The Success of Gap Inc
Professor Richard Birkenbeuel
Business Strategy
Angie Chan Hoi Chu
Student ID # 48760
Gap Incorporation was founded in 1969 by
Donald and Doris Fisher in San Francisco, California, with a single store and a
handful of employees.
Today, Gap Inc. is one of the world's
largest specialty retailers with three of the most recognized and respected
brands in the apparel industry — Gap, Banana Republic and Old Navy, whereas
offer clothing, accessories and personal care products
for men, women, children and babies. The differing preferences help in creating and supporting distinct
product positioning and branding strategies.
Without its own manufacturing
facilities, Gap Inc. contracts with garment manufacturers around the world.
Their products are made in approximately 3,000 factories in about 50 countries.
In 1997, Gap opened its first online
store to US customers at gap.com, and then followed by GapKids, babyGap,
BananaRepublic and oldnavy within three years. The Online business not only
keeps the loyal customers, improves its profitability of individual stores, but
also improves seasonal trends by brand as well.
Nowadays, Gap Inc. has more than 150,000
employees supporting nearly 3,000 stores in the United States, United Kingdom,
Canada, France, Japan and Germany. The fiscal 2003 revenues were US$ 15.9
billion.
2.0 MISSION
AND VISION
Gap, Banana Republic and Old Navy are
differentiated by their customer target, merchandise mix and marketing
approach, but share a common goal: to deliver customers exceptional style,
service and value.
When customers visit a Gap’s outlet, they are not just walking into a
store; they are entering a brand. At Gap, GapKids, babyGap and GapBody, the
primary focus of their real estate strategy is locating and developing stores
that provide a comfortable shopping environment and positive store experience
for their customers.
3.0 COMPETITIVE
ADVANTAGES
Gap Inc. does not directly employ
workers in manufacturing facilities. They contract with
garment manufacturers around the world. Since its products are on OEM basis, Gap can lower the
operation costs in equipment and factories maintenances.
The most essential element for apparel
companies, the trendy fashion, is the on time arrival. Thus, Gap Inc. operates
from demand chain stores to supply chain stores, such as line up with raw
materials factories in order to control cost and quality.
With its in-house marketing teams for
each brand headquartered in the San Francisco Bay Area, they create everything
from hangtags and in-stores posters to billboard and TV commercials. As a
result, save cost and produce consistent promotion effects.
Moreover, the launch of several online
stores starting from 1997 has expanded Gap’s market shares in the apparel
industry. Firstly, it improved
profitability of individual stores. Secondly, it improved the inventory
management by stores and brands. Thirdly, it improved the seasonal trends by
brand. Lastly, the convenience of online shopping also helps to retain its
loyal customers.
4.0 INTERNAL
CONSTRUCT
In order to support the company’s goal
of specific identities for each of the clothing-brand lines, like Gap, Banana
Republic and Old Navy, Gap Inc. has organized its internal structure. Through a
highly vertically integrated corporate structure, each brand was established as
a subsidiary or division of Gap Inc., and that was charged with maintaining
complete control of its products. The organization design solves the
coordination of internal management, like inventory and logistics controls,
production schedules and placing orders etc. It also fosters accountability,
specialization and knowledge transfer.
On the other hand, through internal
horizontally structure, Gap Inc. creates various product lines to target
different segment markets, from women to men, infants to teenagers. The
differing preferences help in creating and supporting distinct product
positioning and branding strategies.
5.0 EXTERNAL
CONSTRUCT
Gap Inc also
has to face the threats of new entrants. Competitors are not only from apparel
industry, but accessories and personal care
products industries as well.
The major competitors include Benetton,
Ralph Lauren and Tommy Hilfiger. For example, while Benetton core is colorful
knitwear, Gap Inc. has built its product lines around a core of khakis and
jeans, and tried to start the online business to reduce the competitors at a
lower cost.
6.0 OVERALL
STRATEGY
Though Gap Inc. operates more
than 3,000 stores worldwide, it has headquartered in the San Francisco Bay Area
and its product development offices in New York City. Third-party manufacturers
ship merchandise to its distribution centers strategically placed throughout
the United States, Canada, the United Kingdom and Japan. That helps its
distribution, operations and offices coordinating and sourcing activities
around the globe at a greater degree. Its
current strategy focuses on the previous mentioned countries and continuing
expansion through company owned and operated stores.
Gap Inc. has created one of the most
comprehensive factory-monitoring and labor-standards programs in the apparel
business. The combination of diminished price pressure with a strong brand and
efficient manufacturing and distribution systems from operating at a global
scale generates attractive margins.
The extensive retail presence also helps
to build up the brand image and strength the brand’s appeals to the local and
global target markets.
At the meantime, the 24-hour online
business provides a broader range of sizes and selections that save customers’
time and reduce conflicts between customers and staffs in stores. Gap Inc.
creates its loyal customer base that is difficult for another clothing
retailers to capture with lower prices. That reduces the price competition.
Capability is an attribute of the
organization. Gap Inc. ensures to provide excellent service in stores,
therefore, all sales associates and other store personnel are trained to answer
customers’ questions about fabric, fit and fashion.
Gap’s global
marketing campaign with several well-known stars, like featuring fashion icon
Sarah Jessica Parker, celebrates the expression of each individual style. It also creates an opportunity to
promote and solidify their brands.
Gap Inc.
conducts its business with the principle of
responsible, honest and ethical manner. They think good corporate
governance means going beyond compliance. It means taking a leadership role in
instituting and maintaining practices that represent strong business ethics --
and ensuring communication consistently with their shareholders, customers and
neighbors around the world.
7.0 RECENT
PERFORMANCE
Gap Inc. continues to execute against its strategic
priorities of driving earnings by improving margins year over year, improving
their inventory turns, flowing their earnings through to cash flow and
increasing their returns on capital by optimising the productivity of our store
fleet through selective closures and repositioning.
With net sales of US$ 3.7 billion for
the quarter in 2004, Gap Inc. reported a 9 percent increase over 2003.
Comparable store sales were up 7 percent. Banana Republic led the way with a 21
percent increase, while Old Navy and Gap posted increase of 9 and 5 percent
respectively. The fiscal 2003 revenues were US$ 15.9 billion.
8.0 POTENTIAL
THREATS
Gap Inc. relies on contracts its products with 3,000 manufacturers
around 50 countries. Though Gap Inc. revoked approvals for 136 factories in
2003 because of compliance issues; it is sometimes difficult to manage and cope
with the local changes.
Accepted attitudes, cultural norms, local laws and common business
practices are tough barriers to achieving broad adoption of global standards.
Thus substantially change comes slowly in particular countries.
The unstable political and economical factors, like Malaysia and
Indonesia, may affect its production and distribution. The risk of foreign
exchange is also an impact of the profitability.
9.0 CONCLUSION
Gap Inc. is one of the world's largest
specialty retailers of the most recognized and respected brands in the apparel
industry. Together with the online business, it not only keeps the loyal
customers, improves its profitability of individual stores, but also improves
seasonal trends by brand as well.
Gap Inc. continues to execute against its strategic priorities of
driving earnings by improving its profit margin through internal and external
structures as well as in
creating and supporting distinct product positioning and branding strategies.
10.0
RECOMMENDATION
If I have the chance to replace the
existing CEO, Mr Paul S. Pressler, I would consider to change some of the
firm’s existing strategy in order to increase the profit margin as well as
expand the market segments.
Firstly, Gap may start the joint
ventures business with other raw material suppliers, like a dye factory in
India, or a PVC manufacturer in Malaysia, so as to save the material costs.
Secondly, an Asia headquarter can be
established in Singapore or Hong Kong. This can ease the distribution among
Asia and save the logistic cost.
Thirdly, through acquisitions of other
apparel companies may broaden its market shares and reduce competitors.
Fourthly, franchise business can be
attempted in particular countries that there have no Gap’s outlets. It can
enable the firm to exploit economies of scale.
Finally, using the 24-hour Internet
sources to capture more business opportunities. For example, the data that are
collected through the web can provide to fashion designers as an industry
index, or help to analyze the indication of the trend.
Gap Inc is just a potential apparel
company that will do its best in the future!
11.0 Bibliography
websites:
gap.com
gapbody.com
gapkids.com
babygap.com
bananarepublic.com
oldnavy.com
benetton.com
rlhome.polo.com
tommy.com/hilfiger
Saloner, Shepard, Podolny. “Strategic
Management”, USA. 2001. John Wiley & Sons, Inc.
Reference case number: EC-9A.
The Board of Trustees of the Leland Stanford Junior University.