The company
has limited operating history in these new channels of
distribution and is faced with competition from established
retailers in these new lines.
The retail apparel business fluctuates according to
changes in customer preferences dictated in part by fashion
and season. These fluctuations especially affect the
inventory owned by apparel retailers, since merchandise
usually must be ordered well in advance of the season and
sometimes before fashion trends are evidenced by
customer purchases. Gap is also vulnerable to changing
fashion trends. In addition, the cyclical nature of the retail
business requires the company to carry a significant
amount of inventory, especially prior to peak selling seasons
when the company and other retailers generally build
up their inventory levels.Gap must enter into contracts for
the purchase and manufacture of apparel well in advance
of the applicable selling season. As a result, the company
is vulnerable to demand and pricing shifts and to suboptimal
selection and timing of merchandise purchases.