GAP INC CASE STUDY ANALYSIS

PORTERS FIVE FORCES ANALYSIS
Threat of New Entrants
1. US Clothing industry consists of thousands of local and national stores
2. Fragmented industry, however, Top 4 companies have 39.4% market share
3. New entrants could take up niche but cannot compare with big well established companies
This force is weak to moderate
Rivalry among existing firms
1. Customer demand declining
2. Fragmented industry but Top4 companies held 39.4% of market share
3. Competition also comes from departmental and mass merchandise stores
4. Low switching cost for customers
This force is strong
Threat of substitute products
1. The family clothing store sector is part of the US Clothing Industry , therefore, no substitute products
This force is weak
Determinants of Supplier Power
1. Most of the (97%) production is done overseas
2. Multi Fiber Arrangements (MFA) –limited number of textiles that could be imported from a developing
country resulted in “Chasing quota”
3. If production cost or wages increase., companies start producing in another country
This force is weak
Determinants of Buyer Power
1. Decreasing demand and low switching costs
2. Price sensitivity
3. Lack of brand loyalty
This force is moderate force



Competition from New Entrants
In the fashion industry, the barriers to entry are very high. Therefore, it is of utmost importance for a corporation
to have high brand perception because to the low switching costs. This strategy makes it difficult for new entrants
to come into the industry and outdo existing brands. This is because they will not enjoy brand loyalty. It has been
observed that consumers have a tendency of sticking to the clothing brands that they like will therefore continue
to shop for the same brands if they become loyal to the company. For this reason, companies that want o be
successful have to build on brand loyalty.
Substitute Products
In the fashion industry, alternative methods of acquiring designer clothes to shopping at clothing stores are very
limited. It is for this reason that competition from substitute products is weak. The most common substitutes are
making clothes and wearing those passed down from others. Both of those options are not appealing because of
the time involved as well as differences in tastes and preferences between individuals for the option of wearing
hand-me-downs.
Supplier Bargaining Power
Like Gap Inc., most companies in the fashion industry do not manufacture their own clothing but rather acquire
them from suppliers whom they give instructions regarding style and/or design. Because of the large number of
textile manufactures across the world, bargaining power is weak. Consequently, the suppliers are unable to charge
high prices for fear of losing contracts to competitors who may offer the same goods and services at a cheaper
price.
Customer Bargaining Power
Customers have high bargaining power when it comes to the fashion industry. One of the reasons is the low
switching costs from one store to another. When a customer becomes dissatisfied with the quality or pricing of a
certain store’s clothes, the consequence is that they will switch to a rival store. Therefore, if a store desires to
retain its customers, it is imperative that it offers them the best in terms of quality, price and trend.

Corporate Strategies, mergers and acquisitions, alliances, 9 cell foreign markets
Gap launched their turnaround strategy in 2002, the main goal was to eliminate the long term debt and expanding
internationally and improving Gap’s quality, styling, and overall image. By 2008, Gap has opened dozens of
franchised stores all over Asia and Middle East. They also hired a well-known designer Patrick Robinson to develop
more stylish and fashionable lines for its clothing stores. First turnaround strategy began with Micky Drexler’s
replacement by Paul Pressler as the CEO. Where he had experience of 15 years with Walt Disney Company. He
initiated this turnaround strategy with redesigning of the company’s websites and imp0roving its online presence.
This was further enhanced by developing a completely new e commerce presence for gap. Com,
BananaRepuclic.com and OldNavy.com, The purpose of this was to improve the online presence. This was further
supported by providing greater functionalities with these websites. To improve user friendliness with these newly
designed sites the more convenient shopping experience. This strategy was justified by the New York times by
publishing “Gap’s redesigned websites were among the best e commerce sites in retail”.
GAP went on public in1976 and launched their first rapid expansion strategy after consummating retailer Millard
“Mickey” Drexler as the president in 1983. GAP had a combination of acquisitions, new ventures and strategies to
produce organic growth, Drexler transformed the Gap from a company with annual revenue of USD 14 billion also
more than 2000 stores in 2002. He also created the Gap’s hip image and its preppy product line cool and
memorable by printing ads such as depicting iconic photos of earnest Hemingway, Marilyn Monroe etc. The First
Acquisition was banana republic chain in 1983. The Gap also launched its first Gap Kid’s store in 1986 and
explored international markets in 1989; in 1992 they became the second largest apparel brand in the world. They
launched their new product line the Old Navy in 1994. Pressler took over the CEO post at Gap from Drexler and he
had a new vision and a strategy to promote the growth of revenue using new areas like internet and e commerce.
He launched the internet only retailer called piperlime.com and expanded into new markets in Asia and Middle
East in 2006. The next CEO Murphy began to franchise Gap and Banana Republic stores in Middle East and Asia and
acquired the women’s active wear company Athleta in 2008. Murphy also reconfigured gap.com to allow internet
customers to shop for Gap, Old Navy, Banana Republic, Piperlime or Athleta apparel via a single shopping cart. But
when critically examining this strategy one can argue that all these products that’s Old Navy, Banana Republic
caters to different market segments and their product range differs, in terms of pricing, design etc. so anyone who
wants to shop can buy all types of clothing under one site, but on the other hand this strategy can also provide
competitive disadvantage as well because a person who is highly branded would not want to actually shop in a
common site rather than going into a site like that him/her would prefer to shop in a particular industry.
Strategies proposed by Paul Pressler
Redesigning the Online Website
Best E Commerce Website
Reducing Debt
Strategies proposed by Glenn Murphy
Expanded the business internationally
Diversified the company
Brining in a well-known designer
Gap fits with the broad differentiation strategy by allowing the company to command a premium price for its
product, increase unit sales and gain buyer loyalty to its brand.
Gap gives the competitive advantage by giving customers a variety of casual and fashion products and to make
sure that the website is convenient for its consumers






SWOT ANALYSIS FOR GAP
Opportunities
Growth in online retail spending (specially emerging trends with mobile industry )
Line extensions (accessories, babywear, plus-sized) > Gapkids, Babygap, Gapbody
18% US adults are obese
Emerging markets in Southeast Asia, Mideast
Falling price of cotton (Cotton is a key raw material for production for Gap)
Threats
Customers switching to rival brands
Increased competition
Local > TJX Stores (discount store), Ross Stores (named brand and designer apparel for low price),
Abercrombie & Fitch ( spatiality retailer for up market ), American Eagle Outfitters ( trendy apparels for
affordable price )
Target, Walmart, Sears, JCPenny
International > Uniqlo Japan, H&M Sweden, Zara Spain
Increased internet based retailers compared to brisk-and-mortar apparel
Highly seasonal sales
August and November (holiday season and after school vacations)
Easy to imitate (consumers search for substitute’s low cost alternatives or counterfeit products)
Economic conditions (Exchange rates, rising labor costs in previously low-cost countries)
Increased bargaining power of suppliers
Strengths
Brand recognition (more than 3100 stores)
Appeal to broad target market
Gap > moderate price for men and women
Old Nave > value-priced for family. Maternity and personal care
Banana Republic > more sophisticated customers
Athleta > high quality garments for women sports
Large network of physical stores
Marketing campaigns
Global presence
IT savvy ( gap.com, bannarepublic.com, oldnavy.com ) New York Times > among the best e-commerce sites in
retail. Kiva Systems for order processing.
Franchising network ( Bahrain, Indonesia, Singapore, etc..) > more than in 20 countries
Collaboration with celebrity designers
Stella McCartney > GapKids
Mercy > Mercy Gap in Paris
Keds > sneaker line
Chan Lau > limited edition bracelets
Ethical recognition (fourth consecutive year for most ethical companies awards, 100 best corporate citizens, from
blue to greens jeans )
Strong margins (almost twice compared to competitors, achieve this through inventory and cost control, an
efficient supply chain, introducing new product categories)
Weaknesses
Decline in revenues
Shut down stores ( Forth and Towne )
Overdependence in USA ( >80%)
High Asian vendor dependency
Risk of exposure ‘illegal or unethical operations, such as child labor or sweatshop working conditions and
low pay’
Shipment delays
Government actions ( China minimum wage increase directed Gap to source from Philippine and Vietnam
)

Poor coordination between research and design teams( delayed decision making, market opportunity lose)
Gap inc. in 5 generic strategies


Gap Inc. could be put under the Broad differentiation category
Target Market –> Fashion & Brand conscious
Offering –> style & Quality – Classics & greatest value
Price – Premium price
Their company sells different brands widening to reach every market in the fashion industry differentiating itself
from the competitors. They are getting a premium price for its products and offer style and quality and have won
customer loyalty for their brand.
Gap, Inc., built its reputation and achieved strategic competitiveness by using the differentiation strategy to sell to
sophisticated customers who want to purchase moderately priced, high-fashion casual clothing. Gap's strategic
success was largely a product of a segmentation strategy wherein the firm attempted to focus stores' offerings on
the unique needs of different market segments.
Gap Inc.’s chosen strategy is appropriate in the fashion/retail industry because the more different or stylish the
clothes, the more market share Gap Inc. will gain. The market is saturated with thousands of other clothing
retailers competing for the same market share. All of Gap Inc.’s companies reach a wide variety of different
markets: Gap targets the stylish urban fashion; Banana Republic serves the upper middle class with quality
professional and casual wear; Old Navy attracts the cost conscious consumers with their low cost strategy store;
Piperlime competes with big department stores such as Nordstrom and Dillard’s; and Athleta sweeps up women’s
sports apparel.
Gap Inc.
Though they have diversified and have different products their core competitive strategy could be taken as broad
differentiation.


Competencies and value chain of Gap Inc.

Gap Inc.’s distinctive competencies lie in its level of market penetration. The sheer number of retail outlets
provides easy and convenient access for customers in each market. The company owns and operates 1,699 Gap
retail stores, 447 Banana Republic stores, and 854 Old Navy stores – approximately 3,000 in all (www.gapinc.com).
The company’s reach is furthered through its ability to target multiple demographic segments with the three
different retailers.