Strategic Analysis Of The Gap Inc Marketing Essay

The national name brand Gap was merely just a simple idea of trying to find the right jeans that started in 1969. Doris and Don Fisher founded the Gap, which would soon become a booming clothing retailer in San Francisco to appeal to the teenage demographic. Their idea of "make it simple to find a pair of jeans (Thompson, et al. C-155-C156)" transpired into a multi-billion dollar empire. By the 1970's, the Fishers were able to market more ideas that would target a more wide-ranging variety of customers.

Senior Management

In 1983, Millard "Mickey" Drexler was hired as president of the Gap. With Drexler's experience and his expertise in the retail industry, the Gap's annual revenues grew substantially. Under Drexler's management, the Gap was able to develop new ventures, gain acquisitions and enhance the company's strategies to generate more profit and growth. "Drexler transformed Gap from a company with annual revenues of $400 million and 450 stores in 1983 to a retailing giant with annual revenues of $14 billion and more than 2,000 stores in 2002 (Thompson, et al. C164-C165)". Drexler was also responsible for the acquisition of Banana Republic in 1983. Gap Kids opened its first store in 1986 and Old Navy was opened in 1994. With all of Drexler's diligent work and his impressive accomplishments, this was not enough to keep him on as president of the Gap. In 2002, Drexler was fired from the Gap because the responsibility he played in the severe decline in revenue between 2000 and 2002.

Overview of the Company Gap Situation

Gap has five major companies. The five companies are Gap, Old Navy, Banana Republic, Athleta, and Piperlime. "Gap Inc. was one of the four largest retailers in the U.S. in 2010 (Thompson, et al. C-158)". Gap in 2009 had accounted for 156 billion in revenues in 2009 which was a decline from 164 billion in 2008 due to the recession in the U.S. "Gap has also had sales of 84.4 billion in 2009, representing more than 54 percent of clothing store sector sales during the year (Thompson, et al. C-158)". On a globalization scale Gap sales has been relatively low. This is due because of negative publicity about illegal labor working laws such as children working. This is also due to the fact that Gap sales were slow because of shipment delays and foreign government action.

Gap's Strategy

Gap's main strategy is "to outcompeting rivals on the basis of differentiating features, such as higher quality, wider product selection, added performance, value-added services, more attractive styling, and technological superiority (Thompson, et al. 8)". Gap offers sales and discounts from the franchise Brands (Old Navy and Banana Republic) and always keeping up with the latest trends to keep up with competitors. Gap tries to use a certain strategy for all ages. Overseas, the Company Gap is trying to focus on the youth 18-24 for their clothing styles. Gap also has a store for babies and kids. Old Navy is targeted for a family casual look. Banana Republic carries a little more high value clothing than Gap for casual people. Athleta offers high quality products for women. Piperlime is basically about foot brands and hand bags.

Products and Consumer Base

According to Thompson, Peteraf, Gamble and Strickland the authors of Crafting & Executing Strategy, the Gap Inc. was primarily a blue jean retailer, founded by Doris and Don Fisher in 1969 and located in San Francisco (Thompson, et al. C-155). Their idea premised on wanting to make it effortless to find a pair of blue jeans, consisting of a variety of style and sizes with their targeted consumer based group being San Francisco teenagers (Thompson, et al. C-156). The original targeted consumer base group has since revolutionized to cover men, women, of all ages, children, and infants with styles ranging from casual to classical apparel.

In addition, since 1996, the Gap has evolved into one of the four largest retailers in the U.S. family clothing store industries by having five brands since 2010. Description of the brand products they offer are listed as follows:

Gap - extensive selection of classically styled casual apparel at a moderate price

Old Navy - value-priced casual family apparel, shoes, accessories, and maternity wear In addition, personal care items.

Banana Republic - more sophisticated casual and tailored apparel, shoes, accessories and Personal care products at prices a little higher than the Gap

Athleta - stylish and functional high quality athletic apparel for women

Piperlime - (Piperlime.com) is an online store that offers men, women, and children from casual to high-end fashion footwear along with handbag (Thompson, et al. C-158).

Significant Problems and Issues that Confront Management

A significant problem for management at the Gap is trying to keep up with the latest fashion for new product lines. Gap has to make sure that they are keeping up with the newest trends in clothing while also keeping the store brand intact. Management must also come up with ways to appeal to new technology and put more sales on the internet for the companies in Gap. Major competition from clothing stores such TJX Companies; Ross was Gap's main competition. Management now needs to come up with strategies to combat with massive retailers stores such as Target and Wal-Mart who has their own brand to compete against the clothing companies such as Gap. Another one of Gap's problem is trying to reestablish itself as a top clothing brand contender after getting themselves out of debt in the early 2000's.

Competitors

In order to be successful in the family clothing industry according to Thompson, Peteraf, Gamble, and Strickland retailers must, "successfully develop new product lines which reflect the latest fashion trends and distribute them as quickly as possible". In addition, competition among the retail store industry has force retailers to focus more on building brand and aggressive advertising in order to maintain brand loyalty. On the competitive front, the Gap has four major competitors in the U.S. family clothing industry, TJX Companies Inc., Ross Stores, Abercrombie & Fitch, and American Eagle Outfitters (Thompson, et al. C-161). Further stated by Thompson, Peteraf, Gamble and Strickland, strategically retailers must also take in to consideration that consumers not only purchase apparel from family clothing stores but also from department stores, big-box stores, men and women stores, as well as children's and infant clothing stores thereby widening the competitive market and develop a strategy plan with that in mind (Thompson, et al. C-164).

Strengths of Gap

The Gap Inc. is a specialty retailer who is best known for their brands like the Gap, Old Navy, Banana Republic, Athleta and Piperline. The company was ranked fourth in the United States clothing industry in 2009. (Thompson, et al.C-158) it also accounts for $156 billion revenue in 2009 ranking sixth among the expansive US clothing stores. (Thompson, et al. C-158) The Gap Inc. Company has a strong brand presence and is well known to be perfectly attuned to their consumers ever changing fashion trends. With the recession of 2008, Gap Inc. did take a negative hit to their sales. They made many leadership changes over the period of 2000-2008. The Gap Inc. renamed a CEO in 2002 who was successful in their turnaround strategy to eliminate its long-term debt which they accumulated in the 1990's. (Thompson, et al. C-164) The Gap's long-term debt was essentially eliminated by 2007 but the company still needed some improvement. (Thompson, et al. C-164) The Gap Inc. was facing declining sales among their comparable stores in the U.S and internationally by 5 percent on average. The Gap Inc. faced many hurdles with the growing competition in their industry sector and the recession of 2008 but the company faced their problems by implementing new leadership and turnaround strategies with their new CEO Paul Pressler in 2002.

Paul Pressler was with the Walt Disney Company with 15 years of experience before coming to Gap Inc. (Thompson, et al. C-164) His first goal was to redesign the company's e-commerce policy improving their website and internet presence. The new websites for Gap.com, BannaRepublic.com and OldNavy.com were redeveloped to improve consumer's online shopping experience. The new e-websites were ranked by the New York Times as "…among the best e-commerce sites in retail." (Thompson, et al. C-164) During Pressler's leadership the company successfully lowered it $2.9 billion debt to $513 million by the end of 2005 fiscal year. (Thompson, et al. C-165) Through the elimination of their debt Gap was able to increase dividend payments to their shareholders. The Gap also took the opportunity to purchase outstanding shares from 887 million in 2002 to 794 million in 2007. (Thompson, et al. C-165) This action ultimately helped strengthen their balance sheets. Pressler's success was lived because many analysts thought that he made significant cuts in product development, marketing and design. (Thompson, et al. C-166) These areas are crucial in developing new products and keeping up with the endless changes in fashion. In the end was replaced by Glenn Murphy in 2007 because the company faced declining revenue and earnings. (Thompson, et al. C-166) Murphy brought a new turnaround strategy to Gap Inc. focusing on revamping the company's clothing lines. In Murphy's first year he began expanding the company's franchises in eleven countries. (Thompson, et al. C-166) By 2008 more than 100 stores were up and running in different countries around the world like Greece and Saudi Arabia. (Thompson, et al. C-166) Not only did Murphy help increase Gap's presence outside the United States he also differentiated the company's apparel store with the acquisition of Athleta in 2008. (Thompson, et al. C-166) He also brought in Patrick Robinson as Gap's design chief along with cutting the company's spending. Robinson came to the company with the goal to get Gap off of the "trend treadmill" and bring it to a new classic style. (Thompson, et al. C-167) The improvements made by Robinson and Murphy were changing Wall Street's analyst opinion of the company. The proclaimed them as being great leaders that were steering Gap in the right direction.

Gap Inc. saw some improvements under each leader and certainly helped improve the company's long-term debt that they accumulate in the 1990's but they still face the hardships of a suffering economy. The one thing that Gap still has is their brand power which the company has control over all aspects of its development. In 2010, Gap Inc. had received great recognition for its business citizenship. In March of 2010 Gap was recognized for a fourth year as one of the World's most ethical companies by the Ethispher Institute. (Thompson, et al. C-169) It also was ranked fifth by Corporate Responsibility Magazine on its list of "100 Best Corporate Citizens" and ranked ninth on the overall list and first among retailers. In 2009-2010 Gap was headed in the right direction but they still faced revenue decline mostly because of the monotonous economy. In May of 2010 the Gap Inc.'s sales were up by 2 percent and their year-to-date sales for the first quarter were up 5 percent versus the year before. (Thompson, et al. C-172) The company is headed in the right direction but still has room to improve on its weaknesses.

According to a SWOT Analysis in MarketLine, Gap, Inc.'s strengths are: global presence catalyzed by franchise and company-owned stores and online presence, well balanced portfolio of value as well as upscale brands, and high margins compared to its competitors. (Business Source)

Global presence catalyzed by franchise and company-owned stores and online presence

Since its first doors opened, the Gap has expanded its stores across various countries operating through company owned stores, franchised stores, and website sales. Company owned stores are in the US, Canada, the UK, France, Ireland, Japan, China, and Italy. The franchise stores are operated in numerous countries across the world. These franchise agreements allow stores to sell items under the Gap's name brands.

The online retail websites have expanded since the Gap began its online operations in 1997. The brands Gap, Banana Republic, and Old Navy are available in the US, Canada, the UK, and European nations. Piperlime and Atheta are available exclusively online and are available through select international countries in addition to the US. Within the past two years, the Gap has launched online retail websites in Japan, Austria, Estonia, Finland, Portugal, and Slovakia. Widespread presence broadens the company's customer base and diversifies business risk by decreasing dependence on the mature markets such as the US and the UK. (Business Source)

Well balanced portfolio of value as well as upscale brands

The Gap's classic and casual apparel, moderately priced, are catered to the high end customer segment. Banana Republic is higher end apparel than the Gap, offering casual and tailored clothing, as well as shoes and accessories. Piperlime offers name brand handbags, footwear, and jewelry.

At the lower end of the customer market, the company has the Gap Outlet Stores, Banana Republic Factory Stores, and Old Navy. Old Navy's pricing is positioned at value prices that are affordable for the whole family.

With all these brands, the company has managed to enter various market segments.

High margins compared to competitors

With all of the ups and downs in the retail industry, the Gap's profit margins have exceeded some of their competitors. In FY2012, the company's operating margin was 9.9%. In comparison, the operating margin of Ann Taylor Stores, Gap's key competitor, was 6.6% for FY2012 (financial year ending January 2012), and the operating profit of another competitor American Eagle Outfitters was 7.3% (financial year ending January 2012). (Business Source)

Overview of Gap's Weakness

Although Gap has excelled in the retail industry, it has some weaknesses that need to be addressed if they are going to remain in the top four. One reason that Gap is not performing as well as previously expected is because it has somewhat lost its brand identity causing consumers to wonder what the brand real is. This seems to be their biggest weakness. In order to make a change Gap needs to develop their own niche in the retail industry the way Levi has, thereby making a name for them that will stand out and stick in the minds of the consumers. Next, they need to develop their own identity even to the extent that each of the retail stores they own has their own identity that separates them from the rest making them more competitive. In other words, they need to establish their own fashion identity, for example the way that Reebok has done. Without this, they are defiantly at an increased risk form other retailers in the competitive area.

The other brands of Gap, Inc. are also playing a role in destroying the Gap Inc. and as suggested above they each need to develop their own identity. In other words, the fact that they are all owned by the same company means that the product lines tend to be too similar. In addition, location also plays apart in whether a company is strong or weak. Gap stores are located in more than eighteen countries, there is not a lot of diversity, with some of the stores being franchised owned as stated by Thompson, Peteraf, Gamble, and Strickland (Thompson, et al. C-167). Gap strayed away from core values and the quality of the clothing declined that also accumulated a large amount of long term debt in the 90's about $3 million, which hurt the company. Gap also had a venture with a new store they opened under the CEO Pressler in 2002 which launch the internet only retailer Piperline.com that failed.

Social responsibility

Gap is a leading brand that has to keep up with the trends to remain marketable to the customers. With online and international sale, this helps growth with its competitors where Gap's Social responsibility is noticed. Gap has retailers in China, London, Paris and Rome and believes that they will remain very successful. Gap has remained as one of the most ethical companies and was recognized for four years in a row by Ethisphere Institute., also recognized by Corporate Responsibility Magazine in the list of "100 Best Corporate Citizens" improving factory conditions. Gap is recognized for good business ethics and maintains good relationship with its vendors.

Strategic Goals

Big changes are being made at Gap, Inc. that could lead the company in an extremely profitable direction. The company is restructuring its management team and its online retail websites. They will do this by "bringing together its North American, international, online and franchise divisions under one global executive for each of its brands." (Frojo) Some executives gained newer responsibilities and some gained additional ones. Whatever the case, Gap, Inc. will be able to anticipate the ever changing needs and wants of their customers. This move alone will enhance both market share and shareholder value.

External and Internal Factors Affecting Gap Inc.

Gap Inc.'s ultimate strategic goal is to drive sales growth which has been increasingly difficult due to economic conditions. The United States and Europe have experienced a rise in weak consumer spending due to high unemployment rates and availability of low capital lending. With the recession of 2008 many industries felt the negative impact of decreasing buyer confidence. Just a year before in 2007 the consumer confidence index was well above 100 while in August of 2012 they dropped nearly to 60.6. (SWOT Page 8) High unemployment rates are a major factor in the mind state and spending of many consumers. Due to this many customers are more cautious to spend their money in fear that they may not have future earnings.

Along with decreasing consumer confidence, Gap Inc. also felt the effects of the decreasing real estate values. One of the major assets of Gap Inc. is its real estate holdings which over the fiscal years of 2006-2010 has seen a compound rate of change of nearly 5 percent. (SWOT Page 6) This low yield indicates that Gap Inc. is not efficiently utilizing its valuable resources. On top of all this the company also has complete dependence on outside merchandise vendors for manufacturing its products. Gap Inc. relies solely on private and non-private label merchandise from more than 1,000 vendors because they do not own any factories. (SWOT Page 6) This puts at risk for manufacturing defaults and recalls that can cost the company large amounts of money. It ultimately leaves them with no control over the quality of their products which they have built their brand name and power on.

The external factors, that Gap Inc. has little control over, has not damned the company to ultimate failure. Their well balanced portfolio of brands has enabled Gap Inc. to target well, diversified group of consumers who are looking for quality and/or higher end brands. (SWOT Page 4) The company's brands include the Gap, Gap Outlet, Banana Republic, Banana Republic Factories, Piperline and Athleta. Which all offer diversified, quality products from casual ware, shoes, accessories, personal care, footwear, handbags and accessories for men, women and children. These Gap Inc. brands are considered their higher end merchandise at higher prices. Their brand, Old Navy, has the same quality as any Gap brand but at a more family consumer price. This effective targeting of various consumer segments has given Gap Inc. the power to successfully cater to price sensitive consumers allowing its higher end brands to flourish as the US and European markets recover from the recession. (SWOT Page 5)

Along with the Gap Inc.'s multitude of products and brands it has taken "three pronged" strategy to increase its global presence by operating in various countries through company-owned stores, franchise agreements and online websites. (SWOT Page 5) The Gap Inc has 3,036 company-owned stores across Canada, US, UK, France, Ireland, Japan, China and Italy. (SWOT Page 5) They also have franchise agreements to run and operate Gap and Banana Republic in over 30 countries including Greece and Signapore. By the end of the fiscal year 2012 they have accounted for 227 franchise stores that are run by third parties to sell their brands. These franchises play a key role in Gap Inc's efforts to expand internationally. (SWOT Page 5) The Gap Inc's online presence has been operating since 1997 when they began to offer their Gap brand online. (SWOT Page 4) Their online retail stores for the Banana Republic and Old Navy were available in the US markets in 1999 and 2000. By the year 2010 they were available to the Canada, the UK and some European nations. Their brand Piperlime is sold exclusively online in European Nations, North America and the Asian Pacific Regions along with their launch into Japan's market in 2012. (SWOT Page 4) They now offer e-commerce websites to 90 countries strengthening their global presence along with elevating their risks by decreasing their dependence on the US and UK markets.

Gap Inc.'s strong presence in the online market and expansion into overseas markets is proving to be its most promising asset. In the third quarter this year Gap Inc began its move into the world's second largest economy with their opening of four retail stores in China. According to trefis.com they believe this move will "...produce lucrative results for the retailer in the future." The Gap Inc recently released it Q3 fiscal 2012 earnings with an increase of 8% in revenues and 6% in comparable store sales growth as reported by trefis.com. It looks like with even the pressing external factors of a recovering economy there investment in outside markets will help them overcome the decline in the US and UK markets.