Introduction:

The differences in style between teenagers and adults led to the formation of the company Gap.

Gap started as a single store in San Francisco, USA in 1969 and today through acquisitions and

franchising the company has expanded globally into 3000 stores with over 150,000 employees.

The company offers its clothing under a portfolio of brands including the company’s flagship

Gap brand, banana republic, Old Navy, Forth &Towne and Piper-lime. These brands are

differentiated from each other by their target customers, merchandise mix, and marketing

approach, but they all share the common goal of delivering exceptional style, service and value

for customers.

Gap is the second largest retail chain in the U.S.A with revenues of over $16.3 billion in 2009.

This has been attributed to the company innovative online business which surpassed US 1 billion

in sales in 2009 as it ties the company five brands together offering a distinct competitive

advantage.

Mission Statement:

Gap’s mission is “to create emotional connection with customers around the world, through

inspiring product design, unique stores and re- noun e-commerce experiences”. The company

strategic goals are to increase the number of stores and to offer unique styles. The company

efforts are focused on building the brand internationally in a socially responsible way,

broadening its market and offering so that products would appeal to a wide range of consumer

tastes so that high growth can be achieved.

This is seen by their presence in major developed countries such as Europe and in emerging. The

clothing offerings are targeted at males and females and fill all “gaps” and it ranges from “baby

gap’ to ‘maternity gap’ resulting in a target market of people who are 1 day old to 65 year old.

The designs are created by numerous designers and graphic artists whose focus is aimed at

customers who want to express their personal style. The company is credited with creating the

“casual basics” category of apparel, which includes khakis, t-shirts, button down shirts, knit tops

and other comfortable separates.

A SWOT analysis of Gap presents a better understanding of the organisation so that options can

be chosen to deal with external environmental opportunities and threats.

Table 1- SWOT analysis of GAP.

STRENGTHS WEAKNESSES

Strong brand image

Creditable market share in the industry

Best E-commerce site in apparel retail business

Recognised as a ‘best corporate citizen’.

Strong financial position

Aggressive marketing and PR strategy

Bad reputation of using child labour

Offerings aimed at casual market.

Unable to attract new and younger customers.

Excess inventory so capital and profit is tied up.

OPPORTUNITIES THREATS

Design non-casual apparel.

Use technology to reduce time from initial

design to delivery in stores.

Expand in emerging markets close to suppliers

To reduce cost by outsourcing and achieving

economies of scale.

Increase competition from existing rivals for

market share

Low barrier to entry for new competitors

Industry faces unfavourable trade agreements.

The effects of Global warming on climate change

affecting the predictability of seasonal demand.

.

Critical Success Factors:

Gap’s critical success factors are its strong international brand; its financial stability reflected in

its steady annual sales growth. The company also has a strong management team that can steer

the organisation to positive growth in tough economic times, and its e-commerce site which is

considered to be the best in the industry.

GAP’s position in the industry:

The BCG Matrix is used to illustrate Gap’s position in the fashion industry.

Market Share

High Low

Market

Growth

Low

The BCG matrix indicates Gap’s position in the fashion industry with respect to its rivals. The

company is presently occupying the question mark quadrant as it has medium low market share

in the industry. In order to meet its goals of increased profitability and presence Gap needs to

adopt a strategy that will increase its market share in the industry. However, the current

Stars JC Penny Zara H&M Macys Wal-mart

Question Marks Gap Banana Republic Benetton Ralph Lauren Kenneth Cole

Cash Cow Levi’s Nike

Dogs Old Navy

economic downturn can work in Gap’s favour as consumers are dropping luxury brands for more

basic lower price offerings which could increase Gap’s market share.

Ansoff’s Matrix:

The Ansoff’s matrix is used to identify possible directions for strategic development. From this

analysis strategic options will be recommended in order for Gap’s mission to be realised.

Figure 2. ANSOFF’S MATRIX APPLIED TO GAP

Existing products New products

MARKET PENETRATION Acquire similar businesses to gain

market share and geographical spread

Capitalise on economies of scale to Increase cost efficiency

locate in major shopping centres Advertise in various media Record customers’ requests and

respond to them. Appeal to local taste and styles.

PRODUCT DEVELOPMENT Investment in technology to personalise

designs loyalty discount card Accessories to complement clothing lines Products for growing teenage market. Create clothing from organic materials

MARKET DEVELOPMENT Enter into emerging markets such

as China and India to increase revenue

Advertise using local celebrities to endorse brand.

Loyalty discount cards. Use suppliers that are ethical with

respect to child labour, sweatshops, and the environment.

DIVERSIFICATION Create new brand to cater for elite upscale

market. Invest in value chain such as organically

grown cotton. Increase portfolio to complement fashion

such as footwear and accessories.

Present market

New

Markets

Strategic options:

Based on the above analysis and the company critical success factors; Gap can improve its

strategic fit and enhance its resource capabilities by pursuing two options from the Ansoff’s

matrix:

1. A cost cutting option

2. Revenue enhancement option.

The cost cutting option falls under the market penetration strategy, whilst the revenue

enhancement can be pursued by a market developing strategy. The market penetration strategy

has a low risk and would be appropriate given the current economic situation. The market

development strategy does pose some risks as the company will be required to enter new

segments, territories and appeal to new buyers but it would result in the company being able to

create global connections around the world.

The two strategies will facilitate Gap’s mission to grow and will allow Gap to achieve

sustainable competitive advantage within the industry. Additionally these two options will allow

the company to take advantage of environmental opportunities and reduce the threats that the

industry poses.

Table 2 analyses the elements of these options.

Table 2- elements of the options

Option 1 - Cost reduction To achieve mission of increasing profitability

Option 2 – Revenue enhancement To facilitate goal of reaching customers worldwide.

I. Explore cost advantage including labour, logistics, taxation and investment incentives in new market.

I. Acquire businesses in same market segment and introducing the Gap brand without much retaliation from existing rivals.

II. Monitor outsourcing operations so that money is not spent on damage control

II. Marketing strategies that would appeal to target audience

III. Limit inventory so items do not have to be sold off at sales price

III. Locate in key shopping locations

IV. Capitalize on economies of scale to negotiate cheaper prices

IV. Offer accessories to complement clothing

V. Expand by joint ventures so costs are shared

V. Use celebrities to promote brand

VI. Expand online operations and technology to reduce cost associated with human resources

VI. Explore social responsibility

VII. Invest in research and development to find efficient ways of design, manufacturing and retailing

VII. Appeal to environmentally friendly market

According to Porter’s generic strategies, Gap can achieve competitive advantage by applying

one or more of the following: overall cost leadership, focused or differentiation strategies. These

strategies are based on the principle that competitive advantage is achieved by providing

customers with what they want or need, better or more efficiently than their competitors.

The implementation of these options will place Gap in the cost leadership category because of

the following reasons:

1. The company will be able to capitalize on cost base competencies such as economies of

scales to minimise transportation and raw materials cost and manufacturing close to retail

locations

2. They are expanding in emerging markets that are facilitating market entry by tax

incentives and provisions of low cost resources such as buildings and prime location.

3. Expansion by joint ventures will allow Gap to expand without having to invest large

sums on money and costs will be shared.

4. Inventory would be limited by the alliances with suppliers who can provide merchandise

on short notices. This will reduce warehousing cost and the amount of capital tied up in

stocks as the value of clothing depreciates with time. The company will therefore be able

to offer lower prices whilst maintain their profit margin.

5. Expanding in online operations and technology will lower cost as money will not have to

be spent on staff and real estate to reach customers around the globe.

6. Investment in research and development will minimise cost of fashion blunders as

research will enable company to meet the needs of customers therefore enhancing

revenue.

Gap’s present position on the Bowman strategy clock is located between positions 2 and 3. With

the implementation of the strategies Gap will move to position 3 as it will be able to offer added

value with their offerings such as innovative designs at low prices and higher quality for the

prices customers will be paying.

This would allow the company to increase market share as they have the competencies to offer

low prices to customers, Gap present distribution channels allows for economies of scale,

producing cheaper than most rivals as it outsources a large part of its operation, and has

numerous suppliers over large geographical spread reducing cost in freight and time between

order and delivery to stores.

This will increase Gap’s competitive advantage as they will be able to offer higher quality

merchandise whilst maintaining low prices. Gap can easily use its existing competencies and

success factors to work to its benefits in achieving this strategy such as its brand name to appeal

to a wide segment of the market and their expertise in acquisition and e- commerce site to

increase market share and geographical spread.

This will enhance Gap’s position in the fashion industry providing the company with greater

competitive advantage, growth and profitability therefore enabling them to fulfil their mission to

reach customers around the world through innovative clothing.

Figure 1 (Bowman Strategic Clock.)

PERCEIEVED PRODUCT/SERVICE BENEFIT HIGH

Differentiation(Gap )new position 4 Focused

Hybrid differentiation3 5

(Gap) Present position

Low price 2 666 6

7No frills 1. Strategies

destined for8 7 ultimate failure.

8

LOW HIGHPRICE

Method of expansion:

Task B

An evaluation of the Suitability, Acceptability and Feasibility of the options presented:

The two strategic options outlined above aims at achieving Gap’s mission to increase

profitability and market share. Given the present global economic downturn both options make

sense, as most consumers are cutting back on luxuries and purchasing goods and services within

their budget.

The revenue enhancement option will allow Gap to fulfil its mission of growing as Gap’s current

markets are saturated and increasing revenue through expansion will result in growth in

profitability and market share .The cost cutting option will ensure more liquidity is available so

Gap can have the resources to pursue other growth options.

However, it is essential to evaluate these strategic options to measure the appropriateness to the

current issues, and whether they are feasible enough to be implemented and their acceptability to

key stakeholders.

Assessing the suitability of the strategies:

According to Johnson and Scholes (2008).Suitability is concern with assessing the extent to

which the proposed strategy fits the situation identified and how it would sustain or improve

competitive position within the organisation. An environmental analysis is vital in understanding

the conditions the organisation operates within. The following question will be used to assist in

analysing the suitability of the strategies:

Do the strategies exploit the company strengths or environmental opportunities?

How far do the strategies overcome the difficulties identified in the SWOT analysis

(resource weakness and environmental threats)? For example is the strategy likely to

control excessive inventory that ties up profits that slow innovative designs.

Does it fit in with the organisation’s mission? For example would the strategies create

emotional connection with customers around the world and facilitate growth?

Direction Environment Capacity Shareholders

Expectation

Option 1: Market

penetration via cost

reduction option.

Increase market share

and increase

profitability

Exploit economies of

scales

Higher returns from

increase profits.

Strategic option why this option might be suitable in terms of:

Option 2: Market

development via

revenue

enhancement option.

Current market

saturated

opportunities for

geographical spread in

emerging markets

such as China and

India

Take advantage of

superior brand image

and exploit core

competences and

resources to enter new

markets. Utilise

buying power

Minimise risks for

shareholders by

decentralising

management to deal

with cultural

differences.

Methods

Acquisitions Fast

Reduce retaliation

from competitors

Acquire competences

economies of scale.

Increase revenue with

growth in share value.

But potential for

culture clash.

Joint development Speed, industry norms

Appropriate for

market entry

Complementary

competences

Shared expertise

Reduces risk.

Analysing suitability of strategic options:

Economic

conditions

Technological

Government Brand e-

commerce

Excess Poor

quality

Strategy External factors Strengths Weakness Sum

Suitability of strategic options identified in relation to the SWOT analysis

advances regulation

Image

inventory

control

Option1

market

penetrati

on

cost

cutting

+3 +3 +1 +3 +3 -3 -3 +7

Option2

market

develop

ment via

revenue

enhance

ment

+3 +3 +3 +3 +3 -2 -2 +11

+3:+1= Favourable; -3: -1 = unfavourable. +10: +21=most suitable: +5:+14=possible: under+5=unsuitable

The above approach uses scores that are arrived at by process qualitative judgement, so spurious

accuracy should not be attributed to the outcomes, the options are assessed against key factors

relating to the strategic position of the organisation, and the suitability of each option indicated

according to the score.

Based on the outcome both strategies are suitable in giving Gap competitive advantage, However

since option 2 scored higher the revenue enhancement, should be given implementation priority.

The present market that Gap occupies is saturated and this strategy will allow for increase market

share via acquisition and joint development. This strategy will also be in line with the

organisation mission statement, as it will create emotional connection with customers around the

world and it will facilitate growth and profitability.

Assessing the acceptability of a strategy:

Johnson and Scholes (2008) stated that the assessment of the acceptability is concerned with the

expected performance outcomes of a strategy. This involves the returns or the benefits which the

stakeholders expect to receive from a strategy, and the anticipated risks involves in implementing

this strategy.

A stakeholders mapping is used to assess the stakeholders’ expectation in implementing a

strategy. This technique allows for an assessment of the relative importance of the relative

importance of the different stakeholder group and their expectation. The framework is used to

highlight the alignment of different stakeholders in response to a particular strategy, so providing

an assessment of its likely acceptability. However, it can be also used to proactively manage the

relationships with stakeholders to improve the acceptability of a strategy.

Mendelow’s stakeholder mapping: power/ interest matrix:

Level of Interest Low High

Low

power

High

The matrix shows the different stakeholders in relation to the power they hold and the extent to

which they are likely to impact the proposed strategies. The shareholders in quadrant D represent

the key players. Gap has to seek their opinion when developing new strategy as the shareholders

will be required to finance the strategies as in the revenue enhancement option new shares will

have to be issued to raise capital, existing share holders reaction must be considered as this

would dilute their voting power.

Government, suppliers and customers are in segment C, this group has less interest in the

company’s strategy but they have considerable power over the implementation of the strategies.

Government can play a crucial part in expansion as they can hinder of facilitate market entry.

Suppliers can also affect cost cutting option resulting from the efficiency and effectiveness.

Customers perception of the brand can result in revenue enhancement.

The media, human rights and environmental groups are in segment B with high interest and low

power they should be kept informed of all activities as their negative reporting can directly affect

the acceptability of the strategies.

Minimal effort A Employees Local community

Keep informed B Media Environmental groups Human rights groups

Keep satisfied C Customers Suppliers Governments

Key players D Shareholders

Local community and employees are in quadrant A with low interest and low power to influence

the acceptability of the strategies but for some events the company will have to keep them

informed and listen to their contribution in the strategy development process.

Assessing the acceptability of Gap Market Development strategy.

What are the

expected outcomes

of the strategy and

are they consistent

with stakeholder’s

expectation?

The key stakeholders of Gap market development strategy are the

shareholders, customers, suppliers, employees and government, are the

main beneficiary of the implementation of this revenue enhancement

strategy. This strategy increase Gap market share via geographical spread

increasing return for shareholders, provide service to customers in different

countries, increase orders for suppliers, and revenue for governments via

taxes. This option is not risky to implement and in addition to increasing

revenue, gives Gap high buying power and economies of scale.

Returns and

profitability of

strategy.

What is the risk

involved in the

implementation of

this strategy.

Gap market development strategy of gaining market share by geographical

spread in emerging markets by acquisition and franchising as

competences of partners can be harnessed to make implementation

virtually risk free with respect to government policy in new market

The assessment of the acceptability of the strategy in terms of financial

returns is forecasted in terms return on capital employed(ROCE) and the

earning potential of resources used in implementation.