A chain of stores Essay
A chain of stores
GAP Inc has been a member in the family-clothing-store industry for 43 years. They are one of the top four companies with a 16.3% market share as of 2010 (Van Beeck, 2010). They have a chain of stores that include GAP Inc, Old Navy, Banana Republic, Piperlime and Athleta. Between 2002 and 2010 GAP has implemented multiple strategies to accommodate changes in technology and the economy that have driven the strategies of all of the major competitors in the family-clothing-store industry. This presentation will analyse the three key turn around strategies implemented. These include reaching economies of scale through acquiring and broadening their portfolio of product lines and expanding globally, technological advancements in online sales avenues and gaining a competitive advantage over rivals through broad differentiation. The impact this has had on the company will be analysed drawing on strategic analysis of porter’s five-forces, assessing the representative weighted competitive strength assessment, as well as the weaknesses, opportunities and threats present to the company and industry at large. The three key strategic issues and problems targeted by Gap inc. consist of… * Technological Advancements,
* Reaching Economies of scale &
* Gaining a competitive advantage
Firstly powerful efforts to combat technological issues were faced by Paul Pressler. The e-commerce platform once used by Gap and its connected brands did not effectively address its target audience nor address the desired needs and wants of its buyers (Thompson et al, 2010). Pressler recognised this, his turnaround strategy then aimed its focus on the adoption and facilitation of a completely rejuvenated e-commerce platform (Thompson et al, 2010). Gap.com, Bananarepublic.com and Oldnavy.com were redesigned into one website for maximum convenience and functionality (Thompson et al, 2010). New York Times reported that GAP had one of “the best e-commerce websites in retail”. This statement reflects the impact of the online redesigns on its audience and buyers alike, exemplifying a successful change operation. In addition to the redesign of existing websites, in 2006 a new website known as Piperlime.com was launched (Thompson et al, 2010). This
website acted as an online clothing store facilitating its own as well as third-party brands in a variety of men, women and children shoes. The website now offers all of the Gap Inc chains, that is, GAP, Banana Republic, Old Navy, Piperlime and Athleta ranges under the one roof, allowing you to search and purchase products from all of the chains on one website (Thompson et al, 2010). Technological adjustments within the company are another strategic manoeuvre made by the company. The adjustments include the outsourcing of its IT infrastructure to IBM (Armonk, 2006). Gap required an innovative leap to manage its internal technological operations. Their capabilities as a company were not being fully utilised as the most productive technological resources were not being accessed or implemented to their full potential. Establishing a contract with IBM enabled a fast responsiveness to trend changes and the ability to process orders faster and with greater accuracy (Armonk, 2006). From this, Gap enhanced its capacity to perform its technological operations with greater proficiency then its rivals, therefore gained superior competitive advantage. Reaching Economies of Scale
In order to reach economies of scale a predominant concentration was placed upon the prospect of greater International expansion (Thompson et al, 2010). In order to increase production and decrease the cost-price per unit, capital resources were utilised in a far more productive way and resources abroad became a key component to reaching economies of scale; therefore the strategy employed by Gap in this situation is ‘Resource Based’ (Thompson et al, 2010). The ending of the MFA (Multi-Fiber Arrangement) in 2005 sparked a reduction in barriers on supply chains. For instance, quota limits were heavily lifted, providing GAP Inc with greater access to international markets and international resources (Thompson et al, 2010). GAP added resources to develop its manufacturing facilities abroad (Thompson et al, 2010). This enabled a more expansive low-cost advantage; through relocating their high cost activities such as manufacturing and the gathering of apparel components, GAP was able to significantly reduce the per-unit cost of their items(Thompson et al, 2010). This strategy made it a more appealing prospect to expand its product sales globally, as the increased production of goods provided a greatly utility of their resources. Gaining Competitive
Competitive advantage occurs when a firm develops or pursues a strategy that is successful in * Securing customers &
* Defending against rival forces.
This can be achieved by offering services and products of superior value. Value can be perceived by customers as a product at a lower price or a product of superior quality for a given price; overtime what the company has on offer earns a higher rate of return (Thompson et al, 2010). GAP’s goal was to create and sustain a competitive advantage through protecting their market position by removing open avenues to challengers (Thompson et al, 2010). GAP introduced a ‘Broad Differentiation’ strategy to secure their position as a market leader and to fill in vacancies in untapped markets by expanding upon already existing products lines and also introducing new product lines with different features and styles to combat rival products (Thompson et al, 2010). Their horizontal merger with sporting apparel company ‘Athleta’ was a strategy executed to encapsulate a different market segment into their portfolio of product lines, and also to improve buyers perceptions about GAP Inc overall, altering the image of the brand name (Thompson et al, 2010). As Athleta is a more upmarket brand name this merger enhanced the credibility and also the perceived value of their clothing lines (Thompson et al, 2010). Lastly another powerful element employed in Gap’s differentiation strategy is their capability to utilize drastic marketing regimes in a limited space of time (Thompson et al, 2010). Increasing the intensity of marketing and sales activities throughout Gap inc. was successfully executed through allocating an expansive amount of resources towards: * Magazines
* Portable media applications (StyleMixer)
To accompany this exposure to the market Gap has been involved and has hosted numerous campaigns. These campaigns are directed at attracting new market segments, and also to appeal to existing customers (Thompson et al, 2010). In 2009 a campaign was released which included Gaps own Facebook page, video
clips and an iphone application known as StyleMixer appealing to a younger demographic (Lohman in Thompson et al, 2010). Gap also hosted their 40th anniversary, complimented and marketed through accompanying guest artist appearances (Lohman in Thompson et al, 2010). Also in 2009, within the holiday retail season Gap hosted multi-city road tour street performances supported with a drum line and a cheer squad of 12 professional dancers and drummers (Lohman in Thompson et al, 2010). Finally in 2010 Gap donated to a considerable amount to arts-related organizations, supporting multiple arts events; one of which including the San Francisco Museum of Modern Art’s 75th anniversary, whereby Gap collaborated with many artists to make it a successful celebration event (Lohman in Thompson et al, 2010). The capability to attain powerful media coverage and to participate and host in events of such large magnitude reflects the diversified culture of Gap and their dominant market position as a respected and recognised brand name. Marketing efforts by Gap secure a firm competitive advantage over their rivals as reflected by their commanding and growing popularity and reputation (Lohman in Thompson et al, 2010). This powerful acceleration in Gaps technological advancements, marketing efforts, their low-cost and differentiation strategies since 2002 have ultimately transformed the company, its perceived value and overall performance. In 2002 Gap had an outstanding $2.9 billion in long- term debt (Lohman in Thompson et al, 2010). Through the effective strategic management systems and procedures introduced by Pressler, within 5 years the debt had been eliminated (Lohman in Thompson et al, 2010). This incredible feat brought forth much greater appeal to its investors. Dividend payments were consistently rising, from $0.09 per share in 2002 to $0.32 in 2007 (Lohman in Thompson et al, 2010). The effectiveness of the strategies employed by Gap are supported by the data and evidence collected. The return invested capital data ratio is used to establish how effectively a company uses the monetary capital invested in its operations and the returns to those investments (Thompson et al, 2010). Data on the return of the capital invested from Gap denotes a continuous, repeat and progressive display of positive growth and returns, showed by an increase from 0.193(08) to 0.225 (See Appendix E). Additionally, collected data from Gap from the period between 2006-2010 suggests a complete turnaround in the company and reflects amazing strategic success. The Gross
profit margin has peaked from -0.73 in 2006 to an astounding – 0.48 in 2010 (See Appendix E). This figure reveals the improving percentage of revenues available to cover operating expenses and to gain a profit (Thompson et al, 2010). Strategic Issues/Evaluation
An analysis of porter’s five forces reveals the following: * Strong pressure created from the key rivals in the family clothing store industry. * Weak pressure from the threat of new entrants
* There is a weak to moderate threat from Competitive Pressure from Substitute Seller * A relatively weak threat posed by suppliers in the industry, and * A strong pressure from consumer price sensitivity and buyer bargaining power. For more in-depth additional information see appendix D.
A representative weighted competitive strength assessment highlights: * GAP Inc, TJX Inc, ROSS Stores Inc and American Eagle Outfitters (AEO) all came out strong in pricing strategy * GAP Inc, AEO and Abercrombie & Fitch (A&F) had competitive strengths in e-commerce platforms. * GAP Inc., TJX Inc, and A&F had strengths in global presence across U.S., Europe and Asia * GAP Inc and A&F held strengths in image and reputation * And owing to the pricing strategies put in place to match consumer demand following the GFC GAP Inc., TJX Inc, ROSS stores Inc. and AEO had competitive strength s in meeting the needs of consumers. For more information on the weighted competitive strength assessment see appendix B. Recommendations
Balanced score card:
Gap initially did not align its strategic objectives with its financial objectives. Their objectives, long and short term as well as financial and strategic objectives were not effectively employed. Gap lost sight of their long-term objectives through cost-cutting. They reduced the quality of their products; this was positively influential financially in the short-term, however in the long-run this had detrimental impacts on the company’s image and reputation (Lohman in Thompson et al, 2010). It is recommended that Gap
focus on balancing their objectives to ensure such damage is not incurred upon the organisation again. All impacts should be assessed prior to the execution of any strategy. Vertical Integration:
To Gap’s detriment, they have not accessed any other markets via vertical integration instead their efforts are purely associated with product line expansion. Unlike strong competitors ‘Ross’ and ‘TJX’ who have vertically integrated into other markets such as home wares and furniture; based on their popularity and reputation they have been successful. These markets are yet to be taken advantage of by Gap; essentially this is wasted opportunity and would be highly recommended for Gap to consider moving into this area.
Catering to Consumer Demand:
Analysing the costs incurred in different geographic areas and identifying those locations/stores in which Gap is losing profits is productive research that should be taken into consideration. Gap may gain from shutting those stores down and embracing outlets in successful geographic regions. The transfer of investment from less economically efficient stores to more economically efficient stores is a powerful prospect and should be adopted by Gap. With the return of the sale of inefficient investment, opportunities internationally such as China where consumer demand is high, is a worthy investment for Gap to take advantage of.
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Abercrombie & Fitch Co., 2010, ‘Washington States Securities and Exchange Commission: Annual Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934’ Abercrombie & Fitch, accessed 29/08/2013 http://www.abercrombie.com/shop/wd/mens-jeans?icmp=ICT:071213:MX:DivPg:M:Fit1 American Eagle Outfitters Inc, 2010, ‘Washington States Securities and Exchange Commission: Annual Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934’, p.2 Armonk N.Y. 2006, ‘IBM signs 10-year Information Technology Agreement with GAP Inc.’, ibm.com, accessed 1/09/2013, http://www-03.ibm.com/press/us/en/pressrelease/19125.wss Lohman A. 2010, ‘Gap Inc. in 2010: Is the Turnaround Strategy Working?’, in Thompson A.A, Peteraf MA, Gamble JE, Strickland III AJ, 2010, ‘Crafting & Executing Strategy: The quest for competitive advantage – concepts and cases’, McGraw-Hill Irwin, New York. Thompson A.A, Peteraf MA, Gamble JE, Strickland III AJ, 2010, ‘Crafting & Executing Strategy: The quest for competitive advantage – concepts and cases’, McGraw-Hill Irwin, New York. Van Beec T. 2010, ‘Dressed for Success: Specialty Clothing Retailers, ibisworls.com, accessed 01/09/2013, http://www.ibisworld.com/Common/MediaCenter/Specialty%20Retailers.pdf