Gap Inc. in 2010: Is the Turnaround Strategy Working Essay
Gap Inc. in 2010: Is the Turnaround Strategy Working
In the 1990’s, Gap Inc. was really harmonized to American pop culture and tastes. The brand was really popular at that time. Everybody was using it. It was also very affordable and stylish. However the company’s fast expansion during that time, was accompanied by the addition of long-term debt of few billions. Then we saw the quality of the cloths declining and the style’s popularity going down. Besides their fame of being so perfectly sync to the American Style in the 1990’s, they began to decline in 2000 and only could see some turn around of this situation by 2010.
Company History and Overviewed:
The company had brought in a new CEO in 2002 and then again in 2007, both with turnaround strategies that we could see some positive results by 2010. Gap came into the market in the 1970’s initially as a jeans retailer in San Francisco. The idea was “to make it simple to find a pair of jeans” and came up to a variety of styles that, in the first sight was perfect to San Francisco’s teenagers. After Millard Mickey Drexler being hired in 1983, the company grew from $400 million revenues and 450 stores to a $14 billion revenues and more than 2,000 stores by the year 2002. Drexler have made a pretty good job expanding the brand with Banana Republic in 1986, going internationally in 1989 and helping Gap to be the second-largest apparel brand in the world in 1992. By 2002 Drexler was replaced by Paul Pressler who launched the Internet-only retailer Piperlime.com and expended into new market in Asia and Middle East in 2006. In 2007, Pressler was replaced by Glen Murphy who began franchising both Banana Republic and Gap stores in Middle East and Asia.
The level of globalization in the U.S. family clothing stores were relatively low. In the year 2010, the international operations of stores from this industry generated only 10 to 20% profit from their sales. However, some international brand for family clothing entered in the U.S.. Brands like Zara from Spain, H&M from Sweden and Uniqlo from Japan. These brands relied on independent third parties to manufacture the majority of their products, with most suppliers in Asia, Middle East, and South America.
The U.S. clothing store industry could be segmented by gender, age, size and price considerations, were women are used to spend more on clothes than man, accounting 50% of the product share in this industry, men’s wear 37% and children’s wear 13%. By 2010 and plus-sized segment had grown with the growth of the obesity in the country. The plus-sized garments had increased for both genders and consumers of all ages. The industry was also segmented by price point.
Factors Determining Competitive Success in the Family Clothing Store Industry: There were some competitive elements that directly affected the prosperity of companies in the branded segment of the U.S. family clothing industry, but none was more important than the ability to successfully develop new products lines than reflected the latest fashion trends and then quickly bring them to market. It was very critical for rivals in the U.S. family clothing stores industry to build brand loyalty, which acted as a barrier to entry for potential new entrants to the market. Another important competitive element for the successful of the company was having an excellent financial management because of the slim profit margins that existed in this industry. Also inventory management skills to control cash flow, reduce debt, and keep costs low was crucial to the companies.
Gap in 2010:
Gap owned and operated more than 3,100 stores Gap, Banana Republic and Old Navy stores worldwide in 2010. The seasonality of the business required that the company carry a good amount of inventory, especially before the beginning of the peak-selling season. One of Pressler’s most significant achievements as a CEO was the reduction of Gap’s inventory carrying costs. Gap used information technology systems to maintain proper inventory and supporting its Internet retailing efforts. The system would help to process order faster and with greater accuracy. The company also planned to leverage its investments in its software as it expanded its Internet retailing internationally in 2010. Gap also controlled all aspects of brand development from design to distribution in-house. Gap initiated a number of collaborations with celebrity designers and other companies to develop products.
Talking about marketing, Gap allocated considerable resources to store design, customer service and advertisement. In 2010, Gap was recognized for a fourth consecutive year as one of the world’s most ethical companies by the ethisphere Institute. Also in 2010, Gap had been recognized for the fifith time by Corporate responsibility Magazine on its list “100 Best Corporate Citizens”. Gap had achieved such recognition by focusing on corporate citizenship activities such as improving factory conditions and standards for suppliers, investing in various communities and charities, environmental stewardship, and developing diversity and enrichment programs for employees, and many other achievement as a citizen responsible company. The company also helped a number of non-profit organizations and sponsored a lot of charities events.
Gap’s Financial Performance in 2010:
The year of 2009 had been a difficult one for Gap and its brands as sales continued to decline across all its chains. In 2010 things started to be better for Gap Inc. Internet-sales were up 2% in that year, plus 5% up of the worldwide stores sales. But despite these numbers, Gap North America continued to lose same-store sales, but still were 2% better than the year before. While Wall Sreet analysts were generally positive about the company’s prospects, many questions about the success of this turnaround strategy used by Gap remained.
Reviewing the Gap Strategies:
The CEO Pressler created the first turnaround strategy used by Gap. He began his turnaround with a redesign of the company’s websites and online presence. They developed a new platform for Gap.com, BananaRepublic.com and OldNavy.com, giving the customer faster service and more convenient shopping experience. They also started to sell clothes to women over age 35, but the customers did not successfully accept it and they closed the store called Forth & Towne after all. Another strategy used by Pressler was to create a online shoe store called Piperlime.com. Pressler also focused on reducing debt, however, despite Pressler’s success in strengthening the company’s balance sheets, lots of analysts believed that Pressler ended up cutting more expenses in design, products development and marketing, which made them less able to respond to fashion changes inside the market.
After Pressler being replaced by Murphy, he also tried some strategies such as bringing the company internationally. Which was a pretty good idea, even when the company international sales were not so high as expected. But bringing the company to an international market, the visibility of the company also came international and more people started to wear American Style fashion dressing. Working as a big international company and also being recognized among the world business, as an Ethical company was a big strategy for Gap Inc. They were working as a harmonized environment company, increasing their citizenship responsibilities and bringing more satisfied workers. They also sponsored charities campaigns and put themselves on the spotlight of the Best Corporate Citzens.
Solutions and Analysis:
Analyzing the overview of the sales declining in 2000, I believe that external problems such as American Economical Crises were the main responsible for it. That means that Gap had not so many things to do about it when they were not the only one facing that declination of sales. But maybe, about the declination of the quality of the clothes, they definitely could take care of it: reducing the operating costs, looking for new suppliers to lower the production costs, improve the management among the workers and analyze what is being efficient or not so they can also reduce costs bringing together functions for the same workers. Another good idea would be improving online marketing making online sales increase to avoid logistics costs and also declining the marketing costs once online marketing is more affordable than the regular advertisement. They also could improve the idea of working with Just-in-time strategy, producing only what they would sell. Gap would also find partners to split the logistic costs.
After doing that they would maintain the quality of their products, maintaining good designers to come up with new fashion styles and make the visibility of the company among the customers remain the best. Creating some promotions that would keep customers loyal to the Brand.