts show Gap Inc. as a low growth high revenue firm or a cash cow. Subsidiaries
Banana Republic and Old Navy perhaps show a troubling feature. Both are listed as
Dogs or companies with low market shares and low growth rates relative to their
:: Gap`s brand names are among its most important assets. Gap invests in its brands and attempts to improve the customer experience through the remodeling of existing stores, the opening of new stores, the closure of under performing stores, international expansion, the enhancement of online shopping sites, additional investments in marketing, and continued focus on customer service. Gap, GapKids, babyGap, GapBody, Banana Republic, Old Navy, Piperlime, and Athleta trademarks and service marks have been registered, or are the subject of pending trademark applications, with the United States Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law38.
Broad Market Reach
:: One of Gap, Inc.`s greatest advantages is that the company has multiple brands in Gap, Old Navy, Banana Republic, Athleta, and Piperlime. Each of these companies services a different sector of the market allowing Gap, Inc. to sell to a broad clientele since its stores offer both higher end and cheaper products.
:: Gap is a global brand, which over the past six years has grown its franchise store base to over 200, expanded to 33 countries throughout Asia, Europe, Latin America, the Middle East, Australia, and Africa, and has franchise agreements to bring its brands to 39 other countries. In 2011, Gap opened franchise stores in 8 countries and grew the net sales of its franchise business 45%. As an established global entity, Gap has significant growth potential in emerging markets
:: Gap is able to expand internationally largely due to its franchising model. Franchising allows Gap to lower the cost of opening new businesses while increasing brand recognition and revenues. Franchising is a significant strength for Gap in growing global revenues and market share.
:: Gap, successfully marketed to young adults in the 1990s with “classic khakis and swing dancing ads”. It has been unable to replicate this success with young adults in the 2000s. Gap`s fashion choices have been criticized for being too similar to a number of other specialty apparel chains, according to analysts from Chicagobased Morningstar. That is particularly troubling since the U.S. market has seen an increase in small specialty retailers including Zara, H&M, and Forever 21. Those firms have gained market share at the expense of Gap.
Too Many Locations
:: Gap has locations across America but Gap suffers from overexpansion. Gap over
expanded in the U.S. and the revenue does not make up for the overhead costs. “If you have unexceptional product and you have 400 units it`s one thing,” Analyst Johnson notes. “But if you have 1,500 units, it`s a different issue. Gap suffers more because of its size.” Johnson and other analysts believe that “Gap would be better off operating 700 stores under its namesake label in the U.S., and Old Navy could stand to cut the bottom 5 to 10 percent of its store fleet.”
Dependence on Third Party Vendors
:: Independent third parties manufacture nearly all of Gap`s products. This means Gap`s production is contingent upon maintaining cooperative relationships with its vendors. Gap is also subject to the costs associated with these vendors overhead costs, labor costs, and direct materials costs. If the cost of production increases for one of Gap`s vendors, the cost for Gap will increase as well.
:: In Spring 2011 and in the latest holiday season, Gap`s sales were hurt by a bland product line that lacked color. In Spring 2012 Gap is focusing on brightly colored denims and shirts. Gap spokeswoman Louise Callagy told Reuters, “While first reads are showing some promise, the full spring product expression will not be in Gap stores until mid February so it`s too early to draw any conclusions,. Because Gap develops all of its own products, the company has the ability to revitalize its design and attract new customers to its business.
:: Gap has been working to expand its international outreach. In 2010 Gap launched its Website in 90 new countries and opened its first locations in China and Italy.
:: On February 29th, 2012 Gap announced its further expansion into Latin America, opening stores in Panama, Colombia, Uruguay, and Peru. Gap also announced in 2012 plans to open two new stores in South Africa. Gap has significant market potential internationally.
Growth of Internet Sales
:: The international retail total was up 202% in 2011 from $42 million in fiscal 2010. Gap`s web sales increased year over year 20.0% to $1.56 billion, up from $1.30 billion. The web accounted for 10.7% of total sales in 2011 compared with 8.9% in 2010. International sales accounted for 8.1% of web sales, approximately $127 million. Ecommerce continues to grow in size and importance and will likely represent a significant portion of Gap`s business in the future.
:: Gap`s performance is subject to general economic conditions and their impact on levels of consumer spending. Some of the factors influencing consumer spending include fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices, higher levels of unemployment, higher consumer debt levels, reductions in net worth based on market declines, home foreclosures and reductions in home values, and general uncertainty regarding the overall future economic environment.
:: Gap is aiming to recapture the new demographic. That may be problematic, according to a report by Bloomberg, which pointed out that the population is “bogged down by higher than average unemployment, student loan debt and concerns about the economy.” More alarming, this demographic seems reluctant to shop, according to research by WSL Strategic Retail.
Global Sourcing and Manufacturing Risks
:: Independent third parties manufacture nearly all of Gap`s products. This means Gap is largely impacted by the cost of these products. Commodity prices such as cotton greatly affect the cost of business. Additionally it might be hard to match a rise in demand due to difficulties adding to or replacing existing vendors.
Design & Inventory Lead Time
:: Gap`s success is contingent upon its ability to gauge fashion tastes of customers and provide merchandise that appeals to them. Anticipating future trends is a constant challenge necessitating top line designer talent. The lead time for purchases is long, making it difficult for Gap to respond to new or changing fashion trends. This necessitates even more prudent decisions regarding fashion designs, as a misjudgment will have serious effects on operation results.
:: Any change in trade restrictions including tariffs, quotas, embargos, or custom restrictions against apparel items could increase the cost of business.
:: Gap faces extreme competition in the apparel industry. Gap`s brands compete not only with small specialty retailers but also with larger department stores and emerging direct to consumer suppliers.
We recommend the following strategies for Gap:
Gap has experienced an extended era of stagnate incomes due in great part to breakdowns concerning product entity. Several corporations have rebranded so as to keep-on with the times. Gap has strongly failed to distinguish its core products and has estranged old clientele while weakening to attract new customers. Designs have been out of touch and insipid, leading other companies to gain souk share. Gap requires aligning design and branding accordingly. Gap has reduced marketing over the past years in order to boost operating effectiveness. This was mainly hurtful in 2011. Gap did not operate on marketing crusade and was one of the merely apparel corporations to lose profits. Gap should boost its marketing and enhance structure its advertising strategy towards its corporations` person shopper bases.
Gap has to carry on its initiative to rationalize in the United States. Chances abound globally and Gap requires continuing to leverage its franchise replica to expand to innovative counties. Gap should as well work to boost its existing companies in Europe and Asia. Gap needs to persist to cultivate its online presence nationally and must as well look to boost its mobile presence. Gap, Inc. made its realm by targeting clientele in their twenties and early thirties. In the new millennium, Gap has been incapable to replicate this achievement. Each step of the way gap has experienced serious miscalculations in the past years. For the past decade Gap`s methodical branding malfunction has been present. We think Gap should update its product but make these verdicts more sensibly. Change cannot happen suddenly, and Gap ought to be careful not simply to comprehend what client base its desires to target however in addition what client base it
has already. In combination with better branding, Gap should better try to measure fashion
trends and offer exciting entertaining goods in every stores. Fashion choices of the Gap
have been censured for being alike to a numeral of other specialty attire chains. Gap often needs to discern what fashion tendency will be a year from now not what style trends are nowadays. The aptitude of Gap to foresee where the world of fashion will be tomorrow is contingent upon its aptitude to obtain and keep top flair. Gap should heavily invest in getting top style designers for all of its products. For Gap to invigorate its picture as a company, it should have products that clientele want to be dressed in. moderately than changing its lists all on one occasion to get a new client base, these alters ought to be done gradually so as not to alienate customers that are already existing.
V. Mridu (2005) the future of Gap Inc.
C. Paul, B. Jason and L. James (2012) Gap. Inc. Griffin Consulting Group