Strategic Management Common Assessment

Case Study: GAP Inc.

Name: XXXXXXXXXXXX

ID: XXXXXXXXXX

Instructor: Dr. Graham Manville

MGT – 400 – XXXXXXXx

College of Business
 Table of Contents
Section 1: Introduction ................................................................................................................. 1
1.1 Strategic issue.................................................................................................................................... 2
Section 2: External environment ................................................................................................. 3
2.1 PESTEL Analysis .................................................................................................................... 4
2.1.1 Political factors ............................................................................................................................... 4
2.1.2 Economic conditions ...................................................................................................................... 5
2.1.3 Sociocultural factors ....................................................................................................................... 5
2.1.4 Technological factors ..................................................................................................................... 6
2.1.5 Environmental factors .................................................................................................................... 8
2.1.6 Legal/ regulatory factors ................................................................................................................ 9
2.2 Porter’s five forces .................................................................................................................. 9
2.2.1 Rivalry among competing sellers: Strong ...................................................................................... 9
2.2.2 The threat of new entrants into the market: Strong .................................................................... 10
2.2.3 Substitute products of firms in other industries: Weak – Moderate ........................................... 12
2.2.4 Bargaining power of buyers: Moderate ....................................................................................... 13
2.2.5 Bargaining power of suppliers: Weak.......................................................................................... 13
Section 3: Industry profile and attractiveness.......................................................................... 14
Section 4: Company Situation.................................................................................................... 15
Section 5: Benchmarking ........................................................................................................... 17
5.1 Tiktok presence ................................................................................................................................ 17
5.2 Leadership at GAP ........................................................................................................................... 18
5.3 Sustainability.................................................................................................................................... 19
Section 6: Key Success Factors .................................................................................................. 20
Intelligent manufacturing systems ........................................................................................................ 20
Talented workforce ................................................................................................................................ 21
Customer feedback................................................................................................................................. 22
Section 7: Financial Analysis ..................................................................................................... 23
7.1 Inventory Turnover.......................................................................................................................... 23
7.2 Days of Inventory............................................................................................................................. 24
7.3 Net sales ........................................................................................................................................... 24
Section 8: SWOT Analysis ......................................................................................................... 25
8.1 Strengths .......................................................................................................................................... 26
8.2 Weaknesses ...................................................................................................................................... 26
 8.3 Opportunities.................................................................................................................................... 27
8.4 Threats ............................................................................................................................................. 28
Section 9: Recommendations ..................................................................................................... 30
9.1 Strategic issue .................................................................................................................................. 30
9.2 Technological advancement ............................................................................................................ 30
9.3 Consumer-friendly transparency .................................................................................................... 31
Section 1: Introduction

GAP is a retail and fashion U.S. based company founded by Doris and Don Fisher in 1969.

Don’s struggle to find the perfect fit in a pair of jeans was his window of opportunity to establish

the brand. Doris and Don’s mission was targeting the younger demographic through the sale of

their jeans. After going public, the firm acquired a series of business lines including Banana

Republic, Old Navy, Athleta Athletic and a lot more. Through smart and well-crafted strategies,

GAP succeeded in gaining a standardized label to their jeans and t-shirts at the time.

From issuance to today, GAP moved forward by continuously working on casualizing the

American wardrobe. Moreover, by operating through several acquired brands, the firm offers

options that range from formal to casual. The brand stands for modern American optimism, and

their unique position up until today is being inclusive of design. Furthermore, they communicated

optimistic projections regarding Old Navy and Athleta.

Current GAP CEO Sonia Syngal claims that these two business lines will account for 70%

of the firm’s sales by the year of 2023 (CNBC Television, 2020). This displays encouraging

prospects for the overall company’s future. Syngal’s perception on GAP’s future success is

through focusing on fewer stores, rise in e-commerce, and the development of more casual and

athletic attire (CNBC Television, 2020). With her lead, GAP’s stock price experienced a great

increase signaling a possibility for a healthy revival of the brand.

This paper will examine the strategic issue related to GAP Inc. Accordingly, strategic

recommendations will be discussed based on analyzing the retail and fashion industry. This

analysis is conducted through PESTEL, Porter’s model of five forces, and Key Success Factors.

The firm’s operations will be investigated through Accompanying this analysis will be the

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development of the SWOT analysis and the investigation of the fashion and retail profile and

GAP’s internal situation.

1.1 Strategic issue

It is vital for major businesses to constantly revise and evaluate their strategies with the

evolution of time. Reflecting on the success of a strategy aids in confirming whether the strategy

continues to align with the company’s goals. GAP has been facing a sequence of strategic issues

which acted as main contributors to their downfall. These strategic issues include failing to evolve

with their targeted customers, loss of brand value and popularity, and having a weak online

presence.

When GAP first joined the market, their target age group can be best described as young

adulthood. These young adults now fit into the category of baby boomers, which demonstrates the

significant shift in age groups. It is of the norm that trends go through a continuous cycle of change

over time. However, more than ever before, this cycle is moving rapidly. GAP was not successful

with fitting in or staying relevant amidst these changes. As Gen-Z make up most of the active

shopper population, there is a huge mismatch between GAP’s target market, what they offer to

them, and the standards Gen-Z abide by in terms of trendy fashion and designs.

In the past, GAP was considered an iconic outlet for retail and fashion. Their classic t-shirts

and jeans were so popular between the public and even celebrities. This popularity allowed for

GAP to develop a strong brand name at the time. However, their concept of basic pieces developed

into old fashion by losing popularity. With this, it is concluded that GAP was not successful in

maintaining the strength of their brand name. This is unlike Polo by Ralph Lauren for instance,

which remains a cool addition to modern wardrobes. GAP was not able to match up with Ralph

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Lauren’s success of creating a standardized basic fashion line. While firms in the fashion industry

race to gain recognition in a competitive environment, GAP has paid a hefty price. This is through

a decline in their gross profit margins and unfavorable patterns in their sales growth rate.

GAP seems to be falling behind in terms of online presence as well. With a race in

technological advancement, GAP needs to adopt creativity in providing their customers with a

personalized and unique shopping experience. With being associated as a general mall brand,

falling behind in trendy and attractive online presence is not promising. This is especially with the

rise in e-commerce titans such as the presence of Boohoo, which acquired Debenhams, and ASOS

who acquired Topshop. Such examples encourage the urgency for GAP to reevaluate their strategy

in terms of online presence improvement.

Despite their success in the past with their smart acquisition tactics, GAP is in a critical

condition today and is in urgent need of a turnaround strategy. Accordingly, the question the report

tries to dissect is what should GAP do to create a compass illustrating how to move forward to

survive in a competitive landscape, maintain competitive advantage, and respond to unfavorable

peripheral conditions?

Section 2: External environment

This section of the report will highlight the external factors surrounding GAP and its

industry. Such external aspects can be studied by examining the macroenvironment through the

PESTEL analysis. Additionally, the attractiveness of the industry which GAP operates in can be

assessed using Porter’s model of five forces.

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2.1 PESTEL Analysis

2.1.1 Political factors

It is with no doubt that political factors stand in the way of various industries, and retail is

no exception. Such a factor constitutes both internal and external political elements. With internal

politics, the world continues to witness activist and social movements which shakes societies.

When such an event occurs, firms are pressured and expected to hold a stance amidst the noise.

The recent movement, under the name of Black Lives Matter, was triggered by the death of George

Floyd and it created a stir amongst societies around the world. Various firms in the retail industry

like Marks and Spencer, H&M, PrettyLittleThing, and even GAP stood up with the world on this

matter. This is through spreading awareness, donations, and supporting employees of color

(Busby, 2020). When firms take a favorable stance, customer loyalty is more likely to increase.

On the other hand, silence and taking unfavorable stances can be detrimental to firms as consumers

will either boycott them or spread negative word of mouth.

External political factors, regardless of origin, have an uncontrolled effect on industries

worldwide. Such factors include international taxes policies and even wars. A major political

controversy in the works today is the Russia and Ukraine conflict. Many U.S. retailers in Russia

have halted their operations due to their disapproval of the ongoing situation or because of

sanctions pressed affecting logistics (Thomas, 2022). This also includes big name online retailers

Asos and Boohoo. Moreover, GAP declared sale suspension in Russia as they decided to put a

hold on any merchandise deliveries (Chua, 2022).

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2.1.2 Economic conditions

Bouncing back after the pandemic was relatively smoother for retail firms compared to

other industries. This is as consumers have the chance to release their confined buying power with

desires for a wardrobe upgrade as socializing is no longer on hold. These specific U.S. consumers

claimed to have increased their fashion spend by 43% as work and occasion attire is of high

demand (The State of Fashion, 2022).

However, it cannot be overseen that firms with international footprints like GAP need to

consider uneven economic conditions post pandemic in some areas around the world (The State of

Fashion, 2022). The World Health Organization reported that one in two people globally are

suffering from decreased income due to COVID-19 (Bhalla, 2021). Low income prior to the

pandemic is still in progress in various countries around the world. For example, Lebanon and

Turkey continue to experience the consequences of the pandemic including inflation, low income,

and a lot more. Therefore, this poses a challenge to globally operative firms as such a consequence

could result in a decrease in sales and physical store closures. With lower income, those suffering

will reconsider their investment choices and mainly purchase their necessities.

2.1.3 Sociocultural factors

Sociocultural factors such as demographics, inconsistent consumer behavior, and

fluctuations in preferences emits the most turbulent conditions in the fashion and retail industry.

Such attributes make brand loyalty ephemeral, especially with social responsibility surpassing

latency in this era.

Recent studies show that around more than half of the U.S. population consist of

millennials and Gen-Z age groups (Frey, 2020). Gen-Z alone were reported to make up 34% of the

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world population in 2020 (Spitznagel, 2020). Individuals of this age group are more prone to, and

highly influence changing fashion preferences compared to ages of the remaining extremes. A

report by Mckinsey proves that millennial and Gen-Z consumers carry a critical perception towards

fashion. This is as they made up $350 billion of spending power collectively in the United States

in 2019 (Amed et al., 2019). Moreover, in 2020, Gen-Z alone made up 40% of global consumers

(Davis, 2020). Such statistics present a critical theme in the fashion industry of which influence a

firm’s sales and profitability. It is crucial for firms to keep up with Gen-Z’s changing taste in

clothing and develop designs attractive to them.

In addition to that, consumers have now become more conscious in terms of sustainable

wear which pushes firms to adopt such practices to survive in a consumer-dominated sector. This

is particularly true with Gen- Z as they are on the lookout for secondhand attires at thrift stores,

and even opting for clothing rentals (Cernansky, 2021). Popular platforms rising in popularity in

such a district are companies by the name of Depop and ThredUP. Both businesses facilitate the

buying and selling of sustainable wear and second-hand attire to its global community through a

C2C approach. Firms in the fashion industry must be on the lookout for such trends among Gen-

Z and develop innovative sustainability approaches within their operations.

2.1.4 Technological factors

Firms in the retail industry live with an incessant pursuit of supplying their products to

customers with their desired when, where, and how. The traditional procedure of malls acting

solely as a means for buying and selling has gone obsolete. The advancement of technology in the

retail industry boosted efficiency in this domain when e-commerce was introduced. The retail

industry adopted an omnipresence which massively contributed to sales. According to the case,

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GAP’s e-commerce adoption contributed to $28 million in sales in 2011 to $52 million in 2015.

This shows the possibilities of growth opportunities that e-commerce supplies to firms.

Following the spread of the pandemic, businesses cultivated new approaches to e-

commerce. This was specifically significant since a challenge like the pandemic required

immediate action from businesses. Such an approach includes developing an omnichannel through

embracing a “phygital” presence (Manville & Valente, 2021). This allowed firms to stay in touch

with customers who are not necessarily close to the firm. In the fashion industry specifically, this

generated opportunities such as live streaming runways and fashion shows (Manville & Valente,

2021).

As Gen-Z carries high influence and purchase power in this era, it seems fitting to

understand their contribution to the technological environment. In 2020, Mckinsey reported that

Gen-Z spent a mean of eight hours on screens daily (The State of Fashion, 2022). Digital spaces

started rising to popularity as the pandemic fueled the exacerbation of social gatherings. Therefore,

many giants in the retail industry are capitalizing on social media and virtual worlds like the

Metaverse to stimulate creative engagement with their customers (The State of Fashion, 2022).

The Mckinsey report cites Triefus, Gucci’s CMO, explaining that the value delivered through

virtual realities is underestimated as it aids in self expressiveness. Various big-name firms in the

retail industry are using gaming platforms to showcase their products. This is by developing a

digital version of their pieces and offering it to avatars as clothing or “skins” (The State of Fashion,

2022).

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2.1.5 Environmental factors

With climate change being the hot topic in the past few years, there has been a rise in

consumer concern of retail firm practices. The retail industry swiftly evolved from seasonal

production to weekly production. This change was initiated to match with variable consumer tastes

and everchanging trends (Oshri, 2019). The hazardous cycle of buying and disposing of clothing

items is mainly running on Gen Z’s influence of social media and the rise of influencer culture

(Crumbie, 2021). The cheap prices encourage the speed of this process, which pose serious

environmental costs.

This unhealthy trend of fast fashion contributes negatively to climate change and other

environmental concerns. Although Gen-Z make up most of the fast fashion consumers, they are

gradually embracing sustainable fashion. They developed a redefinition of “newness,” which is a

shift from brand new clothing to vintage, unique, and recycled fashion (Levato & Colacchio, n.d.).

With this new mentality, fashion firms need to reconsider their practices and the ethicality of their

operations.

Although retailers claim to have developed their products sustainably, greenwashing has

been a trend with many brands. For instance, fashion companies H&M, ASOS, and Zara are under

the radar for misleading customers and using sustainability as a marketing tactic (Butler, 2022).

Such a trend in fast fashion outlets is bound to spread skepticism among consumers towards

companies of similar markets. Therefore, firms in this industry need to thoroughly study and

implement approaches which reduce the possibility of that skepticism affecting them.

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2.1.6 Legal/ regulatory factors

Among all legal and regulatory factors interfering with the retail industry, those emitted

from the spread of the pandemic in 2020 is by far the most notable. As the disease deemed obscure,

governments urged their citizens to remain in the shelter of their homes to constrain the spread of

the highly contagious virus. The outcome of this regulation set off a domino effect of retail store

closures across the world resulting in mass losses. Additionally, post lockdown, when restrictions

began to loosen up, number of shoppers per store were in control of legal authorities. The United

States, GAP’s origin, filed a long list of retail firms which declared bankruptcy due to lockdown

directives (McGinn, 2020).

Besides regulations related to the pandemic, tax and legal obligations differs between

countries. Most firms in the fashion and retail industry operate worldwide. This makes it crucial

for firms to pay attention to specific legal instructions in each country and to abide by them. Doing

so can aid in releasing the firm from costly legal cases and even operational halts by the

government.

2.2 Porter’s five forces

2.2.1 Rivalry among competing sellers: Strong

Abercrombie and Fitch, Inditex Group, and their sub-operative firms stand as the largest

rivals in the field of GAP’s operative market. As mentioned previously, fast fashion and

everchanging trends from social media and influencers created an urgency for such firms to meet

consumer demand. Consequently, competing firms attempted to manage their business across

various platforms to survive in the market.

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 Inditex Group succeeded in this area by utilizing backward integration in terms of their design

and manufacturing strategy. Specifically with firms like Zara, a large sum of trendy inventory is

frequently piled up at their stores and accompanied by affordable prices. With this strategy, Zara’s

success was evident as it accounted for 65% of the company’s $26 million revenue. This shows

how Zara managed to become a giant in this industry, especially with their strategies in the fashion

sector. However, this trend has set off a contagion in fashion and retail, where all stores are trying

to keep up with what is in at the time. Although this creates a lack of innovation among all stores,

the duplication of clothing items makes the cost of switching between brands is very low.

To stand out, stores adopt lower costs and initiate lower prices and discounts to seem

appealing to customers. Additionally, firms need to invest in innovation with their products and

smart marketing campaigns to draw the attention of customers. Competitive firms in this industry

utilize smart marketing techniques which gives them a competitive edge. However, it is with no

doubt that this investment will utilize a large portion of their profits. All of this contributes to

making rivalry among competitors strong.

2.2.2 The threat of new entrants into the market: Strong

The rise of e-commerce has reshaped the retail industry in terms of new brands and low

barriers of entry. With very low capital conditions, the internet facilitated the market access to

businesses worldwide by creating opportunities for new B2C and C2C strategies. This can be

accomplished through various social media and global retail sites. Besides the need for raw

materials and suppliers, the resources related to market presence are just one click away, which

highly appeals to the tech savvy Gen-Z. According to The Guardian, Gen-Z’s perspective on

visiting physical shops is now considered “fashion for moms,” (Morley, 2021).

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 It is important to note that the availability of hundreds of retailers entails that customer

loyalty could be extremely low. This is since customers are given the opportunity to browse for

their desired goods online for the best price possible. Therefore, firms in this industry must battle

to distinguish themselves and stand out amidst this competitive sector. They should work on

delivering value, quality, and an optimal customer experience to enhance and build ties with

customers.

Boohoo and ASOS are currently taking the market by storm especially through solely being

present online. Boohoo’s strategic decision of acquiring Debenhams delivers great impact to the

firm. This is since it would aid in appealing a wider age range of shoppers through product

diversification (Media, 2021). Moreover, operating through a readily available huge brand name

like Debenhams can increase customer inclination towards Boohoo’s products. This expansion of

Boohoo’s portfolio can lead to maximizing scale and growth opportunities due to the platform

shift. On the other hand, fast-fashion titan ASOS acquired Topshop. This strategic move can help

the brand move forward globally with their products. This is as expanding their product portfolio

can ultimately expand their customer portfolio as well.

With these strategic decisions, brick-and-mortar stores suffered through the pandemic,

while the likes of ASOS and Boohoo’s operations surged. An example is proving great market

adaptation by increasing their sales through massive loungewear and activewear lines during the

period of lockdown (Hardcastle, 2020). All of this proves that such online retailers managed

dominance in comparison to brick-and-mortar stores. This further shows how they transcend in

their domain and keep up with changing customer preferences through appealing attire and

designs. Therefore, other players in the market will have to work on engaging with their customers

online to stand out and to attract more shoppers.

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 SHEIN has also proved to be a major disruptor in the fashion industry. The Chinese based

online retail store created a large customer base in a very short amount of time. This was mainly

due to their quick imitation of trendy designs being sold at astonishingly low costs. Their ability

to imitate existing designs is incredibly fast that it has been described “quicker than ultra-fast,”

(Gan, 2021). Additionally, it has gained popularity through wisely capitalizing on social media

marketing. If SHEIN continues this rhythm, they will soon dominate the fashion industry. SHEIN

and its relative new entrants succeeded in demonstrating the extraordinary speed of climbing up

the industry life cycle.

2.2.3 Substitute products of firms in other industries: Weak – Moderate

As the fashion and retail industry entails the collection of all clothing stores, it is safe to

say that a substitute for clothing items is not available. However, a close substitute product to

casual retail and fast fashion could be high-end or luxury attire. Additionally, secondhand attire

can be considered.

Taking the high-investment fashion market into consideration does not quite strengthen the

power of substitutes. Although the luxury attire could last longer with high quality and durability,

the cost of switching would be extremely high for customers accustomed to fast fashion prices.

For instance, a consumer would not consider acquiring a sweater from LVMH in case the selection

in Zara is not fitting to their taste. A fast fashion consumer is heavily focused on continuous

wardrobe change which will not be possible at the price of luxurious attire.

On the other hand, secondhand attire stands a moderate chance of substituting newly

produced fast fashion attire. It is reported that Gen-Z embraced the concept of thrifted fashion

faster than any age group (Sicurella, 2021). As observed through this generation’s variable fashion

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tastes, this shows that they are widely open to experiment with style innovations. Thrift hauls from

platforms such as Depop have soared on social media application “Tiktok” (Sicurella, 2021). Both

this noise on Tiktok and sustainability awareness can play significant roles in giving secondhand

fashion a chance as a successful substitute.

2.2.4 Bargaining power of buyers: Moderate

Buyers in the retail and fashion industry is made up of the collective individuals making

clothing purchases. These individuals or households are not large in size to negotiate lower prices.

More importantly, these buyers wouldn’t necessarily make bulk purchases on clothing items to

request a cheaper price. However, it cannot be overseen that with the advancement of the internet,

it has become quite easy for customers to locate cheaper prices for the same clothing item desired.

Moreover, going on the hunt for a better-quality item is facilitated through the internet.

For firms to stand out in such a market, quality and price are two fundamental success

factors. Achieving both would aid in their success in a market where buyers carry moderate power

over them. Furthermore, forming sponsorship campaigns and partnering with celebrities to create

branded products can come in the favor of companies. This is as they create relatability within

customers and ultimately gaining their loyalty.

2.2.5 Bargaining power of suppliers: Weak

The fashion and retail industry is considered one of the largest industries among all others

with countless stores supplying clothing items. The number of suppliers available match the mass

number of clothing stores operating in the industry. The materials used by these suppliers are

readily available in large quantities and for relatively low prices as well. Raw materials such as

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cotton, wool, and silk are purchased by an abundant of suppliers who can offer the final product

to stores at profitable prices. Therefore, it is quite intuitive that being provided a standardized and

differentiated outcome might not be difficult for any supplier.

All these factors withdraw all power from suppliers’ hands putting retail stores at a

favorable position. If a supplier is charging a high price on their production, retailers can easily

switch to a different supplier. The competition amongst suppliers in this matter deems intense as

standing out would depend on producing exceptional quality or charging lower prices. As oversea

business is not a challenge in today’s world, this multiplies the chances of easily finding a supplier

offering reasonable costs for exceptional quality. This is especially since most fashion and retail

companies source their items from third world countries, which can be provided for a cheap price.

Section 3: Industry profile and attractiveness

The fashion industry has been present for a long time, and it has consistently evolved ever

since. Businesses within this industry operate through selling clothing items to customers. In hopes

of satisfying customer tastes with garments, fashion firms around the world constantly face

challenges in this aspect. These challenges could involve their supply chain processes,

manufacturing disasters, and a lot more.

The fashion and retail industry seems highly attractive at this point in time. Putting aside

the classification of clothing as essentials, fast fashion businesses have soared in the past few years.

With trend cycles being extremely short due to social media and celebrity influence, the nature of

the industry can be described as prone to high fluctuations. As designs among different firms are

redundant, this makes the opportunity for imitation reachable. Consumers can then browse for the

item they desire between various stores in grasp of the item that meets their expectation. This is

also facilitated through the development of e-commerce, where cornering a crowd of online

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shoppers is achievable. More importantly, the lift of pandemic restrictions has energized

consumer’s willingness to spend on new clothes.

Sustainability and reducing environmental impact are an integral part of fashion firm’s

agendas in today’s world. The high demand and awareness for sustainability in products and

manufacturing can potentially create opportunities for customer attraction. However, facing a

challenge in such implementation is inevitable. This is since research and development is essential

and large costs are highly likely to be imposed.

With a fair share of challenges and opportunities, the future holds great potential for

existing and new firms in this industry. Firms in this industry must adjust their strategies and work

towards capitalizing opportunities and overcoming challenges. With the economy experiencing

favorable conditions post pandemic, companies in the industry require adjusting to new consumer

needs. Additionally, futuristic technology in this industry can unseal growth opportunities for these

firms leading to favorable sale and profit conditions.

Section 4: Company Situation

According to the case, just in 2016, GAP managed to operate in 70 different countries

around the world. By 2019, their stores across Southeast Asia and the Middle East. Their global

presence gave the business a globally recognized brand name. At the time, their brand name

allowed for their jeans and khakis to successfully become classic and timeless pieces. GAP tends

to the desires of all family members through establishing babyGap, GapKids, and GapMaternity.

Moreover, by operating through several acquired brands such as Banana Republic and Old Navy,

the firm offers options that range from formal to casual. This allows their line of business to be a

consumer destination for various occasions, which ultimately sets an upward trend in their profits.

More importantly, this decision allowed for GAP to retain a wide range of consumers. Banana

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Republic targeted the upscale population, Old Navy for discount-oriented consumers, and GAP

targeted everyone in between (CNBC Television, 2020).

GAP’s situation between 2013 to 2016 has not experienced a lot of growth. Former CEO

Art Peck signaled that the firm is in urgent need of a strategic turnaround. This is amidst an

environment of increased competition and variable shopping demographics. More importantly,

remaining second in ranking and sale improvement was at stake. Information from the case reveals

that GAP’s gross profit margin has gradually declined from 38.97% in 2013 to 36.35% in 2016.

This illustrates that they were gradually making less out of what they sold in the market, which

feeds into Peck’s concern.

GAP needs this turnaround strategy more than ever as their sales growth rate does not look

promising. The company went from a steady rise between 2015 (-3.9%), 2016 (4.6%) and onwards

before a sudden fall in 2020 (-15.8%). This illustrates that the firm seems to be in the decline phase

of the industry’s life cycle. Such consistent impediments can be elaborated through poor leadership

at GAP. This is as all former CEO’s were incapable to scaling up the business throughout the past

years.

The firm has appointed Sonia Syngal as the new CEO of the firm with a mission to enhance

the brand’s performance. A decline in earnings per share (EPS) from $2.9 to $1.69 was reported

between 2014 to 2016, which reflected a decline in stock price as well. However, with Syngal’s

position as CEO, the firm witnessed a bounce in stock price by a surprising 200% (CNBC

Television, 2020). Syngal’s viewpoint on GAP’s most appropriate situation is dedicating attention

towards fewer stores, rise in e-commerce, and the development of more casual and athletic attire

(CNBC Television, 2020). With a hopeful rise in stock price and a goal-oriented CEO, the firm

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seems to be on the road to success revival considering it adopts strategies to make them stand out

and achieve competitive advantage.

Section 5: Benchmarking

5.1 Tiktok presence

In today’s world, social media plays a big role in shaping the way users think about clothes.

This happens through developing a desire for users to express themselves through their outfits.

This is evident through the obsession of partaking in the hashtag “#OOTD” (outfit of the day),

where users post a picture of their outfits on a daily and share it with their followers (Monroe,

2021). With this creating a pressure of avoiding repeat outfits, firms capitalized on this trend by

viewing it as a marketing opportunity. Although haul content rose in popularity a long time ago, it

is now modernized with Tiktok. This is by limiting it to less than a minute, and by using popular

music and even pop culture references as a background for entertainment (Koetsier, 2020).

The rise of social media marketing has come in favor for companies in the fashion and

retail industry. Such external platforms generate low-cost marketing and builds customer

relationships by better relating to their interests. Social media platform “Tiktok” has created a lot

of noise in this aspect during the past few years. Besides creating relatable content, the platform is

bombarded with short clips of mix and matching different clothing items. Tiktok’s director of

community Kudzi Chikumbu commented on this trend saying that it provided the fashion industry

with a new approach to displaying art and personality (Allaire, 2020). To understand GAP’s impact

relative to its rivals and new market entrants in this aspect, the Tiktok follower count, follower

content, and celebrity endorsements will be examined.

In terms of followers, GAP seems to be the weakest amongst its competitors. Their lack of

content restricted them to less than 8,000 followers (GAP, n.d.). On the contrary, GAP’s

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competitive threats are active on this platform with SHEIN having an exceptional 3.7 million

followers (SHEIN, n.d.). This exceptional progress is due to being the most talked about on the

platform (Pointing, n.d.). ASOS operates on the platform with 1.2 million followers (ASOS, n.d.),

while Zara and Boohoo have 1.1 million followers (Zara, n.d.; Boohoo, n.d.). GAP’s competitors

are actively on this platform with continuous dedication towards their posts, which explains their

high follower count.

The followers of all GAP’s rivals are piling up the network with free advertising content.

This is compared to GAP which has very little follower content. Furthermore, GAP’s celebrity

content is extremely poor as the only Tiktok endorsement they have is a repost of an advertisement

featuring singer Katy Perry (GAP, n.d.). On the other hand, the remaining rivals worked with big

names through direct endorsements. These include Huda Kattan, Avril Lavigne, Megan Fox, and

a lot more (ASOS, n.d.; Boohoo, n.d.).

5.2 Leadership at GAP

The quality and time investment of company leaders surely have an impact on an

organization’s overall performance. A company leader’s response to an organizational challenge

defines the next course of events expected to unfold (Abrams, 2020). This can either be a decline

in profitability, or an escalation of profits.

It has been a consistent trend throughout the years for GAP to display poor leadership

through their appointed CEOs. Micky Drexler was successful in appointing GAP as the premium

retailer in the United States. However, with his designs becoming outdated and a sluggish growth

in the economy, GAP’s sales fell. Later, Paul Pressler took charge by utilizing cost cuts to enhance

GAP’s efficiency. This created a temporary rise in GAP’s sales before it slipped into the negatives.

18
When Glenn Murphy took charge, he gave the design team creative autonomy and embraced

strategies of physical and digital shopping. With this and his smart acquisition choices, sales grew

for GAP. However, this was temporary before another decline at Murphy’s resignation. A pattern

of constant fall in sales is evident in all mentioned appointed CEO’s. (CNBC, 2019).

5.3 Sustainability

It is globally known that the supply chain of any business is bound to be dissected by the

public. Since firms do not operate in a vacuum, they are able to affect their surrounding

environment. The demand for insight to firm’s social responsibility practices has become of high

importance. Firms in the fashion industry contributes to addressing this demand by generating a

yearly sustainability report. However, due to their lengthy attribute, it is often overseen by

consumers. A Boston College report specifies that parties mainly interested in such reports include

investors, employees, and the management (Boston College, n.d.). Additionally, supply chain

practices in sustainability reports are quite broad and generic.

A great number of fashion companies have been caught red handed with their false

sustainability claims. Utilizing greenwashing in the fashion industry as a marketing tactic failed

sustainment. Fast fashion titan Zara was caught under the radar for greenwashing as their

production cycles prove unsustainable (Andrew, 2021). Additionally, after sustainability claims

from ASOS and Boohoo, around 65% and 89% of new plastics were discovered in their

merchandise respectively (Runway Climate Change, 2021).

Although GAP has not been accused of greenwashing, the firm lacks the ability of

delivering consumer-friendly means of sustainability communication. With thrifting and shopping

secondhand at destinations like Depop and ThredUP, Gen-Z customers enjoy their shopping

19
experience. This is mainly due to the storytelling experience they get when purchasing items from

another customer (Levato & Colacchio, n.d.). Uncovering sustainability through direct

conversations and connection developed a unique value in this domain. With other brands, it is

unlikely that consumers will flip through the many pages of sustainability reports to understand

their sustainability model. Therefore, developing a personalized experience in this sense could

foster customer trust and belonging towards GAP.

Section 6: Key Success Factors

This section of the report will uncover key success factors in the fashion and retail

industry. This significant measure identifies competitive models which influence the prosperity

of firms in this industry. The major criteria discussed includes intelligent manufacturing systems,

talented workforce, and customer feedback.

Intelligent manufacturing systems

(Manufacturing-related key success factors)

Traditionally, manufacturing procedures in firms involve the use of labor, the internet, and

special computer systems to aid in production. However, a more advanced approach would be

integrating artificial intelligence (AI) to develop intelligent manufacturing systems (Intelligent

Manufacturing System, n.d.). The system operates by using existing information and production

procedures to build new and efficient ones. Moreover, it can identify bottlenecks in the

manufacturing procedure as early as possible to prevent any delays and their corresponding costs

(Intelligent Manufacturing System, n.d.). The lack of this feature in the traditional method prevents

the opportunity of keeping up with consumer’s everchanging demand and quality expectations in

a timely manner.

20
 This advanced system could possibly involve the use of “Realtime Analytics” or “Big

Data.” Both work through predicting future demand by studying consumer data and online

shopping activities. Not only will this decrease production time, but it will also help with speeding

up innovation. To add to that, better design choices can be made and racing rivals in meeting

demand can be facilitated. This is since it helps with understanding customer preferences to

develop desired, customized, and personalized pieces. For example, fashion stores have adopted

standard sizing options for a long time. That was before fashion firms included petite and plus size

options to their clothing lines and appealed to a wider range of consumers. Eventually, a

differentiation strategy is developed from investing in such a system. This is as firms can stand out

among their competition by meeting the target of customer demand.

Talented workforce

(Skills and capability-related key success factors)

The workforce of any company is considered a valuable asset. This is since they are

responsible for carrying out the company’s operations and work directly with procedures that

influence a firm’s success. To develop a talented workforce, it is important to offer personal

development and growth opportunities. Furthermore, they can do so by offering them a healthy

and safe work environment. Consequently, they can create a loyal and committed workforce who

are fully invested in their roles to contribute to the success of the company.

In the fashion and retail industry, such a healthy environment can give birth to a talented

workforce. According to a BCG article, business strategies in the fashion industry must be

translated into HR implications (Willersdof, 2014). A report by Mckinsey states that fashion and

retail firms are currently facing talent deficit, especially in digital, creative, and commercial

21
positions (The State of Fashion, 2022). Appointing young talent that belong to groups making up

a large portion of buying power can be a decent place to start. This can ensure scaling up and

modernizing designs which appeal to targeted age groups of the right generation. Also, motivating

employees can fuel progress and innovation which can play in the favor of the company’s

profitability. It is with no doubt that this can also decrease employee turnover, which refrains the

company from additional cost of finding and training new employees.

Customer feedback

(Marketing-related key success factors)

Carrying a reputable title among the many names in the fashion industry is a critical success

factor to develop. Having a popular and valued brand name is considered a precious asset to any

fashion business. When consumers respect a certain brand, it is intuitive that customer loyalty can

be developed.

To add to that, maintaining durable and personalized customer service is crucial. This also

feeds into the concept of changeable demand discussed previously. To successfully deliver this,

firms must embrace flexibility in terms of design, and make sure that the quality they deliver is

optimal. This can be done through periodic checkups of production and reviewing customer

feedback. It is essential for firms in the retail industry to both consider and tend to customer

feedback as their response will either make or break the business in terms of sales loss. Therefore,

embracing a customer-oriented strategy by improving customer service is advantageous.

22
Section 7: Financial Analysis

To investigate sustainability in GAP’s internal operations, financial analysis will be

conducted. The key financial ratios discussed this includes inventory turnover, days of inventory,

and the progression of net sales over time.

7.1 Inventory Turnover

As a company in the retail and fashion industry, keeping up with the ever so fast demand

for new and trendy attire is crucial. The inventory turnover ratio enables the determination of how

many times a firm’s inventory is sold or utilized in a year. In other words, it examines whether the

business has excess inventory or not. According to the data supplied in the case, GAP’s inventory

turnover from 2015 to 2017 maintained a stable 5.3. However, when referring to GAP’s recent

annual reports, their inventory turnover started declining after 2017. They went down to 4.7 in

2019 and a sudden drop of 3.7 in 2020 (GAP Annual Report, 2020).

This data emphasizes the focus of GAP towards their brick-and-mortar sales rather than

their online presence. This is since the pandemic interrupted any means of physical shopping,

allowing for an increase in sales for online shopping. So, their drop in inventory turnover shows

that inventory replenishment slowed down. This is unlike new entrant Boohoo for instance who

profited heavily from massive sales due to the pandemic (Partridge, 2021). Since GAP was not

focused on matching their online presence with other fast fashion retailers, covering their losses

suddenly through e-commerce could be a challenge. For this reason, relocating management

attention from offline to online and improving customer experience is crucial.

23
7.2 Days of Inventory

To illustrate this issue further, days of inventory was calculated. This ratio measures the

time it takes for a company to switch their inventory to sales. According to data extracted from the

case, GAP’s days of inventory between 2015 to 2017 was around 68. However, after examining

GAP’s recent annual reports, a pattern of increased inventory days was observed. In 2018, GAP’s

days of inventory went up to 76 and maintained a value of 77 in 2019. Then, a significant rise of

inventory days was reported in 2020 with a value of 98.

It can be concluded again that GAP was not in an appropriate e-commerce position prior

to the pandemic. This created the challenge of survival while other firms and new entrants in the

industry took the lead. In the case of a continual increase, GAP may have to opt for the traditional

heavy discounts and clearance to maintain a healthy inventory cycle. However, this is not a

sustainable strategy in to maintain in the long run. This is since consumers may adapt to that and

will be less likely and willing to pay the full price on regular shopping circumstances. It is with

no doubt that having a high inventory turnover signals an environmental concern. Therefore, firms

like GAP should find a common ground between a healthy inventory cycle and a safe production

cycle.

7.3 Net sales

The case provides a well-constructed insight into GAP’s net sales across the various brands

in its portfolio. Between the years of 2014 and 2016, GAP experienced a continuous decline in net

sales. They started with a 3% decrease in 2014, a 7% decrease in 2015, and a 5% decrease in 2016.

Banana Republic mirrors a similar trend with a decrease in sales throughout the years. However,

24
these trends are inverse of Old Navy’s net sales pattern. Old Navy experienced gradual growth

over the course of these 3 years.

This upward trend in Old Navy’s sales could be related to their affordable prices in

comparison to GAP and Banana Republic. As mentioned earlier, GAP lost their popularity over

time and their pieces are no longer considered standardized and basic. With this in the mind of

consumers, their high prices are not quite justifiable anymore. Since their prices are derived from

quality and premium material, GAP needs to find a way to bring back customer loyalty to maintain

growth and healthy sales.

To understand the progress of the company to date, GAP Inc.’s annual report for the years

2018 to 2020 was analyzed. In these 3 years, the trend does not seem to differ much. GAP’s sales

went from $5,160,000 in 2018 to $3,388,000 in 2020 (GAP Annual Report, 2020). GAP suffered

a 26.8% decline between 2019 and 2020. When comparing it to Old Navy, the decline between

2019 and 2020 was only 5.6%. Although GAP’s sales witnessed a significant drop, Banana

Republic reported a major decline of 42.4%.

Since these losses were reported at the time of the pandemic, it can be concluded that GAP

was not in good shape to manage their business online. However, with Banana Republic following

suit, the debate on GAP’s prices could be ventilated. This is since both stores impose high prices

while at the same time being perceived as outdated.

Section 8: SWOT Analysis

The SWOT analysis is a combination of internal and external factors that interfere with a

company’s performance. After conducting various measures on GAP’s operations and the

industry of which it operates in, the following conclusions have been made:

25
8.1 Strengths

- GAP operated in 70 different countries by 2016. Three years later, their stores were

available across Southeast Asia and the Middle East.

- They gained a globally recognized brand name thanks to their global presence.

- Meeting the desires of all family members through operating babyGap, GapKids, and

GapMaternity.

- They have a wide range of different companies in their portfolio including Old Navy,

Banana Republic, and Athleta. This increases product offering from casual, occasional, and

athletic apparel. This also target a variety of customers where Banana Republic targeted

the upscale population, Old Navy for discount-oriented consumers, and GAP targeted

everyone in between.

- GAP ensures to deliver consistent product information to their customers through e-mails

to sustain a relationship and build connections.

8.2 Weaknesses

- GAP failed to keep up with their targeted consumers in terms of changing tastes and fashion

preferences making their clothing pieces outdated. This is accompanied by prices

consumers do not view as affordable.

- GAP’s poor Tiktok presence reduced chances of relatability and connection in a Gen-Z

crowded platform. This is especially when the platform is full of modernized haul content.

- GAP does not utilize celebrity endorsement through Tiktok to enhance relatability

especially in an industry based on celebrity culture and influence. As social media and

26
 celebrity fanbases create a lot of noise amongst Gen-Z and millennials, participating in

such a marketing activity can boost GAP’s sales and build a wider customer base.

- With consistent poor leadership at GAP, there hasn’t been a successful strategy yet

developed by former CEOs operating the firm. This contributes to losing customer loyalty

and even losses on their operations.

- Their weak online presence contributed to their poor performance during the pandemic.

This is through a sudden decline of -15.8% in their sales growth rate and a decline of 26.8%

in their net sales.

- The decline in their inventory turnover and rise in days of inventory show that a lot of their

focus was on brick-and-mortar operations rather than their e-commerce presence.

- GAP does not currently make use of a sustainability means of communication that prove

to be consumer friendly. This reduces the chances that consumers would be interested in

learning about their sustainability practices.

8.3 Opportunities

- Supporting activist movements towards humanitarian causes create opportunities for large

firms. This is as it provides the firm with a favorable reputation and an increase in their

customer base.

- A great release of confined buying power post lockdown has promising outlooks on fashion

firms. This is especially with the rise in demand for occasional wear since socializing is no

longer halted.

- As sustainability becomes an area of interest among Gen-Z, capitalizing on this opportunity

can increase customer base.

27
 - E-commerce and its corresponding developments through AI and augmented realities can

present engaging and personalized customer experiences.

- Using AI in supply chain processes can aid in better understanding customer demand.

Eventually, better choices can be made, and designs would be personalized and compatible

with customer preferences.

- Technology advancement in general poses great opportunities for businesses. By living in

a time where reliance on technology is key, businesses like GAP can unlock endless

possibilities through embedding technology in their operations, communication, and

providing an optimal customer experience.

- For a firm targeting young adults, appointing young and talented workforce in the fashion

business can lead to generating designs appealing to Gen-Z. This is being part of it entails

understanding the scope of modern and trendy pieces, keeping up with everchanging tastes.

- Building a personalized customer service by connecting to buyers through feedback can

create loyalty and a sense of belonging in these consumers.

8.4 Threats

- Operating in the fashion and retail industry makes it difficult for a company like GAP to

hedge against changing customer preferences. Fashion trends are short term variables

which are affected by various factors including social media and celebrity influence.

- The current conflict between Russia and Ukraine forced the shutdown of various

international fashion stores in Russia. GAP following suit with this closure is bound to

affect their sales. Additionally, an increase in operational costs will call for an increase in

prices, putting consumers at state of questioning their demand for certain retail products.

28
- International fashion stores are adapting to uneven economic conditions resulting from the

pandemic in some parts of the world. Various countries around the world are reconsidering

their wealth allocations as necessities are their top priority.

- Climate change and greenwashing skepticism from the public is putting fashion firms in

critical conditions. These firms need to adopt strategies to stay far from greenwashing

allegations.

- Lockdowns from forthcoming variants of COVID-19 pose a risk to firms fully focused on

brick-and-mortars. This is as such government restrictions hinder their sales and could

possibly lead to closures.

- Competition from rivals in the fashion industry including Abercrombie and Fitch, Inditex

group and firms operating within their portfolio. For instance, Zara’s swift inventory

replenishment create urgency within customers to buy clothing pieces as its presence on

the rack acts as a one-time offer.

- New entrants Boohoo, ASOS, and SHEIN generated mass sales at a perfect timing. Their

online dominance and strategic actions of acquiring big names is challenging existing firms

in the industry. Those who were brick-and-mortar focused were declared outdated due to

their strategic moves.

- Gen-Z’s appeal for thrifting and secondhand shopping created substitute opportunities for

businesses like Depop and ThredUP. On the other hand, remaining firms in the fashion

industry are put in a difficult situation.

29
Section 9: Recommendations

9.1 Strategic issue

Over the course of GAP’s operation in the market, they experienced a range of strategic

issues which interfered with their success. These issues included failing to evolve with their

targeted customers, loss of brand value and popularity, and having a weak online presence. To

address these issues, the following question was examined: What should GAP do to create a

compass illustrating how to move forward to survive in a competitive landscape, maintain

competitive advantage, and respond to unfavorable peripheral conditions?

9.2 Technological advancement

(Linking opportunity with strength)

Embracing a strategy with a focus on speed, cost efficiency and coordination through

technology in GAP’s supply chain is a valuable aspect in maintaining their competitive advantage.

While technology continues to develop, GAP needs to reflect well on their technological strategies

and move in tandem with advancements and adjust to changing conditions. Hauls on YouTube

was a great turning point in the retail and fashion industry; however, it is now being interrupted

by digital fashion. GAP needs to keep up with trendier social media like Tiktok. Additionally,

making use of artificial intelligence and augmented realities provides their customers with a 360-

degree fitting and an elevated shopping experience. This is since providing a personalized

shopping experience is important to retain customers and to stand out against rivals.

To link the technological opportunities for the fashion industry with GAP’s strength of

capitalizing on e-commerce can contribute to technological success factors. Not only will this

reduce the lengthy process of supplier to consumer timeline but will develop a cost and time

30
advantage to customers as well. This is by enhancing customer’s shopping experience and reduce

any need of visiting the physical store. However, this will accompany major costs related to

research and development, hiring expertise, and finally the implementation costs.

9.3 Consumer-friendly transparency

(Linking opportunity with weakness)

Transparency in GAP’s supply chain is quite ambiguous and not considered entirely

consumer friendly. It is highly unlikely that consumers are willing to go through a hundred-page

sustainability report to understand GAP’s stance in terms of ethicality. Therefore, to grow as a

business in the consumer’s mind, adopting a consumer-friendly approach to supply chain

transparency can successfully elevate GAP’s competitive advantage. GAP can develop a digital

platform allowing consumers to track and examine the supply chain procedure of the specific

product they own. This can create firm to consumer trust and enhance customer loyalty towards

GAP. Most importantly, this creates a personalized shopping experience to these consumers.

By linking the technological opportunity with GAP’s weakness in advanced means of

transparency, this can contribute to marketing related success factors. As mentioned earlier, having

this is sure to build sustainable consumer relationship. However, this will also create new

relationships with tech giants which can possibly enhance GAP’s performance. It is with no doubt

that this would also come with heavy implementation and R&D costs.

31
 Appendix

Porter’s five forces:

Rivalry among competing sellers Strong

Threat of new entrants into the market Strong

Substitute products of firms in other industries Weak – Moderate

Bargaining power of buyers Moderate

Bargaining power of sellers Weak

Financial analysis:

Sales growth rate (2017 – 2020):

Gross profit margin (2013 – 2016):

Net sales (2014 – 2020):

32
Net sales graph (2014 – 2020):

Benchmarking:

Tiktok presence:

Benchmarking criteria GAP Zara Asos Boohoo SHEIN

Number of followers

Follower’s content

Celebrity content

GAP leadership performance:

Benchmarking criteria Micky Drexler Paul Pressler Glenn Murphy

Sales

Sustainability communication:

Benchmarking criteria GAP Depop ThredUP

Sustainability communication

33
SWOT Analysis:

Strengths: Weaknesses:

- Global presence and recognized brand - Failure to meet changing fashion

name. preferences.

- Diversified brand portfolio. - Poor leadership.

- Providing choices for all family - Weak Tiktok presence and lack of

members. direct celebrity endorsement.

- Consistent customer communication - Not offering means for customer-

through email. friendly transparency.

- Weak online presence in terms of e-

commerce.

Opportunities: Threats:

- Supporting activist movements - Fast-changing trends and designs.

increases customer base and reputation. - Russia vs. Ukraine conflict.

- Confined buying power being released - Uneven economic conditions

post lockdown. worldwide post pandemic.

- Rise of sustainability interest. - Lockdowns as part of government’s

- Technological advancements in e- precautionary measures.

commerce to enhance customer - Competition from rivals: Abercrombie

experience. and Fitch and Inditex Group.

- Utilizing AI in supply chains to identify - Dominant new entrants: ASOS,

changes in customer preferences. Boohoo, SHEIN.

- Appointing young talent. - Rise of thrift shopping.

34
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