Gap Case Presentation
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by Sophia Bischof on 7 May 2013 29402
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Transcript of Gap Case Presentation
What does a SWOT analysis of Gap reveal about the overall attractiveness of its situation? Recommendations Questions 1-3 Questions 4-6 Case
Summary What is Gap Inc.’s strategy? Which of the five generic competitive strategies discussed in Chapter 5 most closely fit the competitive approach that Gap is taking? What type of competitive advantage is Gap trying to achieve? Gap Case Presentation What is our overall appraisal of Gap’s financial performance? Question 6 Summary Gap Inc. Includes The Gap, Banana Republic, Old Navy, Athleta, and Piperlime.
Drexler transformed Gap- $400M; 450 stores in 1983 to $14 billion; 2,000 stores in 2002.
Paul Pressler 2002- 2007 eliminated all long-term.
Glen Murphy; expand internationally, improve Gap’s quality, styling, and image.
Performance declined 2005-2008.
Performance improved 2009-2010. Recent Years Porter's 5 Forces What does a five-forces analysis reveal about the strength of competition in the U.S. family clothing stores industry? Sophia Bischof
Alexis Camara
Jennifatu Crowther
Eduardo Escobar
Annika Karlsson Resources What recommendations would you make to Gap senior management to improve upon its turnaround strategy?
What actions are necessary to restore the competitiveness of its core Gap, Banana Republic, and Old Navy brands? Recommendations (Question 7) Question 2 Question 3 Rivalry among Competitors Consumer demand declining
Fragmented industry, but Top 4 Companies hold 39.4% of market share
Competition also comes from department and mass merchandise stores
Low switching cost for consumers Bargaining Power of Buyers Again: Decreasing demand and low switching cost
Price sensitivity
Lack of brand loyalty moderate force strong force Competition from Substitute Products weak force The family clothing store sector is part of the U.S. clothing industry, therefore no substitute products Bargaining Power of Suppliers weak force 68.9% of production is done oversease
Multi-Fiber Arragement (MFA) limited number of textiles that could be imported from a developing country, resulted in "chasing quota"
If production cost or wages increase, companies start producing in another country Threat of New Entries weak to moderate U.S. clothing industry consists of thousands of local and national stores
Fragmented industry, however Top 4 companies have 39.4% of market share
New entrants could take up niche, but cannot compete with big, well-established companies Develop a competitive strength assessment of the four major competitors in the U.S. family clothing stores industry.
Based on the results, who is in the strongest overall competitive position?
Who is in the weakest position? A&F: brand building capabilities, fashionable product line, and speed to market
Gap: broad network of stores and low production costs
TJX: broad network of stores, and low production costs Strongest companies Weakest companies Ross: no fashionable product line, below average in almost all other key success factors
American Eagle: mediocre ratings in most of the key success factors (i.e. low production cost, inventory management, and broad network of stores) Gap's financial performance charts provides mixed indicators of how the organization is doing.
While some of Gap’s financial performances have improved over the past years, they are still struggling in some aspects.
Revenues – COGS
Revenues
2007: 0.36
2009: 0.40
The gross profit margin is going up, however the percentage should be higher in order to be satisfactory. Profitability Ratios Gross Profit Margin Return on Sales:
Profits after taxes
Revenues
2009: 0.08
Return on Assets:
Profit after taxes + interest
Total assets
2009: 0.14
Return on Sales and Return on Assets is too low and indicate that the company is struggling with profit after taxes. Net Return on Sales/Net Return on Assets Liquidity Ratios Current Ratio Working Capital Current Assets
Current Liabilities
2007: 1.68
2009: 2.19
The current ratio shows Gap’s ability to pay current liabilities using assets that rapidly can be converted into cash. Gap’s current ratio is pretty high which means that they are in a good position. Also the fact that the ability to pay off liabilities is increases shows that Gap is gaining strength with their financials. 2007: 1,653
2009: 2,533
Gap’s working capital has increased over the past couple of years, which is a good sign. Leverage Ratios Debt-to-assets ratio Debt-to-equity ratio Total debt
Total Assets
2007: 0.45
2009: 0.39
Debt-to-assets ratio is decreasing for Gap, which is indicating that borrowed funds have been less used to finance its operations. Total debt
Total stockholder's equity
2007: 0.83
2009: 0.63
The debt-to-equity ratio has decreased over the past years, which is a good sign. A high ratio lower creditworthiness, weakens the balance sheet strengths and signals excessive debt. Additional Notes Sales have declined over the years while there has been an increase in the operating expense percentages.
The company has since Pressler took over focused on reducing debt; by the end of 2007, Pressler had managed to eliminate all long-term debt.
In 2008, the recession hit the world economy and by that also Gap, and their performance was affected by less sales
Earnings per share have increased from $1.24 to 1.58 over the past five years
Net income has remained almost flat For Senior Management Reevaluate 3,000 stores and determine which ones are not performing well, due to location etc.
Tap into the Asian markets, expand further internationally
Decrease expenses (especially operating expenses) because return on assets ratio is low Quality control-lessen the number of outside vendors
Revamp product lines-need to be more trendy, not fall behind (speed to market could be faster)
Celebrity endorsers and brand ambassadors
Sell lifestyle not clothes- mimic other successful brands that sell lifestyles such as Tommy Hilfiger To restore the competitiveness of
Gap, Banana Republic, and Old Navy Redesigned online Website
Best E-Commerce Website
Reducing Debt Startegy: Paul Pressler's Vision Strategy Continued: Glenn Murphy's Vision Expanded the business internatonally
Diversified the company
Brought in a well known designer GAP fits with Broad Differentiation Strategy
It allows the company to command a premium price for its product, increase unit sales, and gain buyer loyalty to its brand GAP's Competitive Advantage Giving customers a variety of casual and fashion products and to make sure that the website is convenient for its consumers Beginning Doris and Don Fisher founded Gap Inc. in 1969 With the vision to "make it simple to find a pair of jeans.
Gap Inc. includes brands like The Gap, Banana Republic, Old Navy, Athleta, and Piperlime.
Gap was tuned with the American public.
Huge growth in 1990s Strengths What factors are critical to success in the U.S. family clothing stores industry? •Fashionable Product Line•Speed to market•Brand Building Capabilities•Broad Network of stores•Inventory management•Low production costs •Fashionable Product Line- Speed to Market produce clothing lines that are current with fashions trends
appealing products to customers
rapid changing industry
opportunity to adapt faster to the new trends and market trends to attract customers. Brand Building Capabilities- Broad Network of Stores brand should be easily recognized
resemble quality
fashion
the image that customers have translates to sales and customer appreciation
stores located in highly concurred locations
Customers get to see and try on the clothes
Having more stores increases the brand awareness of customers. Inventory management- Low production costs Having the right amount of inventory so that customers can get products.
Low production costs can increase revenue
Do not want to compromise quality
fulfill customers expectations and wants. Global presence
Alliances
Strong competitor
Expansion of brands
Strong sense of corporate responsibility
Upgraded information systems and technology Weaknesses Revenue decline
Dependence on outside vendors
Quality control
Poor sales/ square foot ratio Opportunities Further expansion into new markets
Positive trends with online industry
New concepts based on industry segmentation Threats Poor economic conditions
Fierce competition Mission Statement - GAP Inc. “Gap, Inc. is a brand-builder. We create emotional connections with customers around the world through inspiring product design, unique store experiences, and compelling marketing." Mission Statement - GAP Iconic. Inventive. American.
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