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Gap Inc. – A Portfolio AnalysisSenior Level Undergraduate Project at Southern Arkansas University, Magnolia, Arkansas.Project members:Pradeep Sapkota (Gap Inc. - Comprehensive Report)Albi Alikaj (Gap Stores)Kristina Daily (Banana Republic)Sony Byanjankar (Old Navy)Moureen Atieno (Piperlime)Submitted to: Dr. Tim WiseAbstract This paper is an analytical overview of Gap, Incorporated and its portfolio members. It describes the birth of the company and goes on to describe its current position. As part of the description process, it includes the four major companies that are part of Gap, Inc. These companies include Gap, Banana Republic, Old Navy and Piperlime. A Managerial Analysis is included herewith that gives an insight into SWOT analysis and Five Forces Analysis of the company, and also included is the Strategic Distinction of the company. As per the Financial Analysis part, financial tools such as ratio analysis, consolidated financial statement comparison, and stock trend are analyzed to assess the company’s progress. The paper also keeps close track of company’s social, ethical, environmental and managerial aspects in day to day operations. Future expectations and possible diversification or anti-diversification process that the corporation can practice are also part of the paper. It includes the 9-cell matrix to show the existence of company and its portfolio. As a conclusion, the paper sums up ideas from a group of five undergraduate students and incorporates them to breakdown the strategic and financial aspect of Gap, Inc.
Citation preview
Gap Inc. 1
Gap Inc. – A Portfolio Analysis
Submitted By:
Pradeep Sapkota (Gap Inc. - Comprehensive Report)Albi Alikaj (Gap Stores)
Kristina Daily (Banana Republic)Sony Byanjankar (Old Navy)Moureen Atieno (Piperlime)
Submitted to: Dr. Tim Wise
April 23, 2008
Gap Inc. 2
Abstract
This paper is an analytical overview of Gap, Incorporated and its portfolio members. It
describes the birth of the company and goes on to describe its current position. As part of the
description process, it includes the four major companies that are part of Gap, Inc. These
companies include Gap, Banana Republic, Old Navy and Piperlime. A Managerial Analysis is
included herewith that gives an insight into SWOT analysis and Five Forces Analysis of the
company, and also included is the Strategic Distinction of the company. As per the Financial
Analysis part, financial tools such as ratio analysis, consolidated financial statement comparison,
and stock trend are analyzed to assess the company’s progress. The paper also keeps close track
of company’s social, ethical, environmental and managerial aspects in day to day operations.
Future expectations and possible diversification or anti-diversification process that the
corporation can practice are also part of the paper. It includes the 9-cell matrix to show the
existence of company and its portfolio. As a conclusion, the paper sums up ideas from a group of
five undergraduate students and incorporates them to breakdown the strategic and financial
aspect of Gap, Inc.
Gap Inc. 3
Introduction
Gap, Inc. is a leading American specialty apparel retailer based in San Francisco,
California. It sells casual apparels, accessories, and other personal care products for men,
women, and children. The products of Gap, Inc. include denim, khakis, T-shirts, boxers, casual
wear, and others. It is traded in New York Stock Exchange under the symbol GPS. Currently, the
company boasts approximately 150,000 employees and 3,139 stores all around the world. Gap,
Inc. sustains a large number of brands, namely Gap, Old Navy, Banana Republic, Forth &
Towne, Piperlime, and others. These different companies are bought by the parent company in
different times. Started as a general jeans retiling store, Gap, Inc. today has a market value of
$13.32 billions. Throughout its history, Gap, Inc. has established itself as a leader in the industry.
Purpose and Values of Gap, Inc.
“Gap Inc. is a brand-builder. We create emotional connections with customers around the world
through inspiring product design, unique store experiences and compelling marketing.
Our purpose? Simply, to make it easy for you to express your personal style throughout your life.
We have more than 150,000 passionate, talented people around the world who help bring this
purpose to life for our customers. Across our company and embedded in our culture are key
values that guide our success: integrity, respect, open-mindedness, quality and balance.
Every day, we honor these values and exemplify our belief in doing business in a socially
responsible way.” – www.gapinc.com/public/about
Gap Inc. 4
History
In July 1969, Donald Fisher and his wife Doris went to buy a pair of Levi’s jeans in a
department store. But they could not find a pair that would fit him, which led them to feel that
the demand of jeans has out-weighted supply. With this knowledge, the couple started a store in
a small shop near San Francisco State University. This store only carried records and Levi’s
jeans. The immediate response from young customers led Fisher to open other outlets. As the
1970s arrived, the appeal for jeans grew thus leading to high growth of the company. $2.5
millions in sales in 1971 increased to $97 million in 1976 with 186 stores in 21 states. As the
recession of 1970s arrived, Gap had to react by changing the lines of clothes to a larger variety.
They started selling their own labels which was later aided by appointment of Mickey Drexler as
a CEO in 1980s. In May, 1988 the corporation was reincorporated in State of Delaware. The
company had huge success in late 1990s with net income surpassing $824.5 millions. Before
this, Gap, Inc. purchased Banana Republic in 1983. Banana Republic was a catalogue retailer
selling safari-themed clothes. This transformed Banana Republic from a rookie in clothing
business to a well established ‘business women’s store.’ The other major addition to Gap, Inc.’s
portfolio was Old Navy which was established in 1994. Started as ‘Gap Warehouse’, Old Navy
quickly proved to be one of the best sellers in retailing history. Gap, Inc. later took a huge step in
2006 with the inclusion of Piperlime.com, which sells private branded shoes. With an inclusion
of all these different brands, Gap, Inc. is a leader in apparel industry. It has established itself as a
specialty in this industry. With the inclusion of Piperlime, Gap, Inc. tried to diversify its
customers and increased the appeal from e-commerce. The major brands of Gap, Inc. include
Gap Inc. 5
Gap, Banana Republic, Old Navy, and Piperlime. A close look into these four specific brands
included herewith.
Gap
Albi Alikaj
Gap Inc. 6
Until the acquisition of Banana Republic in 1983, Gap stores were a synonym to Gap,
Inc. since it was the only segment in the company. Gap is regarded as a distinct brand in casual
apparel retail store. It is one of the four members of Gap, Inc., and it was created in 1969 with
the opening of the first Gap store. Gap is considered the parent member of Gap Inc., and it was
the base for the success of the other segments, including Old Navy, Banana Republic, and
Piperlime. Gap offers extensive selections of classically styled, high quality, casual apparel at
moderate price points. Products range from wardrobe basics such denim, khakis and T-shirts to
fashion apparel, accessories, personal care products for men and women, ages teen through adult,
and maternity apparel. Regarding the price range of the brand in the company, Gap is located
between Old Navy and Banana Republic, with more expensive products than Old Navy, and less
expensive than Banana Republic. Although Gap has been criticized for blandness and uniformity
in its selling environments, the firm claims that it offers products from appeal to unique markets
by developing multiple formats and designs. Gap Jeans, for example, offers a huge variety of
jeans.
In 1986 and 1989, Gap entered the children's apparel market by introducing GapKids and
babyGap, respectively. The goal was to offer the Gap style and quality in casual apparel and
accessories to children, aged newborn through pre-teen. GapKids clothing is known for style,
durability, and value with products such as active-wear, school uniforms, graphic Ts, hooded
sweatshirts, polo shirts, pants, jeans, and more. babyGap is an international specialty retailer
offering clothing and gift sets for newborn, infant, toddler girls and boys up to the age of five.
Products include tops, pants/ jeans, dresses/skirts, sweaters/outerwear, shorts/swimwear, shoes,
and bedding, as well as unisex newborn sets. In 1998, Gap launched GapBody which offered
Gap Inc. 7
women's underwear, sleepwear, loungewear, yoga wear, and personal care products. Gap also
operates Gap Outlet stores, which carry a similar line of products. Regarding its stores
operations, Gap designs virtually all of its products, which are manufactured by independent
sources, and sells them with their brand name. The range of merchandise displayed in each store
varies depending on the selling season and the size and location of the store. Gap stores generally
are open seven days per week and most holidays. All sales are tendered for cash, personal
checks, debit cards, or credit cards. In order to attract more customers, these stores redeem gift
cards, and also have a private label credit card program through which frequent customers
receive benefits. Most of Gap stores' suppliers are located outside the United States by offering
lower costs. However, Gap has to deal with issues such as child labor in some developing
countries. In India, for example, Gap is trying to rebuild its reputation after a child-labor
scandal, where children were hand-embroidering GapKids clothes. Gap said it would refine its
procedures to ensure that items made in textile workshops in India were not being produced by
children. The company announced the statement after an internal investigation made by a British
newspaper, The Observer, which printed pictures of children making clothes for Gap in a
sweatshop. According to the newspaper report, some children were as young as ten years old,
and they were working for up to sixteen hours a day to embroider clothes, some of them bearing
Gap labels and bar codes. This case is one of the issues that Gap has to deal with regarding its
store operations.
Through the years, Gap has earned the reputation of a brand with a variety of high-quality
products. Now, Gap is known throughout the world with more than 1800 Gap stores located in
eighteen countries, and they comprise the majority of the stores owned by Gap, Inc. So, Gap has
used a vertical integration since virtually all aspects of brand development from product design
Gap Inc. 8
and distribution, to marketing, merchandising and shopping environments are controlled by Gap.
One advantage of having a vertical integration is that the company does not have to pay
wholesalers and retailers in order to sell its products. Also, by having a direct customer
interaction, the company can acquire valuable insights into their preferences. However, it has
also made franchise agreements in countries such as Bahrain, Indonesia, Kuwait, Malaysia,
Philippines, Saudi Arabia, Singapore, etc. Even though Gap stores can be found in eighteen
countries, Gap operates stores only in six countries, including the United States, Canada, the
United Kingdom, France, Ireland, and Japan. The remaining twelve countries include the
franchise agreements.
Currently Gap is not bringing as much profit to the company as expected. Even though
the number of Gap stores is almost twice as the number of Old Navy stores, it is still less
profitable with net sales of $6,523 in 2007 compared to $6,665 for Old Navy. During 2007, net
sales from Gap consisted of 39 percent of total sales for Gap, Inc., with a decline of 4 percent in
net sales from last year. The company focuses more on sales from physical locations rather than
online stores. But, with its current position, it has the ability to increase online sales since Gap
spends in average more than its competitors in online marketing. Currently, it is its second most
profitable segment after Old Navy. Even though Gap stores are located in eighteen countries,
there is not a lot of diversity, since most of the stores are mainly located in the United States.
Being centralized in the United States, Gap is more vulnerable to changes in the U.S. market. So,
a suggestion to have a more stable performance is to become more globally decentralized.
One reason that Gap is not performing as well as expected is because it has somewhat
lost its brand identity. In the past years, Gap shelves have displayed different kinds of clothing
from classic casual to trendy to professional too many times, causing consumers to wonder what
Gap Inc. 9
the brand even stands for. The other brands of Gap, Inc. are also playing a role in destroying the
Gap’s core offering and leaving with little room to maneuver. During the last decade, Gap was
considered to be a great example for other brands to look at. “Cool and understated, the brand
defined hip, with great TV ads directed by directors du jour such as Spike Jonze, complete with
catchy soundtracks from on-the-rise bands such as French duo Daft Punk. Hipster Hollywood
types infused the brand with a sense of down-home cool until, well, the wheel turned, Gap didn't
evolve, and suddenly it just didn't feel quite so hip any more.” (Walters, 2007)
In conclusion, with its history back at the beginning of Gap, Inc., Gap stores today make
up one of the four segments of the company. Located in several countries throughout the
currently, Gap stores consist of more than half of the Gap, Inc. stores by offering a large variety
of casual apparel. Currently, net sales provided by Gap stores make up 39 percent of the total
portfolio of Gap, Inc., and it is the second major segment in company. Due to several reasons,
Gap is not performing as well as it is expected, which has led the net sales to decline by 4
percent. So, right now Gap needs to improve certain aspects of its marketing strategy in order to
regain the reputation that it had a decade ago.
Gap Inc. 10
Banana Republic
Kristina Daily
Gap Inc. 11
1969. Lyndon Baines Johnson left office as Richard Milhous Nixon was sworn in as the
37th President of the United States of America. The Beatles give their last public performance on
the roof of Apple Records. Man took his first walk on the moon. And Doris and Don Fisher
opened the first Gap store in San Francisco. Today, Gap Inc. is one of the world's largest
specialty retailers, with more than 3,100 stores and fiscal 2007 revenues of $15.8 billion. In
addition to the parent company Gap, Inc., Gap, Inc. also operates four of the most recognized
apparel brands in the world — Gap, Banana Republic, Old Navy and Piperlime, each with their
individual target markets.
Gap Inc. acquired Banana Republic in 1983, and initially the brand only carried two
stores and a safari motif. Today, Banana Republic has grown from its original two-store wannabe
safari outfitter to an empire in its own right. Banana Republic is known for its casual luxury,
with high-quality apparel. Banana Republic tailors its store to appeal to the unique market of
pleasing the most fashion conscious consumers. Gap is known for turning classic clothing into
must-have fashion. Since its founding in 1969, Gap has provided its customers with clothing and
accessories that enhance their personal style.
Banana Republic now offers sophisticated, fashionable collections of dress-casual and
tailored apparel, shoes and accessories for men and women at higher price points than Gap.
Banana Republic products range from apparel, including intimate apparel to personal care
products. Banana Republic also operates Banana Republic Factory stores, which carry a similar
line of products. Additionally, the well-known retailer of men's and women's mid-scale (not
high-dollar, but far from discount) casual and tailored apparel has a expansive territory of 535
stores in North American and Japan, and a Web site, through all of which it distributes its well-
put-together look. A division of ailing retail giant Gap Inc. since 1983, at one point it was
dangerously close to cannibalizing its parent's customers. In several apparent contrasts to Gap,
however, the company buys up historic landmarks and refurbishes them as opposed to breaking
new ground and paving a fictional paradise.
Gap Inc. 12
To differentiate their products, Gap, Inc. not only added additional stores such as Old Navy and
Banana Republic, they added trendier clothing to try and please the younger generation.
However, they tried too hard and had to eventually face not only failure but also loss of interest
from their existing customers. In trying to salvage the company and its sales, Gap launched a
new back -to -basics campaign aimed at winning back the previous customers' trust. The back -to
-basics campaign brought back the signature merchandise, as well as the original management
and marketing ideas. Today Gap has regained some of its previous customers and plans to evolve
from there.
Banana Republic stores offer a shopper-friendly environment with an assortment of
apparel and accessories that emphasize style, quality, and good value. The range of merchandise
displayed in each store, however, depends on the selling season and the size and location of the
store. Banana Republic stores are generally open seven days per week and most holidays. All
sales are tendered for cash, checks, debit and credit cards, and the Banana Republic private label
credit cards issued by a third party. The company also issues and redeems gift cards through the
private brand.
Banana Republic’s business follows a seasonal pattern, with the sales peaking over an
estimated 13 weeks out of the year during the back-to-school/ work and holiday periods. The
cyclical nature of the retail business requires Banana Republic to carry a significant amount of
inventory, especially prior to the peak selling seasons. Inventory levels are reviewed in order to
identify slow-moving merchandise within the company and items that are no longer in stock in a
sufficient range of sizes and use markdowns to clear merchandise. Much of the inventory is
maintained in the company’s distribution centers.
The global specialty apparel industry/ retail industry is highly competitive. Banana
Republic competes with national and local department stores, specialty and discount store chains,
independent retail stores and internet businesses that market similar lines of merchandise. Also
competition arises in the European, Japanese, and Canadian markets from established regional
and national chains. Banana Republic’s ability to develop and evolve their individual brand is
vital to its success. Their distinct brand is among one of their most important assets. All aspects
of the brand development from product design and distribution to marketing, merchandising, and
shopping environments are controlled by their parent company, Gap, Inc.
Gap Inc. 13
Gap, Inc. describes its individual brands as having a simple and common purpose. “To
make it easy for people to express their personal style. We constantly evolve each brand to better
meet our customers’ needs — through innovative and inspiring design; through convenient and
engaging store experiences; and by communicating with people in a way that connects to how
they live, work and play.” Banana Republic acts as Gap, Inc.’s accessible luxury brand, offering
high-quality apparel and accessories collections for men and women.
Social responsibility is fundamental to Gap, Inc. and how they operate as a company.
Gap Inc. believes that they should go beyond the basics of ethical business practices and embrace
our responsibility to people and to the planet. By doing this, they believe this brings sustained,
collective value to shareholders, employees, customers and society. Dan Henkle, SVP, Social
Responsibility of Gap, Inc., describes Gap’s ethical practices in a nutshell through his statement
that, “acting in an ethical way is not only the right thing to do — it also unlocks new ways for
us to do business better.”
Banana Republic contributes significantly to Gap, Inc.’s larger portfolio. In 2007, Banana
Republic’s net sales (in millions) were $2,548 when compared to Gap, Inc.’s being $15,943,
which equals to about 15.98% of the company as a whole. Overall, the global sales growth of
Banana Republic from the previous year was 11%. In addition, as per Gap, Inc.’s 2007 Annual
Report, Banana Republic acquired $2,351 (in millions) in net sales, $136 in direct online sales,
$147 in Canada, and $89 in Asia, totaling $2,723 in total net sales which contributes about 17%
of the Gap, Inc. as a whole.
Delivering elevated design and luxurious fabrications at approachable prices, Banana
Republic has been credited with helping make fashion more accessible. The brand offers
elevated essentials and sophisticated seasonal collections of accessories, shoes, personal care
products and intimate apparel. From work to casual occasions, Banana Republic offers
covetable, uncomplicated style.
Gap Inc. 14
OLD NAVYSony Byanjankar
Gap Inc. 15
Old Navy, a low-priced retailer and a subsidiary of Gap Inc., was founded by a Bronx
native, Millard Drexler in 1994. The company converted some of its Gap outlets into the new
format, which initially operated under the banner "Gap Warehouse.” But after it was proved to
be highly successful, Drexler and other executive decided to give it its own identity. In 1994,
when the founder of Gap Inc. and CEO of the company were visiting Paris, they came across a
bar named Old Navy which led them to change Gap Warehouse to Old Navy. The first three Old
Navy stores were opened in Colma, San Leandro, and Pittsburg in Northern California. The
reason behind the opening of Old Navy was to compete with the low-priced retailer stores like
Target, Wal-Mart, JC Penny and others.
Before the opening of Old Navy, Drexler and his advisory groups surveyed if Gap could
produce the markdown version of itself. The company contacted many overseas garment
factories and asked them if they could produce a lower-priced line using less expensive fabrics.
After a long discussion and research, they came up with the idea of Gap Warehouse. The idea of
opening the cheaper version of Gap was an immediate success for the company. Within the first
year of its opening, Old Navy was able to open 57 more stores within the country generating
$120 million in sales. By the end of 1995, the company had 131 stores opened with $420 million
in sales. In 1997, it became the first retail brand to reach $1 billion in sales in less than 4 years.
By the end of the year, the company has 282 stores and $1.3 billions in sales, which represented
nearly 20% of the Gap Inc. total revenue. More than 100 stores were opened each year in 1998
and 1999, and by the end of a decade, the company had total of 513 stores opened. The largest
Old Navy stores are its flagship stores, located in New York City, the Mall of America, Seattle,
Gap Inc. 16
Chicago, and San Francisco[In 2001, Old Navy made its debut in international market. It opened
12 stores in the Greater Toronto Area, Canada and 7 stores in the province of Quebec in 2004.
By the end of 2007, Old Navy has more than 1,000 stores in the united stated and Canada.
Old Navy started its online store, oldnavy.com in 2000. At oldnavy.com, there is a $5
shipping charge no matter how much you purchase. But now a days it is promoting free shipping
for any order of $50 or more. Old Navy’s target market largely consists of fashion oriented as
well as price conscious teenagers and adults. Old Navy’s stores have a specialized section of
infants, boys, girls, men, and women clothing. Also, variety of accessories including shoes,
handbags, toys, hats, sunglasses, and line of clothing and toys for dogs. Flagship stores, which
are the largest Old Navy stores, have a collection of business clothes for women, plus size, and
maternity section. But in 2007, plus-size clothing has been removed from all stores and made it
available exclusively online, which boosted its online sales. Old Navy also attempted to start a
bath and body line, called ONbody (Obsessively Natural), in association with New York based
company Kiss My Face. But it could not do really well and dropped the effort after only a few
months. In September 2007, Old Navy offers Old Navy Visa cards which can be used anywhere.
People get 5% cash back on purchases at any Gap, Inc., store and 1% cash back on all other
purchases.
Old Navy represented the driving force behind Gap Inc. during the late 1990s. More than
100 stores were opened each year in 1998 and 1999, giving the company a total of 513 stores by
the decade's end. In April 1999, Jenny Ming was appointed as a president of the Old Navy. She
was not a newcomer in the company. She was the one who made the calls to overseas garment
factories to determine whether a less expensive line of clothing could be made. Under Ming's
leadership, Old Navy continued to expand, and its success played an increasingly important role
Gap Inc. 17
in the health of the Gap Inc. Old Navy accounted for 16 percent of the total number of stores
operated by its parent company, but accounted for nearly 30 percent of its sales volume, which
placed a huge pressure on Ming. To strengthen Old Navy's position as the Gap Inc.’s growth
force, Ming intended to expand aggressively, relying on her ability to predict emerging apparel
styles. Ming's leadership began strongly but then it started to weaken, resulting in Old Navy's
first setback. In 2000, the extensive retailer began recording declining sales. By October 2000,
the company had posted five consecutive months of decline sales. Its stock value also dropped by
57 percent and in 2001 the company bear a loss of $ 7.7 millions. Old Navy, which used to be
lifeblood of the Gap Inc., could not offer much help. Despite the negligible expansion achieved
in the years leading up to its tenth anniversary, Old Navy represented a powerful retailing force.
Only after a decade, Old navy accounted approximately 40 percent of the Gap Inc.’s nearly $16
billion in revenue, which made Old Navy extremely important to its parent company.
Hence, ever since its opening in 1994, Old Navy has proved itself as a worthy member of
the portfolio. Currently, it is one of the most successful retailers in the history. With annual sales
increasing with large margin, Old Navy signals towards need for discount retail stores. Old Navy
maintains the quality of Gap, Inc. but serves at a lower price. This has provided the company
with satisfied customers and bright future.
Gap Inc. 18
PiperlimeMaureen Atieno
Gap Inc. 19
Piperlime Shoe Company which is a part of Gap inc. was started in October 2006 with
the site being officially launched in November, 2006.It is the only online store and it sells only
shoes that are not affiliated with the Gap brand. It only sells single merchandise that is shoes.
The reason as to why Gap Inc. started the online shoe store is because they found out that most
of their online shoppers wore shoes from other brands instead of the Gap brands. Gap inc. found
that it was less risky for them to start Piperlime since they would benefit from the success of its
ecommerce and the growth of its online shoe sale. So they decided to open an online shoe store
that sold shoes with that are designed, manufactured and branded by other companies. The brand
name was randomly created and they chose the words they liked in order to come up with the
name Piperlime. On the website green is the main color and the shoe blurbs are called fresh juice
and the brand logo is a slice of citrus fruit.Piperlime represents 100 brands of shoes in their
online store compared to other online stores like Zappos which offer a wide range of brands. The
online store has shoes for women which are the majority followed by men and then kids who
have less than two dozen brands. The shoes are high end and few shoes are under $300 with
others costing up to $1000.
Piperlime is an accessible luxury brand like starbucks and that one can fine shoes that are
affordable compared to other online stores like Zappos. It offers distinctive shoe selection and
offers tips on the latest footwear trends and styles by celebrity stylists.Piperlime sells only shoes
while Zappos sells other apparels including eyewear, bags and watches. It differs from other
online shoe stores like Zappos and Nordstrom because they provide an edited selection of
designer and casual brands rather than any style a given shoe maker offers. This enables them to
get shoes that they customers actually want and they are able to dress their customers from head
Gap Inc. 20
to toe. Compared to other companies it offers a prepaid return and no postage on returning shoes
that do not fit. With the growing of the online shoe sales annually by 15 percent and will be $5.5
billion in 2010 Piperlime has a capability of growing and earning more revenue. The online sales
in the second quarter of 2006 were up 27 percent from the previous year due to the new site.
To keep its operations efficient Piperlime has a dedicated distribution center in Grove
City, Ohio. It is headed by the senior vice president of Gap inc. and many of the people working
in the company are Gap veterans and some are well known buyers from their competitors. It has
an impressive group of merchandisers, and has attracted good resources from the supply chain
thus making it more efficient .The company’s culture is based on the idea of making it easy for
people to express their personal style and doing business in a socially responsible way. They
make emotional connections with customers all over the world inspiring product design, unique
store experiences and compelling marketing. The key values that guide their success include
integrity, open-mindedness, quality and balance. The company believes in caring for the
environment by reducing energy usage and reducing waste to the environment and exploring the
use of sustainable materials and products. They are also focused in improving the factory
conditions through comprehensive monitoring and labor-standards program. Caring for the
community by focusing on undeserved youth by providing grants, donations, community
outreach and employee volunteer programs. They are also dedicated in supporting their
employees by creating an environment where the rights, needs and unique contributions of every
employee are respected.
The company’s code of ethics which is intended to promote and ensure an ethical and
responsible work environment for the employees and the directors. The employees are
responsible for abiding by the Gap policies and all national and local laws in all countries that
Gap Inc. 21
the company does business. It is the responsibility for the employees to raise questions, make
appropriate disclosures and bring potential problems to the company’s attention. The employees
are also expected to report any code violations. It is against the company’s policy for anyone to
any action against any employee or a director, vendor or agent of the company for lawfully
providing information assisting in an investigation of activities which he or she believes violates
applicable law or for providing truthful information to the government, a government agency or
law enforcement officers. All business decisions should be made solely for the benefit of the
company and not for personal benefit. Employees should never give or accept anything that is of
value from anyone and they should not solicit invitations or gifts from any third party. There is
confidentiality of personal and company information. There ought to be accuracy of information
and product integrity.
The company’s strength is their ability of focusing on just one product hence making it
easy for them to study their customers and providing them with what they want. There small
concentration of brands enables them to have an effective way of having customer loyalty with
the particular brands. Their other strength is that the have an effective supply chain operation.
They also have celebrity stylists who offer tips on the new fashion trends hence making them
flexible to the new fashion trends. Based on Gap inc. stability and establishment and the other
GAP brands, Piperlime is attracting existing customers and new customers. It is able to attract
customers with different lifestyles since it provides casual shoes and also high fashion shoes.
Even though some of their shoes are expensive, customers are also able to get affordable shoes.
Their major strength is that they are customer focused compared to other online stores.
Gap Inc. 22
Managerial Analysis
SWOT Analysis
SWOT analysis stands for examination of Strength, Weakness, Opportunities, and
Threats of a company. This is an extremely powerful took to understand the current standing of a
company and to predict the company’s future perspectives.
Strength
Gap, Inc. has had a long history of almost 40 years now. It is an established name and is
distinct in its sector of market. An in-depth of Gap’s brand strength is later discussed in this
section. The other distinct strength that Gap has is its global approach. Since, it is a multinational
company; it is recognized all over the world. Meanwhile, being a multinational company has
helped Gap, Inc. to diversity its intra-country market risks. Gap also invests large sum of money
in research and development. This has given the company regular boost to move forward. Gap’s
unique way of ready made goods from different countries including Honduras, India,
Bangladesh, and others has helped the company to reduce the labor costs. Meanwhile, it is
interesting to look at a historical trend that the company has been able to sustain such a large
supply chain and still been able to maintain enough inventories in the stock.
Weakness
Although Gap has excelled in its sector of apparels, it has some weaknesses that it needs
to address. The company’s narrow niche is one of the major weaknesses. It is limited in sales and
growth. This has also increased the risks associated with the market. Even a minor competition
from another clothing retailer can hamper the company’s over all growth. In addition, Gap does
not have a distinct name in certain sectors like Nike or Reebok have in sporting goods.
Gap Inc. 23
Furthermore, as illustrated by BusinessWeek, Gap has not been able to maintain a fashion
identity.
Opportunities
After excelling in an industry, Gap can now increase its span of business in different
industry sectors. For example, it has already started a online shoe store which is increasing in
popularity. As stated earlier, since Gap is a recognized name, which will immensely help the
company to establish its name in most of the other sectors.
Threats
Many competitors are arising in retailing industry everyday. These are some of the
possible threats for Gap’s operation. For example, the gradual increment in Limited Brands
operations can hamper the company’s growth. In addition, possible tariffs from government over
the imported materials, or minor disturbance in the long supply chain of the company are a risk.
The increasing cost of labor in other countries and decline in value of US Dollars everyday can
compel the company to change its way of operation.
Five Forces Analysis
Competition
Clothing retailing industry is highly competitive industry. There are many retailers in the
industry who fight with each other to improve their customer base; Gap, Inc. is not an exception
to this. Since its establishment in 1969, Gap has excelled in the sector. Nevertheless, to stay in
the competition, it acquired Banana Republic in 1983. This helped the company to stay in the
business as a major retailer in businesswomen clothing. Another major step came out when Gap
opened Old Navy stores in 1994 to compete with the existing discount retailers including Target
and Sears. The other competitors of Gap itself are Abercrombie, American Eagle, and others.
Gap Inc. 24
Hence, this industry is extremely competitive and the companies should be up to date with
fashion and customer satisfaction.
Ease of Entry
Although it is not hard to enter the clothing retail business, it is hard to establish a distinct
brand name. There is a low cost of entry in the market and there is no need of high research and
development costs.
Substitutes
There are many substitutes in casual clothing industry. Since there are a wide variety of
products that people can choose, they could either be substituted by sporting products, business
apparels, cheap clothing materials, and others.
Strength of Suppliers
In retailing industry, the power of suppliers varies depending on the company itself. As
per Gap, Inc., the suppliers have limited power. The annual report states that no suppliers supply
more than 3% of the company’s demand. This gives Gap, Inc. power to set the price of its raw
materials.
Strength of Buyers
The buyers have variety of choices to make in the retail clothing industry. Since there are
various competitors and substitutes in the company, the buyers might move shopping around.
Hence, the companies have to work harder to retain the clients.
Distinctive Notion
According to a report issued by BusinessWeek, Gap holds 52nd position in top 100 brand
names all over the world in 2006. In 2005 it was ranked in 40 th position. Its brand value in 2006
was $ 6,416 and in 2005 was $ 8,195 million. Having a long history of almost 40 years, it has
Gap Inc. 25
established a sense of closeness in the customers. This is one of the major reasons for Gap being
rated one of the highest retention rates among customers.
Banana Republic is yet another distinctive feature of Gap, Inc. It offers sophisticated and
fashionable collections and is more expensive than Gap. It specially appeals to mid-age busy
women. Nevertheless, it is also popular among men. Old Navy is another specialty store under
the portfolio of Gap, Inc. Established in 1994; Old Navy is distinct as the discount retailer. It is
less expensive than Gap clothes and is probably the most popular brand in the portfolio. The
other members of Gap portfolio are also getting to get distinct in their respective areas.
Financial and Economic Analysis
The consolidated financial statement comparison shows that Gap, Inc. is financially and
economically sound. Although the company faced a decrement in net income between 2006 and
2007, the last two years have shown that Gap, Inc. is progressing. Currently, Gap is worth $13.65
billions where the industry average is only $488.12 millions. It has revenue of $ 15.76 billion
(2008) where as the industry revenue is only $1.41 billions. Another important indicator,
Earnings per Share is $1.05 of Gap compared to $0.95 of the industry average.
Ratio Analysis
The data used here with are from 2007 Annual Report. Please refer to Appendix 1 for
more details.
Solvency Ratio
Liquidity Ratio
The data analysis of solvency ratios shows that the company has a quick ratio of 1.42 and
a current ratio of 2.21. The current ratio shows that the company can still invest some of its cash.
Leverage Ratio
Gap Inc. 26
The ratio between debt and net worth was 0.44 and that between debt and inventories was
1.27. This shows that company is in a good share regarding the capacity payment of debts.
Profitability Ratio
Return on sales was 0.05 and that of assets was 0.09. This shows that the company still
has a lot of room to grow. This profitability ratio does not seem too strong.
Stock and Market Trend Analysis
Gap has been able to meet the investors’ expectation most of the times since its
incorporation. It has been paying out regular dividends and the stock trend shows that the
company’s value has been volatile. During the .com boom of 1998 and 1999, the stock reached
as high as $68 but with the problems in stock market, it went down. More recently, although the
company has been able to buffer the real estate and credit crunch, it has not been able to grow
properly. But as per the analysts, the company’s ability to buffer the ‘so called’ recession is a
sign of company’s stability.
Social Issues
Gap, Inc. gives high value to social responsibilities. It says, ‘At Gap, Inc., social
responsibility is fundamental to who we are and how we operate as a company.’ According to
the Gap, Inc. official website, they divide the social issues in to different sectors including
environmental, employees, communities, and others. The also have designed a separate social
responsibility report which is published every year. For the reduction of pollution and increment
of labor-standards, they conduct a factory-monitoring program, which thoroughly examines the
factory and working conditions. In addition, the company is constantly working towards
reduction of energy consumption and minimum use of materials that hamper the environment.
They work with environmental consultancy called CH2M Hill to examine the environmental
Gap Inc. 27
challenges. The environmental challenges include conservation of energy, reduction of waste,
sustainable design, and supply chain optimization.
Gap, Inc. is active in investment for the community. Bobbi Silten, the Chief Foundation
Officer of Gap foundation says, ‘We believe there a promise that exists in all of us, and it’s not
just in the people we serve-it’s in ourselves.’ The company first determined the target causes and
invests (donates) time and money for the betterment of the cause. Betterment of the employees,
conservation of environment where the company operates, equal employment opportunities, fair
accounting practices, and many others are some of the other social issues that the company
analyses with high priority. Gap, Inc. received 100% score in Human Rights Campaign’s
Corporate Equality Index.
Ethical Issues
As the corporate world is greatly hampered by ethical issues today, Gap, Inc. has always
taken active steps to be of the safe sides. Enron, Tyco, and WorldCom scandals brought about
new regulations and Gap, Inc. has always been on top of that. Gap, Inc. considers itself as equal
opportunity employer and maintains a 24/7 hotline to complain against fraud as well as
discriminative behaviors.
Portfolio: Strategic Analysis
Gap claims that its different brands have common purpose of making it easy for people to
express their personal styles. Although these brand names are distinctive in themselves, they do
not work as autonomous business. All these brands share the value with the corporation. Quite
often these companies in the portfolio share the warehouses, and other resources. They share the
common principles of ethics, mission statement, and client services. The supply chain and ways
of operation is almost the same for these companies.
Gap Inc. 28
When Gap, Inc. starts a new business, they buy existing struggling company like Banana
Republic or they start a new segment themselves. For example, Banana Republic was an existing
company, which grew with the resources that Gap had. Old Navy was a new concept that Gap
started. It used to be called ‘Gap Warehouse’, but was later renamed Old Navy. Meanwhile, the
other brands have their own ways of existence. For example, Piperlime is a online store that only
sells about 100 different brands of shoes.
With all these different brands, Gap has been able to hold significant power in whole
apparel industry. But it seems like the company can diversify itself to other industries. As there
are more and more companies entering this industry, Gap is losing its share of the market. It
should not aggressively start different sectors but rather start one industry at a time. It also
should be able to use the brand name to gain customer loyalty.
Conclusion
Established in 1969 as a small retailer of jeans, Gap has been able to surpass various
hurdles to reach today’s designation of top US apparel retailer. It is an expert in the clothing
retailer industry with different brands maintaining their effects in different niche market. For
example, Old Navy covers price conscious shoppers and Banana Republic is an attraction for
people who would pay a higher price for more sophisticated dress. Having faced so many
different hurdles, Gap has proved its worthiness. But current problems in cash flow shows need
for the company’s change in marketing, management, or financial strategies. Since it is an
established name, if strong plans are traced out, the company should be able to maintain its
superiority in retail industry.
Gap Inc. 29
References
Gap Inc. (2008). Social Responsibility. Retrieved April 22, 2008 from Web site: http://www.gapinc.com/public/SocialResponsibility/socialres.shtmlGap Inc. (2008). About Gap Inc.. Retrieved April 21, 2008 from Web site: http://www.gapinc.com/public/About/about.shtml
Commodity Systems, Inc. (CSI) & Hemscott Americas (2008). Gap Inc.. Retrieved April 21, 2008 from , Web site: http://finance.yahoo.com/q?s=gps
Gentleman, A (2007, November 16). Gap Campaigns Against Child Labor . Retrieved April 19, 2008 from New York Times, Web site: http://www.nytimes.com/2007/11/16/business/worldbusiness/16gap.html?_r=1&oref=slogin
New York Times (2008, April 21). The Gap Inc.. Retrieved April 21, 2008 from Web site: http://topics.nytimes.com/top/news/business/companies/gap_the_inc/index.html
Wikimedia Foundation, Inc. (2008, April 20). Gap. Retrieved April 19, 2008 from Wikipedia, Web site: http://en.wikipedia.org/wiki/Gap_Inc
McKeough, T. (2008, March). DESIGNS ON SUCCESS. Fast Company, Retrieved April 24, 2008, from Business Source Premier database.
McKeough, T. (2008, March). DESIGNS ON SUCCESS. Fast Company, Retrieved April 24, 2008, from Business Source Premier database.
Securities and Exchange Comission (2008). . Retrieved April 19, 2008 from EDGAR Web site: http://www.sec.gov/Archives/edgar/data/39911/000119312508069025/d10k.htm#tx36443_2
Gap Inc. 30
9-cell Matrix
Appendix
Appendix 1. Gap, Inc.’s Assessment of Competitive Strengths
Competitive Strength Measure Rating of Company’s Strength
Relative Market Share- A business unit’s relative market share is defined as the ratio of its market share to the market share held by the largest firm in the industry, with the market share measured in unit volume, not dollars.
2.2.
Cost Relative to Competitor’s Cost- Business units that have low costs relative to key competitors’ costs tend to be more strongly positioned in their industries than
4
Gap Inc. 31
business units struggling to maintain cost parity with major rivals.
Ability to Match or Beat Rivals on Key Product Attributes-A company’s competitiveness depends in part on being able to satisfy buyer expectations with regard to features, product performance, reliability, service, and other important attributes.
8.5
Ability to Benefit from Strategic Fits with Sister Businesses- Strategic fits with other businesses within the company enhance a business unit’s competitive strength and may provide a competitive edge.
7
Bargaining Leverage with Key Suppliers or Customers- Having bargaining leverage signals competitive strength and can be a source of competitive advantage.
8
Caliber of Strategic Alliances and Collaborative Partnerships with Suppliers/Buyers-Well-functioning alliances and partnerships may signal a potential competitive advantage and thus add to a business’s competitive strength.
7.5
Brand Image and Reputation- A strong brand name is a valuable competitive asset.
9
Competitively Valuable Capabilities- Business units recognized for their technological leadership, product innovation, or marketing process are usually strong competitors in their industry.
N/A
Profitability Relative to Competitors-Business units that consistently earn above-average returns on investment and have bigger profit margins than their rivals usually have strong competitive positions.
3.5
Gap Inc. 32
Appendix 2 :Financial Statements
Income StatementView: Annual Data | Quarterly Data All numbers in thousands
PERIOD ENDING 2-Feb-08 3-Nov-07 4-Aug-07 5-May-07
Total Revenue 4,675,000 3,854,000 3,676,000 3,558,000
Cost of Revenue 3,049,000 2,407,000 2,411,000 2,204,000
Gross Profit 1,626,000 1,447,000 1,265,000 1,354,000
Operating Expenses
Research Development - - - -
Selling General and Administrative 1,208,000 1,079,000 996,000 1,094,000
Non Recurring - - - -
Others - - - -
Total Operating Expenses - - - -
Operating Income or Loss 418,000 368,000 269,000 260,000
Income from Continuing Operations
Total Other Income/Expenses Net 20,000 28,000 36,000 33,000
Earnings Before Interest And Taxes 438,000 396,000 305,000 293,000
Interest Expense 5,000 1,000 10,000 10,000
Income Before Tax 433,000 395,000 295,000 283,000
Income Tax Expense 168,000 156,000 110,000 105,000
Minority Interest - - - -
Net Income From Continuing Ops 265,000 239,000 185,000 178,000
Non-recurring Events
Discontinued Operations - (2,000) (32,000) -
Extraordinary Items - - - -
Effect Of Accounting Changes - - - -
Other Items - - - -
Net Income 265,000 237,000 153,000 178,000
Gap Inc. 33
Preferred Stock And Other Adjustments - - - -
Net Income Applicable To Common Shares $265,000 $237,000 $153,000 $178,000
Cash FlowView: Annual Data | Quarterly Data All numbers in thousands
PERIOD ENDING 2-Feb-08 3-Feb-07 28-Jan-06
Net Income 833,000 778,000 1,113,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation 547,000 530,000 625,000
Adjustments To Net Income 56,000 26,000 (74,000)
Changes In Accounts Receivables - - -
Changes In Liabilities 375,000 1,000 (123,000)
Changes In Inventories 252,000 (97,000) 114,000
Changes In Other Operating Activities 18,000 12,000 (104,000)
Total Cash Flow From Operating Activities 2,081,000 1,250,000 1,551,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures (682,000) (572,000) (600,000)
Investments 393,000 381,000 (123,000)
Other Cashflows from Investing Activities 15,000 41,000 1,009,000
Total Cash Flows From Investing Activities (274,000) (150,000) 286,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (252,000) (265,000) (179,000)
Sale Purchase of Stock (1,575,000) (860,000) (1,861,000)
Net Borrowings (326,000) - -
Other Cash Flows from Financing Activities 7,000 23,000 -
Total Cash Flows From Financing Activities (2,146,000) (1,102,000) (2,040,000)
Effect Of Exchange Rate Changes 33,000 (3,000) (7,000)
Change In Cash and Cash Equivalents ($306,000) ($5,000) ($210,000)