Case study solution from the book "Crafting & Executing Business Strategy"

1. GAP INC.
IN 2010
I S T H E T U R N A R O U N D S T R A T E G Y W O R K I N G ?

2. 1969
Doris & Don
Fisher Founded
Gap
Vision “Make it
simple to find
jeans”
1976
Gap Went
public
1983
CEO: Mickey Drexler
• Built the brand
• Rapid Expansion
• New Venture: Old Navy
• Acquisition: Banana
Republic
• Achievements
• Become 2nd largest
clothing brand in the
world in 1992
• 3500% revenue growth
• From $400M to $14B
1986
Gap Kids
created 2000-
2002
• Double digit decline
every quarter
• Hurt brand image
• $3B long-term debt

3. 2002
CEO: Paul Pressler
• Developed e-commerce
platform
• Ended all long-term debt by
2007, Increase dividend per
share, Reduced Gap’s
carrying costs
• Created Forth & Towne, All
stores closed by 2007
• Excessive cuts in expenditure
led to supply chain inefficiency
and hence reduced the ability
2006
Launched
Piperline
2007
1986
Gap Kids
created 2008
CEO: Glenn Murphy
• Focused on international
expansion (11 countries-
mainly Middle East)
• Improved product line appeal
• Patrick Robinson appointed as
design chief
• Refocused to 25-35 age
bracket, additional cost cutting
initiatives, stronger leadership
team
Acquired
Athleta
Profitability
started to
improve
2009-
2010

4. GAP BRANDS IN 2010
• Gap operated 3100
stores worldwide
• Controlled all aspects of
brand development from
design to distribution
• 3% produced in US

5. I N D U S T R Y
A N A LY S I S

6. OVERVIEW
• Industry consisted of small, local companies
• Major companies in US locally owned
• Large stores generate 10-20% of sales from international operations
• Uniqlo, H&M, Zara targeted youth demographic (aged 18-24)
– Access to low cost contract manufacturers
– Competitive advantage in new designs
• All relied on independent third party suppliers from Asia, Middle East, South America

7. INDUSTRY SEGMENTATION
Gender
• Women spend more
than men
• Women wear- 50%,
men’s wear-37%,
children’s wear- 13%
Size
• Plus sized segment-
$27billion by 2010
• Obese population
increasing
• Demand for plus sized
garment are rising
regardless to gender and
age
Price
• Value priced clothing-65%: higher priced items- 35%
• Majority of family clothing stores targeted price conscious
consumers
• Fashion conscious consumers hence Gap’s target market-
emotionally driven
• Value conscious segment less susceptible to deflationary shocks

8. SUCCESS FACTORS
• Successfully develop new product lines for new fashion trends
• Efficacy of financial and inventory management crucial for cash, debt and cost control
• Brand loyalty
• Seasonality of demand required storage of inventory before peak season
• Network of retail stores in target market’s immediate shopping environment
• Impact of internet retailing on purchase

9. RISKS OF RELIANCE ON THIRD
PARTIES
• Sourcing partners’ illegal or unethical operations
• Risk of negative publicity
• Child labor, low pay & unhealthy working conditions
• Risk of shortage in apparel or material
• Risk of losing vendor and hence failing to meet the demand
• Delays in Shipment
• Unexpected disruptions in supply chain
• Unfavorable foreign government action

10. M A J O R
R I V A L S O F
G A P I N C .

11. OVERVIEW
4 Large National Chains=39.4% Market Share in 2009
1. TJX Companies: 13.4% from 11.5% (2006)
2. Gap Inc.: 15% from 18.6%
3. Ross Stores: 6.9% from 4%
4. Abercrombie & Fitch: 4.1% from 3.8% (2005)
5. American Eagle Outfitters: 1%

12. Leading in US in 2010 after GAP- Fiscal 2009 $20.2 bn Revenue
T.J. Maxx, Marshalls’, HomeGoods, & A.J. Wright in USA
Winners’, Homesense, & Stylesense in Canada
‘94 UK Launch-7th Largest Fashion Retailer

13. 2007- Germany
2009-Poland
2010-HomeSense @ UK
Canadian- 10.7% European-10.9% of Total Revenues in 2009
2010 Q1: All stores Sales up by 9%

14. 2nd Largest in US- Fiscal ‘09- $7.2 bn Revenue
Ross Dress for Less-27 US States & Guam
Everyday 20-70% Savings @ dd’s DISCOUNTS
2010 Q1 Sales up by 10%

15. Upscale, Premium-priced Retailer
A&F, A&F Kids, Hollister, Gilly Hicks
Discontinued Ruehl in 2009 after heavy losses
Fallen Revenue-from 3.4 bn in ‘08 to 2.92 bn in ’09
Recovery: Plans to Open Stores in Europe and Asia in ‘10-’11

16. AEO in US and Canada; 15-25 year-olds
Aerie, 77kids
Martin+Osa closed in March 2010 after losses
Sales Decline in Recession; 25% increase in aerie

17. OTHER CHALLENGES
Dept. Stores- The Federated Group, Sears, JC Penney
Mass Merchandisers- Target and Walmart
Internet Retailing

18. C A S E
A N A L Y S I S

19. SWOT STRENGTH
1. Online retailing
2. High brand recognition
3. High industry market share
4. Broad product offering
5. Most Ethical among retailers
6. No long term debt since 2009
WEAKNESS
1. Declining responsiveness
2. Multiple changes in leadership
3. Disconnection to target market
4. Stagnant design
5. Lacks clear differentiation
OPPORTUNITY
1. New product lines
2. New global markets
3. Growing market for plus-sized
segment
THREAT
1. Low cost providers
2. Economic situation
3. Low switching cost
4. New trend

20. STRATEGIC GROUP ANALYSIS

22. KEY ISSUES
1. Deviated from core competence
Impact: Decline in in-store sales & brand loyalty
2. Poor Allocation of management & resources during expansion
Impact: Deviation of management focus from brand identity

23. RECOMMENDATIONS
• Reduce Costs: Reevaluate existing 3000 stores and determine which
ones are not performing well
• Expand Market:
– Increase International Market Penetration by focusing on emerging markets &
establish retail stores in desirable destinations
– Target value-priced segment which is the largest segment of industry (65%) and
so has largest potential for growth
– Focus on broad differentiation
• Improve product:
– Allocate more resources to product design & development to provide more
variety & keep up with the current trend
– Focus on quality control

24. RECOMMENDATIONS
• Branding activities
– Product line rebranding to increase in-store sales
– Celebrity endorsements & brand ambassadors
– Promote lifestyle not clothes
– Increase online branding activities to reach target market

25. T H A N K Y O U