217075411-external-factor-analysis-summary.docx

GAP INC Case Study Analysis External Factor Analysis Summary

weight Rating

Weight Score

Opportunities 1. Plus-sized segment 2. Discount segment 3. Global expansion 4. Research and development of new and appealing products. 5. Increased trend in health and wellness 6. Buying power of Generation Z 7. Stance on ethics

0.20 0.15 0.05 0.10 0.03 0.10 0.03

5 5 3 4 3 4 3

1.00 0.75 0.15 0.40 0.09 0.40 0.09

Threats 1. Reliance on third-party manufacturers 2. Economic downturn 3. Emergence of companies that are low cost and high fashion 4. Rapidly changing trends 5. Growing market for imitated products 6. Introduction of manufacturing in developing countries 7. Emerging fast fashion retailers

0.05 0.10 0.03 0.02 0.05 0.05 0.04

3 4 2 2 3 3 3

0.15 0.40 0.06 0.04 0.15 0.15 0.12

External position

1.00

3.95

According to the EFE Matrix of Gap, Inc., it scored 3.95. EFE Matrix based on the evaluation of general environment analysis of these external factors that affect the business to get the potential opportunities and threats for Gap, Inc. The weighted score indicates that the company’s response had a huge effect in its existing Opportunities and Threats in the Apparel Retail industry.

OPPORTUNITIES: ●

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Plus-sized segment: By 2010 the plus-sized segment had grown to a $27 billion segment and the number of obese adults ages 20 and over had grown to 34% of the population by 2008. The demand for plus-size garments has increased for both genders and all ages. Discount segment: The discount segment of the clothing industry withstood the 2008-2009 recession. With people still being price-conscious it is still a huge market to be in. Global expansion: Currently Gap is located in 27 countries that accounted for 1,622 million dollars. The plan to move into China, Italy, Thailand, and Australia as well as to launch online stores in Canada and the United Kingdom gives Gap the ability to better capitalize on this opportunity. Recent emphasis on a company’s CSR: With Corporate Social Responsibility becoming more important it has begun to factor into some people’s decision making processes. Gap has one of

GAP INC Case Study Analysis

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the best CSR missions for U.S. Companies and thus would have the resources to capitalize on this. Increased trend in health and wellness: Many people are becoming more health conscious and trying to become healthier. This is one reason why Athleta has become a popular brand for Gap, Inc. Buying power of Generation Z: Generation Z is the first generation to be brought up completely with social media and technology. Knowing how to use social media to effectively attract Generation Z buyers, as well as other consumers is vital to the survival of companies.

THREATS: ●

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Reliance on third-party manufacturing: Gap relies on third-party manufacturers to make their products. Most are located in Asia, the Middle East, and South America. This places them at risk for negative publicity if something illegal or unethical occurs in those factories, like child labor and low pay. Economic downturn: The economic downturn has made people more price-conscious and has resulted in less spending on luxury goods. Emergence of companies that are low cost and high fashion: The entrance of foreign companies like H&M, Zara, and Uniqlo to the US market has attracted consumers who are price-conscious and fashion-conscious. They are especially appealing to younger consumers. Rapidly changing trends: Gap is unable to keep up-to-date with the changing trends like H&M, Zara, and Uniqlo. Popularity of thrift and vintage shopping: One type of shopping that has become popular in the recent years are shopping at thrift, vintage, and second-hand stores. Some of the benefits of this kind of shopping is the unique clothing a consumer finds and the price is generally cheaper than from a new clothing store. Introduction of manufacturing in developing countries: When a manufacturing plant is built in a developing country at first the workers will accept very low wage rates because they don’t have the experience in manufacturing. However, gradually standard of living will increase and so will work experience and higher education rates. This will result in higher wage rates and a company may need to shift its manufacturing operations to a new location to keep manufacturing costs low.

GAP INC Case Study Analysis

Internal Factor Analysis Summary Strengths 8. Global Presence 9. One easily accessible best e-commerce platform 10. Customer focus 11. Global brand recognition 12. Mix of franchise and company-owned stores 13. Brand extensions a. Gap b. Old Navy c. Banana Republic d. Athleta e. Piperlime 14. Stance on ethics: Weaknesses 8. Reliance on third-party manufacturers: 9. Rapid expansion: 10. Failed launch of Forth & Towne chains 11. Excessive cuts in spending:

weight Rating

Weight Score

0.20 0.15 0.05 0.10 0.03 0.10 0.02 0.01 0.02 0.02 0.03 0.03 0.66

5 5 3 4 3 4 2 2 2 2 3 3

1.00 0.75 0.15 0.40 0.09 0.40 0.04 0.02 0.04 0.04 0.09 0.09 3.11

0.10 0.05 0.03 0.02

1 2 4 5

0.10 0.01 0.12 0.10

GAP INC Case Study Analysis 12. Cost cutting in supply chain: 13. Disagreements: 14. Loss of key executives: Strong Internal Position

0.05 0.05 0.04 0.34 1.00

2 2 3

0.10 0.10 0.12 0.65 3.76

Based on the table shown above IFAS Matrix, Gap Inc., scores about 3.78 It weighted based on the company’s higher than average rate and has a strong internal position. This reiterates the fact that the company is strong in terms of branches inside and outside America. It had increased in the number of foreign branches; positive value system of the employees, as well as the broad distribution of local branches and Global Brand Recognition rated as 5 which had been evaluated by the company’s strengths. From the illustration table, it concludes that Gap, Inc. has a good internal structure.

STRENGTHS: ●

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Global Presence: Gap has more than 3,100 Gap, Banana Republic, and Old Navy stores in USA, Canada, UK, France, Ireland, Japan. They have franchised locations in Bahrain, Indonesia, Kuwait, Malaysia, the Philippines, Oman, Qatar, Saudi Arabia, Singapore, South Korea, Turkey, the United Arab Emirates, Greece, Romania, Bulgaria, Cyprus, Mexico, Egypt, Jordan, and Croatia. In 2010 10-20% of sales were from international operations for larger industry rivals like Gap and TJX Stores. One easily accessible e-commerce platform: They redesigned Gap.com, BananaRepublic.com, and OldNavy.com to provide greater functionality and a better shopping experience. New York Times called it “among the best e-commerce sites in retail”. Customer focus: After hiring Patrick Robinson as the head designer they were able to better focus on their customers by redefining their target customer base. Instead of going after 18-24 year olds who are shopping at low-cost retailers like H&M, Uniqlo, and Zara they focused on 2535 year olds who appreciate the classics they became popular for. Global brand recognition: Worldwide Gap has become synonymous with classic American style. Mix of franchise and company-owned stores: By having some stores that are company-owned Gap invests a lot of money, but has a lot of control. They also have franchise agreements, mostly in the Middle East where they invest a moderate amount of money, but they have a moderate amount of control. This decreases their risks in these markets. Brand extensions: The family of brands that Gap owns covers the demographics of different customers very well. ○ Gap is a brand that is “classically styled, high quality casual apparel at moderate price points” (C-158). Gap is a store that sells basics as well as fashion apparel. They also have a GapKids and babyGap, which makes sense because their target consumers are likely to have children. ○ Old Navy is targeted to consumers who want value-priced family apparel.

GAP INC Case Study Analysis ○

Banana Republic carries more sophisticated clothing that is sold at higher price points than Gap. ○ Athleta sells stylish work-out clothes for outdoor activities like running, skiing, and yoga. ○ Piperlime sells over 200 leading brands of footwear for men, women, and children. Stance on ethics: Gap was recognized four consecutive years as one of the most ethical companies. They have their own Code of Vendor Conduct that they adhere to when managing relationships with vendors.

WEAKNESSES: ●

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Reliance on third-party manufacturers: Gap’s clothing is manufactured by third-parties which is risky because they can run into potential shortages of apparel of material. If there is a large increase in demand or a producer lost a vendor, it is likely that Gap would be unable to meet demand for a product. Rapid expansion: Gap’s rapid expansion in the late 1990s heralded the addition of long-term debt of close to $3 billion, the decline in the quality of their clothing, and a decrease in the popularity of its styling. Failed launch of Forth & Towne chains: This short-lived concept was met with mixed reviews. Some people loved it and others hated it. There was a failure to launch and market it. All Forth & Towne chains were closed in June 2007. Excessive cuts in spending: During Pressler’s time as CEO he made excessive cuts to design, product development, and marketing. This caused the quality and popularity of their product to decline. Cost cutting in supply chain: By cutting costs in the supply chain, Pressler slowed product-tomarket cycle times which caused them to be unable to compete with high-trend clothing stores like H&M and Zara, because they weren’t able to respond as fast to trends and fashion changes. Disagreements: Gap experienced constant disagreements between their research and design personnel which resulted in a delay in decision making and eventually poor decisions were made in order to just get something in the stores. Loss of key executives: With the continual declines of revenue many key executives were frustrated and quit, due to Pressler’s approach and lack of experience and understanding of the apparel industry.