The Gap

CONTENTS

Table of Figures Page 3

The Gap Case Analysis Page 4

Problem Identification Page 4

STEP Analysis Page 4

Five Forces Analysis Page 9

Internal/External SWOT Analysis Page 12

VRIO Analysis Page 14

Financial Analysis Page 15

Analysis of Alternative Page 19

Summary of Recommendations Page 20

Implementation Plan Page 21

Reference Page 202

Appendix A Dupont System Analysis Worksheet Page 23

Appendix B Ration Analysis Worksheet Page 24

Table of Figures

Figure 1: Sales Revenue/Cost of Goods Sold Page 16

Figure 2: Net Profit Margin Page 16

Figure 3: Return on Total Assets Page 17

Figure 4: Return on Common Equity Page 17

Figure 5: Quick Ratio Page 18

Figure 6: Current Ratio Page 18

The Gap Case Analysis

In 1969, Donald and Doris Fisher opened a small store in 1969 whose goal was to cater to teenagers, selling primarily LeviÐ'ÐŽÐ'¦s jeans. Cleverly named The Gap, after Ð'ÐŽÐ'§the generation gap,Ð'ÐŽÐ'Ё the idea soon took off and within a year the FisherÐ'ÐŽÐ'¦s were operating six Gap stores in the area. Today, Gap Inc. is comprised of three divisions; Banana Republic, Gap, and Old Navy and is a leader in the specialty apparel market.

Gap Inc.Ð'ÐŽÐ'¦s successes continued into the 1980Ð'ÐŽÐ'¦s and 1990Ð'ÐŽÐ'¦s through the acquisition of the Banana Republic clothing store chain and the introduction of GapKids, babyGap, GapBody, and Old Navy Stores. However, early in 2000, the Gap division made a doomed decision to alter their standard clothing offerings by introducing trendier clothing that neither appealed or sold to existing customers, nor attracted new ones. Also, overexpansion of stores resulting in lower sales in individual stores while operating costs increased. For two next two years Gap sales and stock value declined dramatically.

In 2002, the Gap division, with a strong brand name, high quality and fashion forward products was faced with the challenge of differentiating itself from its competitors in an extremely competitive market for the short and long run.

PROBLEM IDENTIFICATION

The Gap is facing declining sales in a highly competitive market. The fashion industry is a very volatile industry in which taste in fashions changes almost daily. The Gap needs to define, or redefine, its niche, and take appropriate actions to regain its share in the marketplace.

SWOT STEP ANALYSIS

Socio-cultural Factors:

Strengths:

Ð'„Ð'« Targets a diverse group of customers with varying income levels and lifestyles.

Ð'„Ð'« Consistent product lines appeal to customer base.

Ð'„Ð'« Image associated with strong brand name gives consumers status in society by wearing Gap clothing.

Ð'„Ð'« Excellent customer service.

Weaknesses:

Ð'„Ð'« Fickle Generation X & Y consumers may migrate to trendier clothiers.

Ð'„Ð'« Customers may look to competitors for variety.

Ð'„Ð'« The Gap brand communicates high-cost which may inadvertently alienate potential customers in the mid to lower income levels.

Ð'„Ð'« Limited offering of plus sized clothing for ever growing population of overweight consumers

Opportunities:

Ð'„Ð'« Introduce trendier clothing in small quantities while maintaining standard lines customers expect.

Ð'„Ð'« Small adjustments to standard lines (introduction of new colors, fabrics, prints) to keep regular customers excited and returning.

Ð'„Ð'« Consumers' desire to have the best and the latest in fashion.

Ð'„Ð'« Identify untapped customer base.

Ð'„Ð'« More women in the workforce allows for more disposable income.

Ð'„Ð'« Women will shop for themselves and their family at the same retailer.

Threats:

Ð'„Ð'« Failure to create trendy lines may alienate some Gen X & Y shoppers who are looking for the latest in fashion design.

Ð'„Ð'« Wholesale retailers like Wal-Mart and Target sell trendy, designer labeled clothing that appeals to the middle and lower income consumers.

Technological Factors:

Strengths:

Ð'„Ð'« Eye appealing, attractive store displays and layout.

Ð'„Ð'« High quality products.

Ð'„Ð'« Product labels are clear and understandable.

Ð'„Ð'« Strong website for online sales.

Ð'„Ð'« Celebrity talent used for commercials, print ads and in-store displays.

Ð'„Ð'« Store employees well trained to answer customers' questions about fabric, fit, and fashion to help the customer select the merchandise perfect for them.

Ð'„Ð'« Wide distribution net inside and outside the U.S.

Ð'„Ð'« Use of bar coding and electronic data interchange systems for