History Of The Gap Inc Marketing Essay

A small store was opened in 1969 by Donald Fisher and his wife near San Francisco State University.The couple named the store as ‘The Gap’.They opened their second store in Caifornia , 8months later, and by the end of of 1970 there were six gap stores.Gap went public after six years. Gap in the beginning was exclusively a brand for teenagers but in the 1970’s they expanded into active wear that would appeal to a large number of customers. Even though by 1980’s Gap had grown to about 500 stores it was still dependent on its teenage customer base.

Gap Inc. has three main brand/divisions, Banana Republic, Gap, and Old Navy. In 1983, Gap bought Banana Republic, which was then a unique chain of jungle-themed stores that sold safari clothing. In 1994, The Old Navy Clothing Co. was launched, named after a bar the then CEO Drexler saw in Paris.The three divisions have a presence in Japan, United Kingdom, France, Canada and Germany and majority of the stores are in the United States leaving aside the franchisees which are spread all over. In 2006, Piperlime was found. Piperlime offers a selection of footwear and handbags for men women and children. Athleta joined Gap in 2008. The mission of Athleta is: to outfit women athletes and those women who embrace an active lifestyle.

SWOT ANALYSIS:

Gap retails casual apparel, accessories, and personal care products for men, women and children through more than 3,167 stores in the US and other countries. The company leverages its large network of physical stores to improve margins, enhance its brand image and target new markets. However, increasing competition due to new larger entrants could affect Gap’s margins and market share.

LARGE NETWORK OF PHYSICAL STORES:

Gap, the company, has a large network of physical locations. At the beginning of February 2008, the company had 3,167 stores, including 1,249 in the US and 1,918 in international locations such as Canada, the UK, France and Japan. Gap has also entered franchise agreements to operate Gap stores or Gap and Banana Republic stores in South East Asian and Middle-East countries.Comparatively, Gap’s competitor, Abercrombie & Fitch Co, operated 1,035 stores in the US, Canada and the UK. Another competitor, Aeropostale merchandise operates 828 stores..

SEGMENTING AND TARGETING STRATEGY:

Gap has segmented their market in different age groups so that it can reach to all age group people and target the perfect market. Following is the segmentation:

Seniors- Focused on 65 years and older individuals and targeted by Gap and GapBody.

Baby Boomers- Born Between 1946 and 1964 and targeted by Gap and Gapbody.

Generation X- Born between 1965 and 1976 and targeted by Gap, GapBody and GapMaternity.

Generation Y- Born between 1977 and 1994 and targeted by Gap, GapBody and GapKids.

Little Emperors- Born after 1994 and targeted by GapKids and BabyGap.

RECOGNIZED BRAND:

Gap is an old and well known brand. It was founded in 1969. Since then Gap has been catering to women and men of almost all ages.Gap is a speciality retailer offering clothing,accessories and personal care products for men, women, children and babies. Women accounted for 80% of household spending and 83% of all purchases.

STRONG FINANCIAL LEVERAGE :

Gap is financially leveraged to a significant extent. The company’s long-term debt to shareholders equity ratio was 1.27 in FY2008 compared to 3.63 in 2007. This is primarily due to a decrease in long term debt in recent years. The company’s long term debt has been reduced at a CAGR of 70% during 2005¬¬-08 from $1,886 million in 2005 to $50 million in 2008. The company’s capability of paying its debt is reflected through its high interest coverage ratio. The ratio increased from 29.88% in 2007 to 50.58% in 2008. Low debt and high interest coverage ratio provide the company with the flexibility to ramp up its operations. Further, Gap has strong financial leverage compared to competitors.

WEAKNESSES:

MISJUDGEMENT OF FASHION TRENDS:

Gap misjudged the fashion trends which led to their huge losses.Gaps revenue grew more slowly than the cost of goods sold.Between January 2001 and January 2002, revenues grew less than 2%. Simultaneously, costs of goods sold grew more than 10%.As a result Gap’s profit margin fell from more than 41% to 35.8%. Gap’s designers could not understand the styles, likes and dislikes of their customers, they introduced clothes which were not liked by their traditional customers and nor did it attract any new customers.

REDUCTION IN REVENUES:

The company witnessed a declined in revenues from comparable stores of Gap and Old Navy brands. Gap North America experienced a decrease in comparable stores sales by 5% in FY2008 over FY2007 and Old Navy North America recorded a decrease of 7% in the same period. The main reason for the decline of sales was the age old designs at the stores. Due to the decline of comparable store sales from Gap and Old Navy brands, the company’s total revenues declined by 1% in FY2008.

GEOGRAPHIC CONCENTRATION:

Gap is still mainly dependent on the US.The company received 83.6% of its revenues from the US in FY2008. And it has a negligible presence in other geographies, including Canada, Europe and Asia. In contrast, competitors such as Hennes & Mauritz (H&M), Levi’s, Tommy Hilfiger have a global presence which acts in their favour.

OPPORTUNITIES:

INCREASE IN ONLINE RETAIL SPENDING:

Online reatil spending is becoming increasingly popular in the US. Retail e-commerce sales in the US recorded totaled $127.7 billion in 2007 and are expected grew 14.3% at $146 billion in 2008. Further, sales will increase at an 11.3% average annual growth rate during 2007-12. Gap already sells its products to the US customers through its websitesGap.com, bananarepublic.com, oldnavy.com and Piperlime.com. Growth in online retail spending would enable the Gap to earn more revenues from its online websites.

FRANCHISING AGREEMENTS:

Gap has franchising agreements with unaffiliated franchises to operate Gap and Banana Republic brands in stores in nearly 80 franchise stores across the world. As a part of its franchising initiatives, the company has entered into franchising agreement with Rustan Group of Companies to introduce the Gap and Banana Republic brands to the Philippines in October 2007. Through franchising, Gap has also expanded its geographic presence. For instance, the company expanded its presence in Japan by opening two new Banana Republic stores and Banana Republic’s first European flagship store was launched in Regent Street. Also, the franchising agreement with Fiba in May 2008 could bring Gap and Banana Republic brands to customers in Russia. Franchising has helped Gap in expanding its business.

CHANGING CONSUMER GROUPS AND TASTES:

Gap is focusing on all the age group customers but they have considered only one segmentation based on the age factor. But the tastes and the demands of customers change instantly depending on many factors. For example: Income, geographical and demographical factors. With the change of demand and taste they should change their product line.

THREATS:

DECLINING CONSUMER CONFIDENCE:

The Consumer Confidence has been declining in the US since August 2008 due to weakening of the labor market and increase in food prices. American consumer confidence fell to -50 in the week to August 10 from -49 in the previous week, the index is much lower when compared to May 2008 with the index at 58.1. This decline could negatively affect the revenues of the companies such as Gap.

costs and may affect the company’s margins.

CANNIBALIZATION OF PRODUCT:

Old Navy is gaps subsidiary and the clothes of Gap and Old Navy are almost same and customer is not able to differentiate between Gap and Old Navy because they are too similar. Old Navy is taking the market of its own parent company.

INTENSE COMPETITION:

The retail industry is characterized by a large number of players; many of whom have a worldwide presence. Gap competes with national and local departmental stores, specialty, off price, discount, supermarket, independent retail stores and internet businesses, which sell similar lines of products. Gap faces competition from companies like Macy’s, Levis and Adidas in the US and in the international market. In addition to these companies, the company is also competing with retailers such as Wal-Mart and Target, which have started offering private labels at affordable prices.

SITUATION ANALYSIS:

Gap is a producer of casual apparel, accessories, and personal care products for men, women and children.Gap has its headquarters in San Fransisco, CA has a total of 3100 stores worldwide. Gap has its stores in approximately 25 countries mostly through franchising its International Stores. Gap is listed on New York Stock Exchange and they have 650 million outstanding shares.

Gap operates retail outlet stores selling apparel, accessories, and personal care products.

The company’s key products and services include the following:

PRODUCTS

SERVICES

LIST OF BRANDS

Apparel

Shoes

Accessories

Intimate Apparel and Personal care products.

Online Sales

Gap

Banana Republic

Old Navy

Piperlime and

Athleta.

Gap launched Piperlime in 2006 which offers footwear and handbags to men women and children and Athleta joined them in 2008 which is clothing brand for active women.

The company primarily operates in North America and has employed 135,000 people, earlier it had 150,000 employees, Gap reduced its employees as a cost cutting measure. The company recorded revenues of $15,763 million in the fiscal year (FY) ended February 2008, a decrease of 1% compared to 2007.

The decrease in revenues was primarily due to the weak performance of the Gap and Old Navy brands. The operating profit of the company was $1,315 million in FY2008, an increase of 7.4% over 2007. The net profit was $833 million in FY2008, an increase of 7.1% over 2007.

Gap’s top competitors are Abercrombie and Fitch, Aeropostale, H&M, Zara, American Eagle, J.crew, Levi’s TJX/Marshalls. Zara and H&M on the other hand have a lot of variety of products and designs are new and appealing to the consumers, unlike Gap.

According to the Perceptual Map Gap is somewhere in between. Louis Vuitton and Burberry are high end barnds which are quite costly. Banana Republic products are a little expensive than Gap. The other division of Gap i.e Old Navy is a lot cheaper than Gap. And Primark is at the bottom of the Perceptual Map and is cheaper than Gap and Old Navy and is quite popular with the customers as the products designs are new everytime the customer visits the store and are even cheap to suit each customer’s pocket.

Gap currently is in problems Gap lacks product differentiation because the products and clothes of Gap and Old navy are quite similar to each other and therefore it creates confusion in the minds of the consumers for eg. Zara has proper brand differentiation. The consumers of brands like Zara and H&M can differentiate between the products of these brands and they have brand recognition.

Another problem that Gap is facing is to adapt to the changes in the consumer tastes, they are unable to keep up with the changing market trends and also lack proper segmentation of market. Though Gap has divided the market on the basis of Age Factor, it still lacks the ability to properly segment the market on the basis of the likes and dislikes of the consumers.

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THE MACRO SIDE OF THINGS:

As the title suggests here I will talk about the things bothering Gap in a broader sense and also we will be looking at the Global Opportunities of Gap.

First we will be discussing Where is gap now exactly and what problems is Gap facing. So the Key Problems that Gap is facing according to 2000-01 are the Declining Brand Image, No Movement into New Markets and Competing Brands: Gap vs Old Navy.

Firstly the Brand Image of Gap has been declining a lot lately, the brand is now seen as a brand for the older generations. The young generation cannot relate with the brands designs and styles, which does not hold good for the brand. Secondly, as of 2000-01 Gap also faces the problem because it has no movement into New markets. Gap is only located in the North America and European Markets. In North America it is mainly located in US and Canada and in Europe it is located in UK, France and Germany.

And the third main problem that Gap faces is of Competing Brands. Gap Inc. has three main divisions i.e Gap, Banana Republic, and Old Navy.

Although Banana Republic has successfully maintained a different image in the mind of the consumers with its designs, styles, clothes, etc. But Gap and Old Navy are too similar to each other. Old navy and Gap are too similar to each other in their styles, colours amd products. It creates confusion in the minds of consumers.

The solutions to these problems have been outlined:

Solution 1 : Fixing the Brand and Entering New Markets

According to me, Gap should consider entering into two New Markets that is India and China.

VITALS OF INDIA: India is a country with a population of 1.15 billion as of 2010, the GDP of India is US $1.243 trillion, and a GDP Growth rate of 6.5%.

PESTEL Factors for India:

POLITICAL: India has introduced a lot of new tax reforms usually suiting new businesses in view of attracting new foreign ventures and businesses. The government has also implemented a large number of recommendations such as Drastic Reduction in customs and excise duties, Lowering of Corporate Taxes, etc inorder to encourage new businesses.

ECONOMIC: In the 21st century, India is an emerging economic power. The economy of India is booming. The Indian economy is the eleventh largest economy in the world by nominal GDP and fourth largest by Purchasing Power Parity (PPP). The standard of living of people has increased and improved and so has their spending power so that makes India a gud option for Gap to consider conducting business in India.

SOCIAL: India has a population of 1.15billion people. That means more population is more demands.India is a huge market.The age distribution in India: 0-14years: 30.1%, 15-64years: 64.6%, 65years and above 5.3%. India has a huge workforce of 467million people as per 2009 estimates.

TECHNOLOGICAL: In India people are in pace with the technology and it would be easier for Gap to reach to people because of increased use of the internet, cellphones, televisions.

ENVIRONMENTAL: India has a favourable climate and cheap labor is available to conduct any business.

LEGAL: Indian Legal system is one of the oldest legal systems drawn from the British legal system.There are many Acts passed like the Consumer Protection Act and DGFASLI(Directorate General, Factory Advice Service and Labor Institutes) which aim at protecting conumer rights and provide security to them.

And the other market which I have chosen is China for various other reasons.PESTEL factors for China are:

POLITICAL: In China there is a communist Government which strongly takes steps for population control.

ECONOMIC: China has a population of 1.3 billion and a GDP of US $ 4.91 trillion and GDP Growth rate of 8.7%. The liberalized and decentralized economy of China has led to the intense growth of the country. China has relaxed policies in environmental and labor standards which is another important factor which led to the fast growth of China.

SOCIAL: China’s population is huge. And the economic condition of people is stable.There is growing middle class with a more expendable income. Most of the people are educated. There is a huge segment of people who are more interested in fashion, luxuries. So Gap being a famous brand can conduct business in China where people have money to spend.

TECHNOLOGICAL: China’s people are technologically advanced. They are quite familiar with the technology like the internet and mobile phones. Marketing becomes easy when technology is present.

ENVIRONMENTAL: China has lax environmental standards and cheap labor and cheaper cost of manufacturing is incurred.

LEGAL: In China one has to follow strict government laws to conduct business. The government has laid down some rules which everyone has to abide by. Also there are strict laws on technology use for masses. So this is the thing which Gap will have to take care of.

Solution 2: Getting Rid Of Old Navy

As mentioned earlier Gap should get rid of Old Navy as its too similar to Gap and creates confusion in the minds of the customers and the customers lose brand identification. Merging the brands is a gud option. That means Gap and Old Navy will be one, it will help in avoiding customer confusion and allows more differentiation between Banana Republic and Gap. And when Gap and Old Navy come together it will be suitable for customers as Trendy and Classic can meet midway in- store.

MICRO ANALYSIS:

Micro Analysis is in-depth studying and examining. In Gap’s case in Micro Analysis the areas to look at are Stakeholder Analysis, Porters Five Forces analysis, the SWOT analysis and the Marketing Mix.

Gap Inc. has three main divisions Banana Republic, Old Navy, Gap and Piperlime.The 9-cell matrix explains us the Market Position and Industry attractiveness of these brands. On the scale of Industry attractiveness and Competitive Strength Old Navy is in the strongest position with a score of 8.6, wheras Gap is somewhere in the middle with a score of 7.6, and Banana republic which is a high end brand of Gap scores 5 on the scale and Piperlime is in the weakest position with a score of 4.2.

In the Micro Environmental Factor/Stakeholder Analysis we will see the various factors which affect the company.The most important part of this are the Customers.In Gap the main problem is the designs and style of Gap clothes are not appealing to the customers. Negative publicity by media can hamper the reputation of the company. One such incident of Child Labor in India created a bad impact of the company in the consumer’s minds. Also Gap has a lot of competitors which are creating problems for Gap. Brands like Zara, Abercrombie & Fitch, H&M, Primark are very popular with the consumers because of their ever changing designs according to the consumers and low cost approach.

The Porters 5forces help us understand the position of Gap in more detail:

The Porters 5 forces are

Bargaining Power of Customers: Gap has a lot of competitors which have new designs and low cost approach therefore which increases the bargaining power of the consumers.

Threats Of New Entrants: Brands like H&M, Abercrombie & Fitch, are in pace with the changing market, they introduce products according to the wants of the customers, thus creating a stronger position in the market, unlike Gap which has the same old designs to which the customers cant relate.

Threats Of Substitute Products: Gap is constantly facing the threat of substitute products which are cheaper and easily available in the market.

Competitive Rivalry Within An Industry: Every brand faces competitive rivalry in its respective industry. The company should find out ways to achieve competitive advantage over the other companies.

Bargaining Power Of Suppliers: A company should always try to achieve competitive advantage by importing the manufacturing materials for lower cost from its suppliers than its competitors.

Micro Analysis also explains the Marketing Mix 7p’s which is as follows:

The marketing mix is the combination of marketing activities that an organization engages in so as to best meet the needs of its target market.

It is a tool which marketers use to define their marketing strategy. It is constructed of the original 4P’s (Product, Price, Place and Promotion) and has an added three more elements (People, Process and Physical Evidence) in order to expand its applicability from strictly tangible products, to encompass service related offerings as well.

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One more important which Gap needs to consider is How Gap can sustain Competitive Advantage in the long run.

Firstly Gap needs to focus on product Differentiation.Conumers get confused with the products of gap and Old Navy. The consumers should be able to do product identification.

The other area of focus is low cost approach.For this Gap needs to import production materials and should conduct production processes in low cost regions to achieve advantage over its competitors.

And the most important of all Gap should try to build a new image in the market with introducing new products and designs which are appealing to the consumers. And introduce products for all age groups therefore achieving popularity with the customers.

CONTROL MEASURES:

The Marketing Control System’s main function is firstly to decide marketing objectives, then set the performance standards, Locate responsibilty, then again evaluating performance and checking whether it is according to the set standard, And then finally take a corrective action.The Control system also includes a Balanced Scorecard. A Balanced Scorecard gives us an outline of a firm’s success such as financials, people, operations, suppliers, customers and support systems. The Point of a Balanced scorecard is to:

Bring all members of the organization around common goals and strategies

Link initiatives to the strategy, making prioritization easier

Provide feedback to people on key issues where they can have an impact

Be an essential decision making tool for everyone in the organization.

The Balanced Scorecard also covers four perspectives which are:

Financial: encourages the identification of a few relevant high-level financial measures and ask the question, “How do we look to our shareholders?”

Customer: encourages the identification of measures that answer the question, “How do customers see us?”

Internal business Processes: it encourages identification of measures that answer the question, “What must we excel at?”

Learning and Growth: encourages identification of measures that answer the question, “Can we continue to improve and create value?”

There are two types of marketing Control:

STRATEGIC CONTROL: This is a part of the marketing planning process. Every company should after some period reassess its strategic approach to the marketplace combined with a good marketing audit.

OPERATIONAL CONTROL: It involves Customer satisfaction measurement, Sales and market share analysis and Cost and profitability analysis.

The Key performance Indicator (KPI) is also a measure of performance. These help an organization to evaluate how successful it is, in terms of making progress towards its long term organizational goals.

The questions to be asked are:

How many customers are coming to the store?

How many customers are new?

How many customers shop?

How much money do the customers spend each time at the store?

How many stores have opened in an annual period?

The KPI of Gap Inc show that the number of stores opened is less than the number of stores closed. This proves Gap Inc. is in a bad condition.

The Critical Success Factor (CSF) is a term for an element that is necessary for a firm to achieve its goals.The CSF of Gap Inc. for fiscal 2010 are as follows:

It aims at continuously producings goods appealing to the customers, with an overall objective of improving our sales trend while delivering healthy margins.

Focussing on cost management and return on capital invested

Generating cash flows and remitting excess cash to the shareholders

Investing in the future while delivering earnings growth.

Gap Inc. also published report on Internal Control over Financial reporting saying that the management is responsible for maintaining an adequate system of internal control over financial reporting as defined in the Act.

IMPLEMENTATION STRATEGY:

OBJECTIVES:

To achieve their targets Gap inc. must ensure that it sets SMART objectives. Which are specific, measurable, achievable, relevant and time bound. The mission of Gap is to provide the finest clothing.They intend to:

Maintain positive, steady growth each quarter.

Experience a growth in customers who are turned into long-term customers.

Customer support.

Employee motivation.

Its focus more on growing its core brands, as well as its online and international business the next year.

Financial objectives include:

Double-digit growth rate for each future year.

Reduce the variable cost per garment.

Continue to decrease the fixed costs.

STRATEGY OF IMPLEMENTATION:

Existing Markets-New Products:

Firstly the company needs to hire new talented designers as the Gap brand is unable to maintain its old customers and nor is able to attract new ones.. They have to adapt the changes in tastes, like and dislikes of the customers. It is necessary for Gap to hire new talented and young designers to be in the market.

The layout of the shops is very dull and monotonous. They should change the layout and make it more attractive appealing to the eyes of the consumers.Salesman should be able to create a strong bond with the customers to create long lasting relation with them.

New Markets-Existing Products:

Gap is only a designer and marketer of its products and not a manufacturer. It has more 3600 factories in all over world and they outsource everything. Gap should open stores in locations where they outsource their production activities and this will help reduce the transportation cost and provide entry into new markets for their products and Gap needs to enter into new markets. This strategy should help Gap in increasing their sales and revenues.

Gap is selling its products in more than 25 countries and the store layout is the same everywhere. In order to attreact new customers it should change the style and layout of the stores.Gap can adopt the local styles and trends to attract local consumers..

Celebrity endorsement might boost the sales of Gap. They should endorse a person who is famous among all the age groups and because of whom their brand can get some attention. Company can endorse a famous actor/actress or a famous sportsman. This attention will give some change in the sales for a certain period of time. Sponsorships to big events can also be a part of advertisement activity for Gap. Main aim of Gap should be gaining popularity among consumers, they can even sponsor big events for achieving this.. For example: Football Tournaments and other international championships.