GAP Analysis
Content
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 noveltiesteens & 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
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
Weakness
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)
Opportunities
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
Endangered reputation among customerschild labor issues
Threats
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. (longterm plan)
o
o
o
Seniors: Release clothes collection dedicated for elderly people.
Aware mothers: Release ecofriendly clothes collection for children.
Fashionable young people: Release clothes collection in cooperation with wellknown 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-gapbusinessweekbusiness-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
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 noveltiesteens & 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
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
Weakness
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)
Opportunities
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
Endangered reputation among customerschild labor issues
Threats
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. (longterm plan)
o
o
o
Seniors: Release clothes collection dedicated for elderly people.
Aware mothers: Release ecofriendly clothes collection for children.
Fashionable young people: Release clothes collection in cooperation with wellknown 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-gapbusinessweekbusiness-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
