Case Study of Gap: Current Market and Competitive Analysis

1.0 Executive Summary

Gap Inc. is an American fast clothing and accessories retailer based in San Francisco, California, founded in 1969 by Donald Fisher and Doris F. Fisher. It is one of the largest global specialty retailers in United States. Gap Inc. has operated six distinct brands which include Gap, Banana Republic, Athleta, Old Navy, Hill City and Piperlime. Each of the brands are target to different customer and offers different styles to match. Gap Inc. Gap Inc. operates 3,727 stores worldwide, 2,406 of which are based in the United States.

Gap Inc. had faced sales decline in 2018, the net sales of the company was drop by 2 percent. The company faced decline in sales for few years. Gap Inc. has reported that it is preparing to shut down 230 stores of the flagship brand over the next two years as it is trying to restructure its business. On March 2018, Gap and Banana Republic brand has shut down their store in Malaysia due to sales decline, and they are focus in online store. There are few competitors for Gap Inc. which include Zara, H&M, Forever 21 and Uniqlo. In Malaysia, the main competitor of Gap Inc. is H&M and Zara.

The target market for the Gap Inc. are mostly for the age from 18 to 45 years old. There are few recommendations for Gap Inc. to increase their sales:

• a) expand their stores more internationally that domestically
• b) try change physical business to online business
• c) customer relationship management
• d) marketing department

2.0 Company Overview

The Gap Inc. is the worldwide clothing and accessories retailer in United States. It also known as a fast fashion retailer. It offers a variety of products that include apparel, accessories and personal care products for women, men, children and babies. Gap Inc. founded by Donald Fisher and Doris F. Fisher in 1969, Gap Inc. is headquartered in San Francisco, California. Under Gap Inc., there are six primary divisions such as Gap, Old Navy, Banana Republic, Athleta, Hill City, and Intermix. Each of the brands are target to different customer and offers different styles to match. More specifically, the company provides jeans, T-shirts, clothes for use in sports and daily life, eyewear for both women and men, footwear, bags, and jewellery.

The company is based in San Francisco, California and except of the United States and Canada, it also operates in Mexico, United Kingdom, France, Italy, Taiwan, Japan, and Ireland. The company employs about 135,000 people and operates 3,727 stores worldwide, 2,406 of which are based in the United States.

History

In 1969, Doris and Don Fisher opened the first Gap store. It’s because Don Fisher could not find a matching pair of jeans, The Gap referred to the gap in generation. Doris and Don are commercializing the retail sector of specialty.

In 1973, Gap debuts iconic “fall into the gap” jingle. Gap Inc. went public in 1976, selling 1.2 million stock shares. In 1977, Gap Inc. establish nonprofitable arm, Gap Foundation.

Banana Republic was acquired by Gap Inc. in 1980. GapKids opened its first store in San Mateo, California in 1986. In 1987, Gap opens store in London, it is first store outside the United States.

Old Navy was born in 1994, the Old Navy’s first store was opened in Colma, California. Gap went digital in 1997, debuting online shopping. Gap wins awards for his campaign “Khakis Swing” in 1998.

In 2004, Gap Inc. has released their first annual Corporate Social Responsibility report. In 2006, Gap launches PRODUCT (RED) campaign. In 2008, Athleta was acquired.

In 2010, Gap opens doors in China. In 2013, Intermix was acquired. In 2014, Gap Inc. raises the minimum hourly wage for the United States employees. In 2014, Old Navy has opened their first store in China.

3.0 Current Market Analysis

Today, through its 3.500 company-operated stores, approximately 400 franchise stores, and e-commerce site, Gap Inc. serves consumer worldwide and is still growing.

According to (Thomas, 2019), Gap Inc.’s fiscal second quarter sales had fell short of analysts from expectations. Gap Inc. have decline in net sales which drop about 2 percent from $4.09 billion to $4.01 billion a year ago, and it is short of estimates for $4.02 billion. Sales at all Gap Inc. stores operating for at least 12 months and their websites were down by 4 percent, which is worse than the expected 3.1 percent decline. Sales from the same store climbed 2 percent a year ago.

At one of the brands from Gap Inc., Old Navy which typically has been the retailer’s largest division, same-store sales dropped for 5%. At the Banana Republic, they were down 3 percent. And the product flagship Gap posted a 7 percent global decline in sales in the sale store.

Gap Inc. has said that it will split into two independent publicly traded companies-one comprised of its Old Navy brand, and second will be the company that includes its other brands such as Banana Republic and Athleta (Thomas, CNBC, 2019). Gap Inc. has reported that it is preparing to shut down 230 stores of the flagship brand over the next two years as it is trying to restructure its business. Over the past 12 months, gap shares have fallen by about 20 percent, taking their market cap to around $9.7 billion.

On March 2018, all Gap Inc. are closing down their brands store including their namesakes Gap and Banana Republic in Malaysia due to bad sales. In 2017, Gap brands had experienced a drop of 1% in sales and the other brand under Gap Inc. called Banana Republic had experienced about 5% drop in their sales. (Elankovan, 2018) Gap Inc. will focus their sales in online store in Malaysia.

There are few competitors for Gap Inc. which include Zara, H&M, Forever 21 and Uniqlo. In Malaysia, the main competitor of Gap Inc. is H&M and Zara.

H&M (Hennes & Mauritz) is a multinational Swedish clothing company. It also known as a fast retail clothing for women, men teenagers and children. H&M and its affiliate operated with over 4,500 stores in 62 countries (Wikipedia, 2017). H&M faced sales growth that potentially slowed from 12 percent in June to 6 percent in those two months. The company said their summer collections were well received and succeeded in increasing market share. The quarterly sales increase of 8 percent in local currencies shows that part of the revenue. During the quarter, the sales increase of 8 percent in local currencies shows that part of the revenue growth comes from foreign currency movements. (Bloomberg, 2019)

Furthermore, Zara is also one of the competitors of Gap Inc. in Malaysia. Zara SA is a retailer of Spanish apparel in Arteixo, Galicia. Zara is a brand under Inditex. The company focus in fast fashion retails and they have variety of products including clothing, accessories, shoes, swimwear, beauty and perfumes (Wikipedia, n.d.). Zara has a rose in sales in the first five weeks of new financial year as shopper has bought item from the spring collection (Dowsett, 2019).

4.0 Competitive Analysis

4.1 Strength

Gap Inc.

H&M

Zara

a) They have global brand recognition and multibrand portfolio.

· It available in 90 countries worldwide.

b) They have effective supply chain.

· They have use just-in-time inventory system.

c) Sustainable business

· Jeans in Gap is made with 20% less water than other manufacturing method.

a) They have a wide range of products.

· H&M has a wide range of product offering including apparels, cosmetics, shoes, accessories for a wide range of customers.

b) Diversified global presence.

· H&M has their stores in over 60 countries.

c) Unique identity for all brands.

· H&M sells variety of product through many different brands such as H&M, COS, and Monkl to specific customer target group.

a) They have unique design on their products.

· The clothes in Zara are elegant, superior quality and have fantastic finishing.

b) They have strong presence of brands.

· Zara has expand their store to almost 96 countries.

c) Zara has a great supply chain

· Zara as of 2017 has manages up to 20 clothing collections in a year.

4.2 Weaknesses

Gap Inc.

H&M

Zara

a) Increasing competition.

· Brands like H&M, Zara, and Forever 21 are becoming more customer-centric collection.

b) Lack of product variety

· Gap has offer products like sweaters, jeans and tees, but their competitor has offer same product but at lower price.

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c) Decreasing brand popularity

· The brand identity of Gap is losing its appeal and needs a much clearer sense of purpose.

a) Dependence of third-party suppliers.

· H&M had outsourced their production of their product to about 800 independent suppliers and hence it has lower control over the production.

b) Affordable pricing affects quality

· H&M is well-known for their affordable clothing, but sometimes it will affect the quality of the clothes and other products.

a) Generalized their collection

· Zara does not specialized in anything but they only come out with day to day wear or trendy wear.

b) They have lack of advertising.

· Zara can double his profit if they advertise their profit in advertising.

c) Low safety stock.

· It means that they will keep less inventory as a strategy to attract customers walking into the stores to check out the latest fashion.

4.3 Opportunities

Gap Inc.

H&M

Zara

a) International expansion focusing on Asia.

· Most of their stores operates in Asia, but not in Australia and Africa.

b) Improvement of online business

· Gap has launched a new application for mobile apps which allow customers to buy online.

a) E-commerce as a platform

· H&M needs to expand in the E-commerce platform to serve to a large market.

b) Expand in emerging markets.

· H&M needs to explore the emerging markets like Asia and Africa in order to capitalize in the demand created.

c) Improving lifestyle

· People that are more brand-conscious and it can provide an opportunity for brands like H&M to capitalize on the need generated.

a) E-commerce as a platform

· Zara needs to expand in the E-commerce platform to serve to a large market.

b) Growing market potential

· A rise in earning potential of consumer results increasing in demand for status symbol.

c) Market expansion

· New markets will always give new business and potentially profitable business to Zara.

4.4 Threats

Gap Inc.

H&M

Zara

a) Decline of sales and profit

· Gap Inc. faced decline in sales by 2%.

b) Competitors

· Such as Zara, H&M, and Forever 21

c) Management not able to improve the business

· Gap Inc. has made improvements on the company’s supply chain and come out with loyalty programs but it unable to attract new customers.

a) Evolving fashion trends

· H&M has to deliver their products according to the new trends in the market.

b) Competitors

· Such as Zara, Forever 21, and Gap Inc.

c) Rising labour costs in developed countries

· They will be earning for less profit.

a) Competitors

· Such as H&M, Mango and Gap Inc.

b) Rising cost of raw materials.

· It causes the raises of operational costs of the brands.

c) Regulatory threats

· Every country has their own rules and regulations to follow.

5.0 Consumer Analysis

According to (Dudovskiy, 2016), there are few brands in Gap Inc., there are Gap, Banana Republic, Old Navy, Intermix and Athleta. The table below shows Gap Inc. segmentation and target market.

Source: https://research-methodology.net/gap-inc-segmentation-targeting-positioning-an-effective-application-of-multi-segment-positioning/

The table has illustrated that Gap Inc. has using demographic segmentation to target their consumers. For the brands in Gap Inc., they are mostly targeted for the consumer who is in the age between 18 to 45 years old which their occupation may be employees, students, and professionals.

6.0 Recommendations/ Conclusion

In conclusion, it is clear that Gap Inc. what the profile and history of Gap Inc. is and that the company was able throughout its history to surpass most of the barriers and reach its objectives. The company by providing a large variety of classy, trendy, casual and affordable apparel it attracted a lot of consumers. However, it is still one of the market niches as it has only 4% of the entire market share of the clothing retail companies. That’s why the company should make more efforts in order increase its market share.

Actually, there are few recommendations for Gap Inc. First, they need to increase their sales to expand their stores more internationally than domestically (in United States) as most of its stores are located in the United States. Gap Inc. can expand their business largely through franchising agreement. This can help the company to gain more revenue from different countries. It can also get more customers from different countries with different taste.

Besides, the company can also try change their physical business to online business which means their franchise can be operates with brick and mortar store. In online business, they can find many customers globally. This will allow customer to buy their products online through the company official website safely. Gap Inc. also offer international shipping on their official website to almost 44 countries including Japan, Australia, Mexico and Brazil. This would allow their customer received their products quickly.

After introduce the use of online business, Gap Inc. must have a customer relationship management. Customer relationship management is the process of maintaining and building customer relationship by giving the best customer value and satisfaction. Creating customer relationship is the important part in online business. This will let customer feel satisfied after purchasing from their stores and will be purchase again.

Furthermore, Gap Inc. can improve their marketing department. The role of marketing department is to build strong relationship and capture value from customers. Marketing department should market the products to ‘true’ customer. So, customer will feel that it is worth to buy the products from Gap Inc. Then, the value proposition of the Gap Inc. product quality will be creating in customer’s mind.

7.0 References

1. Brands. (n.d.). Retrieved from https://www.gapinc.com/content/gapinc/html/aboutus/ourbrands.html?_ga=2.250938447.83095501.1574147844-2084901136.1574147747.
2. Gap Inc. (2019, November 14). Retrieved from https://en.wikipedia.org/wiki/Gap_Inc.
3. Gap's second-quarter sales fall short of estimates, CEO calls out 'challenging environment'. (2019, August 22). Retrieved from https://www.cnbc.com/2019/08/22/gap-reports-fiscal-q2-2019-earnings.html.
4. Kumar, N. (1997) “The Revolution in Retailing: from Market Driven to Market Driving”, Long Range Planning, vol. 30, No. 6, pp. 830-835.
5. GRIFFIN CONSULTING GROUP. (2012). Gap, Inc. GAP, INC. Retrieved from http://economics-files.pomona.edu/jlikens/SeniorSeminars/Likens2012/reports/Gap.pdf