Case Assignment 1 Gap Inc.

Team 1

Jose Garcia Nicosia Green Virginia Saldana Vincent Urban

Gap, Inc., a company established in 1969, is the parent company of four other widely recognized clothing and accessories stores. These include Banana Republic (BR), Old Navy (ON), Piperlime (PL), and the founding flagship store, The Gap. In the companys internal environment, Gap, Inc. has dealt with the companys CEO not being compatible with the vision of the company, which has lead them to be in debt. There was $3.4 billion of debt when Mickey Drexler was at the helm of the company. Another internal factor would be that the Gap, Inc. has 780 vendors that they use to the companys advantage but this is at a cost. The external environment factors, Gap, Inc.s competitors have grown in size and have been able to evolve at a much faster pace, which has hurt the companys market share. Now the vendors mentioned in the internal environment, also affected their external environment when the company saw itself involved in violating child labor laws. This cost the company to lose money in same-store sales and which resulted in volatility in the price of the firms stock, which in 2000 was selling at $50 per share to 2006 where it was selling at approximately $20 per share. Due to various internal and external environmental factors, Gap, Inc. has much to contend with if it wishes to regain its dominance in the apparel and retail markets. The retail industry is a highly competitive one. Gap Inc. has proven throughout its history that it excels in garnering its customer base. While The Gap brand name offers clothing selections to customers of all ages, the corporation aimed at cornering all sections of the retail apparel markets. One way The Gap achieved this is through the acquisition of BR. This allowed the corporation to offer high-quality apparel and accessories collections for men and women at an affordable price. In 1994, the company reinvigorated its mission by acquiring ON. ON offered trendy fashions for budget-conscious shoppers such as teenagers. However, Gap, Inc. did not stop there and in fact launched an on-line only shoe shop. By offering footwear brands for all ages and genders, the company poised itself in yet another segment of the industry. The industry is highly competitive and Gap, Inc. must always consider what competitors such as Abercrombie & Fitch (AF), American Eagle (AE), Ann Taylor (AT) among others do if it

wishes to stay ahead of them or at least compete at the same level. AF, for instance, targets the teenage market by being exclusionary. This focus has been highly successful for AF and further segmented its market by starting a new business, Hollister, and augmenting its teenage market share. Jeans have now become a big part of fashion and can be worn casually or dressy. This is another part of the market that Gap, Inc. is losing due to designer jeans beginning to be more popular due to the new cuts and styles available. Jeans no longer are cut to fit ones body style and designers have realized that the consumer comes in a variety of shapes and it is up to them to fulfill that need. Designer jeans companies such as 7 For All Mankind, True Religion, and Lucky Brand, have established themselves as jean retailers from casual to dressy. Jeans were the reason that Gap, Inc. was created and now designer jean competitors are threatening to cut into that market share that was once dominated by Gap, Inc. ON, on the other hand, competes widely with big names such as Kohls, Target, Ross, and Wal-Mart. These companies offer more than just clothing and accessories and therefore create value through the use of economies of scale to keep their prices low. While the clothing industry is not a difficult one to penetrate, the fact that there are many substitute products on the market make it a challenge for any new organization. Establishing a distinct or unique name in the industry is by far the greatest obstacle to overcome. At this point in its history, Gap, Inc. does not face this particular challenge. Rather, the company must face the prospect of customer loss with the high variety of other products that are offered. These include goods from a sporting specialty store or line, companies that specialize in business apparel, chains with less expensive prices, or bigger department stores commonly found in a buyers market. Therefore, Gap, Inc. must work diligently to retain its customers as well as to attract new ones. Gap, Inc. uses contract suppliers to produce much of its clothing. This too has proven to be a challenge for the company. Although the practice of contracted suppliers is common in the industry, it does provide less regulation of procedures, including quality and staffing. Unfortunately, the corporation has dealt many times in the past with contractors using child labor.

Gap, Inc.s size and reputation greatly increases the probability that it will be linked to these kinds of unacceptable practices. When this did occur, the company faced negative effects on its corporate image, sales declined, stock prices fell, social responsibility was viewed as waned, and customer perception was impacted for the worse. Internally Gap, Inc. has felt the effects of top executives exiting the company. Its founding member, Donald Fisher, served as CEO up until 1995. After Fishers departure, the organization acquired new leadership through Mickey Drexler, former president since 1983. Fisher appointed Drexler as his successor and remained there until 2002. After a decline in sales, Drexler decided to retire. Fisher, then still chairman of the board, recruited Paul Pressler from Walt Disney. While Presslers operational and financial efficiencies brought new life to the company, his lack of retail apparel industry experience produced lackluster product development and improvement in the brand name. Pressler stayed on board for five years; then Glenn Murphy was hired. The turnovers in strategic leaders added to the corporate dilemma. The company should develop an Executive Mentorship Program that has the best qualified individual, one that has the retail background as well as financial essential to save the companys reputation go through an intensive 18-month program. During this 18 month program this individual should be exposed to the various company ventures and understand the target customer for each brand in order to determine the path needed to take to make it a success. While this individual is being mentored, the company can continue to work with the acting CEO as he transitions out. The mentored individual and the current CEO will be in constant communication in order to make a smooth transition. In addition to ineffective leadership, GAP Inc.s organizational structure does not allow for cross-brand ideas, direction, design and decisions to be shared within the organization. If practices that worked for one brand were able to be shared with others, this would help improve revenue for the entire company. A restructure of the all brands under GAP Inc. would help communicate a common vision and direction to all of its employees. As GAP Inc. stands now, each brand has its own president which in turns means many different visions, ideas

and directions. Gap Inc. should have one President for the International markets and one president for the U.S. markets. There should be one CEO for the entire company and they should have similar missions and goals. The past five years have not been kind to the corporation. With executive leadership leaving the organization on a downward spiral of sales operations combined with an array of issues involving ethics from suppliers, a straggling US economy, and a brand name that is not as strong as it used to be, Gap, Inc. faces many strategic challenges. One of the corporations biggest struggles is its inability to build value that is greater than that of its competitors, compounded by less-than-desirable fashions and designs. The effects of all this has forced the company to tip its hat off to the industrys competition. ON has proven to be resilient in the downturn due to its positioning as value oriented family brand which is able to capture higher consumer spending. However, due to the recovery in the US, consumer spending is likely to be sluggish due to high unemployment which will adversely impact the discretionary spending and in turn is pressurizing the demand for Gaps products (Datamonitor, 2011). By completing a SWOT analysis of the company, one would gain a better perspective of just how this organization currently stands and what the future likely holds for it. For one, the companys strengths lie in its long history of industry presence. This established presence affords the company a solid reputation for consistency in brand name, quality, and the knack for keeping up with the latest fashion trends. Given that Gap, Inc. is a multinational company, its presence is not only known in the US but in other parts of the world. The company also adheres to purchasing ready-made goods from developing countries. In the process, the company takes advantage of lower labor costs. However, there are a few key weaknesses Gap, Inc. in its organization that keeps it from moving forward. One such weakness is imbedded in the companys philosophy to sell a few specialized products. This lack of product diversification precludes Gap, Inc. from expanding its sales revenues or customer base. The absence of a unique brand name in common sectors also

prevents the company from increasing its dominance; therefore, the corporation should use the opportunity to expand as a strategy for industry dominance. The onset of small firms as well as already established organizations in the apparel industry is Gap, Inc.s most notable threat. These companies operations challenge Gap, Inc.s growth, sales, presence, among many other items. Competitors within the industry are not the only worries for Gap, Inc. It must also know how to confront the possibility that the company will need to pay for government tariffs on imported materials or an interruption in the supply chain. An increase in labor costs as well as the decline of the US dollar is also threats the company must know how to handle. By responding effectively to all of these threats, Gap, Inc. increases its livelihood. The PL business within Gap, Inc. is a step in the direction of diversification but still miles away from what other competitors now offer in their stores. Gap, Inc. needs to offer more purchasing options via the online medium. Online shopping gives consumers the added convenience and lower prices. In Europe, for instance, online sales grew 22% back in 2009 and yet they are not done growing. Furthermore, the internet kept its popularity even during the economic recession as the channel has several counter recessionary characteristics like low operational costs which can be passed on to the consumers. As the economy improves and broadband connectivity increases, the consumers will continue to look to the web for purchasing because of the benefits they find in using this channel (Datamonitor, 2011). An opportunity Gap, Inc. needs to begin to think about is the go green movement that seems to be growing by the minute. This would include eco- friendly procedures in packing, recycling, procurement and charity involvement. This is a big movement that many consumers are beginning to look at when purchasing products or services. An expansion at Gap. Inc.could do some research in is organic products. This would consist of choosing suppliers who only use organic cotton and other elements to produce garments. This would be a great market that many of the other competitors have not really reached yet.

Works Cited DATAMONITOR: Gap, Inc. (2011). Gap, Inc. SWOT Analysis, 1-11.