Machine Learning Course

Case Predicting consumer tastes with Big Data at Gap

Summary:

The case describes how in 2017, Art Peck who was named CEO of Gap Inc. in November 2014,
proposes changes in the company in order to halt the decline in sales for two consecutive years.
Peck has worked since 2005 in various positions in the company (operations, planning and
management). The strategy focuses on implementing a decentralized and collective process
that defines the next season's clothing assortment, fed by large volumes of data (Big Data)
extracted from Google Analytics, Google Trends, social networks and proprietary databases, as
well as eliminating the position of creative director for each of the brands. It also proposes the
expansion of the market by making e-commerce retail sales through Amazon.

This decentralized, trend-discovery process would allow the trend to be immediately included in
the company's three main brands (Gap, Banana Republic and Old Navy), reaching stores in as
little as 3 months. In the old school you would send the designer to Europe, have him buy high-
end samples, come back, and a year and a half later you'd see the clothes in Gap stores.

Some data of Gap Inc. are as follows.

● Gap Inc. was founded in 1968 by Donald and Doris Fisher. Specialty retail creators
producing their own private label products.
● Gap had a total of 135,000 employees and 3659 franchised and owned retail locations in
50 countries, with global sales of USD 15.5 billion.
● Gap managed 5 brands (Gap, Banana Republic, Old Navy, Athleta and Intermix).
● In 1983, Millard "Mickey" Drexler was named CEO of Gap Inc. During his tenure, sales
grew from $480 million to $14 billion in 2000.
● In 1983, Gap Inc. acquired Banana Republic moving to a higher price/quality level.
● In 1994, Gap Inc. created a new brand, Old Navy, to compete with department stores.
Old Navy became the first retailer to reach $1 billion in annual sales within four years of
its launch.
● In 1996 Gap was at the top of "cool," a leader in American casual style.
● Drexler left Gap in 2002, after eight consecutive quarters of declining sales.
● In 2008, it acquired Athleta, a women's sportswear brand.
● In 2012, it acquired Intermix, a multi-brand store of high-end and contemporary women's
clothing.
● Gap offered all of its products and varieties through its website, given the limited size of
its stores it only offered a carefully selected subset, consisting of basic concepts and
fashion items for men, women and children.

Peck as president of Growth, Innovation and Digital, invested in digital capabilities for
omnichannel shopping, making it easier for customers to browse, buy and receive their items
seamlessly through these channels.

He also promoted data-driven decision making and pushed his team to use big data to learn
more about customer behavior, discovering patterns with which companies could develop
heuristics or protocols based on algorithms to offer a better customer experience, developing
email programs and sending relevant localized information in real time, customizing how they
will treat their future customers in order to maximize customer satisfaction and/or profitability,
and closing underperforming stores (175 in 2015 and 175 in 2016).The team is also working
with the team to use big data to learn more about customer behavior, discovering patterns with
which companies could develop heuristics or algorithm-based protocols to deliver a better
customer experience, developing email programs and sending relevant localized information in
real time, customizing the way they will treat their future customers in order to maximize
satisfaction and/or profitability and closing underperforming stores (175 in 2015 and 75 in 2016).

Its key challenges at that time were: slow growth in core markets, mid-tier apparel overcrowded
by competition, new shopping habits; from physical stores to online channels, emergence of fast
fashion, large and frequent discounting, consumers' search for unique identity, size liabilities
and gap ubiquity.

Peck believed that product assortment was key and that Gap's model for selecting the right
assortment was failing. The results for 2015 and 2016 were disappointing. The market cap of
Gap Inc. had fallen to $9.2 billion, and the Board was looking for longer-term solutions.

In 2011 as president of Gap North America he fired Gap's head of design, Patrick Robinson
who had worked at Gap since 2007. Rebekka Bay, was hired in 2012 as Robinson's
replacement. Then in 2015, when Peck moved into his CEO position, he fired Bay. In the case
of Banana Republic, Marissa Webb was hired in April 2014. Webb resigned in October 2015,
after only 18 months in the position. None were replaced. Peck's solution was to eliminate the
creative director position and distribute design responsibility.

Peck, formulated his approach in what he called Product 3.0: team with creative talent in a
highly collaborative environment for the development of each new season.

In the market, companies such as Amazon and Netflix were already using predictive analytics
for the sale of existing products and predictive analytics for new product development.

With the firing of its creative directors, Peck was betting on a new role for big data, the creative
part of a new line, predicting what the new fashion would be next season. It used data analytics
to inform its repurchases and analyzed real-time sales data to determine which items to reorder
and which to drop. Each brand's vision statement served as a filter so that trends could be
incorporated in a manner consistent with the brand image.

In order to implement Product 3.0, Peck moved manufacturing from Asia to the Caribbean to
receive items faster, implemented the knitting platform so that designs could be created quickly
in response to trends, shortened the time required for items to move from design to stores, and
postponed final decisions on orders until it could incorporate the latest trends. the time required
for items to move from design to stores, and postponed the final decision on orders until it could
incorporate the latest trends from early limited releases designed to test the market. Reducing
the development cycle to eight to ten weeks in some categories allowed Gap to be much more
agile and responsive to consumer purchase data, adjusting inventory as a way to reduce the
need for deep discounting.
Peck was betting on a process of discovery, which he thought was imperative to Gap's success,
wagering that big data-driven market intelligence could outperform a creative director in
predicting consumers' fashion tastes.

Questionnaire

Does the Big Data approach work for all GAP brands?

Which of the brands is the best or worst fit for the strategy taken?

Can the Gap keep each of these brands distinct from one another if "product 3.0" is shared?

According to the reading, the strategy of replacing the creative director as visionary and basis
for the definition of future trends by a group creative system fed by large amounts of data
allowed to better adapt to the problem of the emergence of fast fashion, also the increase of e-
commerce allows to provide additional data on customer behavior so this new approach does
apply to the different brands of GAP Inc.

It should be noted that due to the different characteristics and strategies of each brand in
particular, this new approach does not fit equally to each of them, it is explained in the reading,
that part of the new strategy is to identify trends, test them in the stores and respond to demand,
producing more of those that have been sold more, for it must have a flexibility and agility in the
supply chain that allows to respond adequately to the different trends in the seasons, thus
reducing the average product cycle time.

Among the 3 main brands, Old Navy is the one that best fits this strategy due to its focus on fast
fashion discount, also it should be taken into account that this brand was created to compete
with discount department stores and mass merchants, for this it is necessary to have the
flexibility and agility that provides the strategy based on Big Data, in turn, the brand Banana
Republic, is the one that least fits because its focus is to offer high quality classic designs that
last over time for customers with higher purchasing power, this translates into a longer product
cycle time and less amount of data because it is not produced in a massive way as Old
Navy.This translates into a longer product cycle time and less data because it is not mass-
produced like Old Navy.

According to the reading it is indicated that, although the prediction models are used as a basis
to identify trends, the vision of each brand was used as a filter so that the trends could be
incorporated consistently with the brand image, in this way by applying the "product 3.0" and
using the information shared by the managers about the trends of the different brands, it is
possible to maintain the difference between them.

Conclusions

Art Peck is taking over a large company with five well-established brands targeting different
audiences, which had experienced solid growth for 17 years but had been experiencing
problems in expected sales growth in the last few years prior to his tenure, due to market
changes, the emergence of new sales platforms and unanticipated change in consumer
preferences.The company had experienced solid growth for 17 years but had been experiencing
problems with expected sales growth in recent years prior to his tenure, due to changes in the
market, the emergence of new sales platforms and unanticipated changes in consumer
preferences.

Peck believed that the company needed a key asset to fuel its core processes, which gave it the
greatest competitive advantage and differentiation: Until the time of his arrival as CEO, GAP
had placed the greatest of these assets in the hands of its Creative Directors, which meant that
the value of this process resided in the subjectivity of the creative directors.The value of this
process resided in the subjectivity of these people's decisions and not in a process that could be
bequeathed as the company's own (evidenced in the randomness of the success of the designs
and in the question: "what would happen if this creative director of the company were to be the
creative director of the company? What would happen if this successful creative director
decided to retire or start his own company?, Does the value go with him?). What Peck is trying
to do is to reorganize the creative process, which he recognizes as fundamental and unique (no
algorithm so far can predict with certainty the variation of consumers' future preferences) but
could start with information extracted from big data processes to establish a defined process,
which starts with greater certainty based on information, which becomes a fundamental part of a
formula (making an analogy with Coca Cola's most valuable asset) that the company
recognizes as its own and allows for more predictable timelines, providing a greater margin of
time.This would become a fundamental part of a formula (making an analogy with Coca Cola's
most valuable asset) that the company recognizes as its own and that would make timelines
more predictable, providing more time to react to changes and predictable in the long term
(required by directors and investors): Product 3.0.

In addition to this success, Peck also succeeded in breaking with the previous balance in
distribution channels by starting negotiations with platforms that already had a great advantage
in the market to benefit from it, focusing on the user experience and the importance of gathering
information from it, taking care that the quality of the information does not decline in the new
channels or that the privacy of its users is not violated. The context in which Peck received the
company merited disruptive changes to maintain growth, and the necessary changes were
made to maintain growth and, in the future, focus efforts on balancing the growth of the
company's different brands.