The Gap Inc.

1. Analysis of the company's history, development and growth

Founded in 1969 by Donald Fisher and Doris Fisher, Gap Inc is largest clothing and accessories retailer in America. The clothing store began in San Francisco California, where the Fishers opened their first shop because they had been frustrated with the poor service and clothing styles offered at other retailers. The store was named the gap because it supplied clothing to teenagers and college students, the "generation gap" between children and adults.

Originally, Gap did not sell its own brand of clothing, carrying only the Levi Strauss & Co label on its shelves until 1978. At this time Gap had opened more than 300 stores and was selling its own, increasingly popular brand with the Gap label. While manufacturing products under its own label Gap saw its dominance begin, and ultimately stopped selling Levi's altogether in 1992; this move allowed Gap to lower transaction costs and reduce supply threats created by Levi's.

For years, Gap was popular for its basic T-shirts, khakis and sweaters, bringing in the kind of cash-generating revenue that helped fuel its explosive growth in the 1990s.

But as competitors began offering similar styles and prices and apparel sales began to lose momentum, Gap slipped away from basics and tried to pull ahead with unique fashions. The strategy backfired, and the Gap subsequently alienated its core 20- to 30-year-old customer base with far-out fashions that appeal to younger consumers, or that missed completely. Gap chose to chase trends, instead of reinforcing its strengths.

2. Identify the company's internal strengths and weaknesses

Strengths

Branding

The Gap's multiple brands have become some of the most recognizable labels within the apparel industry. Its product line offers a selection of clothing for all ages. Products include: Gap, Gap Body, Gap Kids, baby Gap and Gap Maternity.

Increased sales have resulted primarily from the Gap's ability to expand into specialty markets. Banana Republic is known for casual luxury, with high-quality apparel for men and women and sophisticated seasonal collections of accessories, shoes, personal care products, intimate apparel and gifts for the home. Old Navy, is known for its low cost, and is famous for its denim, graphic tees, cargos, and tops. In addition, the Old Navy Item of the Week which, offers a special item every week at a discounted price.

Financial Control

Gap's financial control and expense discipline have been excellent. A decrease in liabilities generated tremendous free cash flow that provides the company with flexibility regarding its strategic long-term options.

Celebrities in Gap Ads

Gap is well known for featuring celebrities in its print and television advertisements. They have featured over 300 celebrities of various statures in their campaigns.

Number of retail locations

There are 1,250 Gap stores within the domestic U.S; as well as nearly 500 Banana Republic stores and almost 1,000 Old Navy's. The Gap also has an additional 282 stores overseas.

Weaknesses

Out of touch with fashions

At the Gap store shelves have displayed merchandise from classic casual to trendy to professional too many times in the past years, causing consumers to wonder what the brand even stands for.

Some of Gap's recent merchandise and branding problems stem from the fact that it seems out of touch with the new generation of consumers. Ten years ago a teenager might have worn one brand head to toe. The younger generation of consumers expresses itself through how they put things together. They don't want a fashion authority--they want options.

Misjudgment of fashion trends in 2000 and 2001 increased inventory, the markdowns needed to move the product caused revenues to slow down earning only a 2% growth, while Cogs during the same period grew by more that 10%.

Image tarnished from accusations of sweatshop labor

Given the opportunity to lower its costs by manufacturing overseas, The Gap decided to manufacture its products in Asia during the early 90's. The Gap did a poor job of monitoring its vendors, and accusations erupted soon boycotts followed.

Number of retail locations

There are 1,250 Gap stores within the domestic U.S; as well as nearly 500 Banana Republic stores and almost 1,000 Old Navy's. The Gap also has an additional 282 stores overseas.

3. Analysis of the external environment

Supplier Power

Low supplier power due to the number of vendors willing to facilitate the production at clothing products at very low costs.

Outsourcing to manufacturers overseas is common practice in the retail industry in order to cut costs and remain profitable.

Threats of Entry

Entrants have cost advantages, in order to begin there are generally low capital requirements. In the retail industry competition is formed on several levels. And being that a company can compete based upon factors such as price or Fashion trends coupled with the low cost of entry the risk of rising competitors is high.

Industry Competitiveness

Currently the retail industry is very large, and nearly saturated. In the U.S. there is an abundance of retail stores and most have experienced declining sales in the past few years.

Threat of Substitutes

Competition in the retail industry is fierce giving customers of the Gap alternatives from all fronts. General merchandisers such as Wal-Mart or target compete based on its lower costs. Department stores like Macy's or JC Penny carry a large variety of options for consumers to choose, and have been able to replicate certain fashion trends. Whereas, specialty retailers such as A&F, H&M or Urban Outfitters differentiate themselves by staying current on popular fashion.

Buyer Power

The cost of switching to another product is very low in retail. Consumers are also very sensitive about expressing their own individuality and will go at great lengths to find a product that will fulfill their own personal association or style.