Gap’s unprecedented growth is a direct result of meeting a niche in the clothing market, at a time when The Gap was well positioned to meet the new demands of this “business-casual” trend, introducing other chains to expand its customer base, and aggressive expansion in the global marketplace.
The Gap was bound for success early on because the utility of its product mix was perfect for a specific market segment. Gap pursued a hybrid strategy containing elements of both cost leadership and differentiation. It relied on strong brand differentiation and made considerable investment in brand image as well as customer service. Also the strategy contained several characteristics affiliated with the cost leadership approach, including economies of scope and scale, simple product designs and low-cost distribution. It sold high quality products at competitive price levels. Consumers were able to shop whenever it was convenient for them by either going to the store or shopping online. Moreover it had become a one stop center for all the clothing needs of the family at competitive prices.
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Another concept that led to changes in the retail clothing industry was that it offered store credit cards for its customers. Customer service too, was its additional strength, where products were attractively displayed on shelves. Sales associates and store personnel had been trained to answer customer questions pertaining to the product specific details, thereby helping customers to select merchandise. Gap’s acquisition of banana republic in 1983 also helped it gain more market share, and diversify its products. The company sells a huge variety of clothing from casual to chic for men, women, and children. Also a distinct shopping environment ensured a good reputation.
Describe important trends the occurred in the overall retail industry in 2002
Due to the high cost of manufacturing in-house, virtually all specialty retailers outsourced the production of their products. In most cases, the retailers provided the designs for the products themselves.
Television: Through television ads retailers not only promoted their products but also built their brand names.
Print: Specialty retailers used a number of magazines to advertise their brands in. Depending on what type of customer they wanted to reach, they would turn to the type of magazine the target customers.
Outdoor: Outdoor posters and billboards were used by many specialty retailers to promote sales and new products, announce new store locations, or help build a strong brand name.
Internet: As the internet became more popular, the need to use it as a means of advertising became clear. Internet ads were used to promote new products or to announce a sale or other event.
International: Expanding information technologies enabled retailer to manage globally. Improved economic efficiency, increased competition, economic growth, and increased consumer purchasing power have make emerging markets such as China, Latin America, or Central Europe attractive for the retailers. International expansion allowed specialty retailers to reduce their dependency on regional economies by spreading risks across economic areas, and further provided specialized products and targeted untapped niche markets throughout the world.
E-tailing: E-commerce offered many opportunities to specialty retailers worldwide. In addition to allowing those to target customers in previously untapped markets-without building new stores-it also removed physical barriers that were present in brick-and-mortar retailing.
Among the more ubiquitous technologies for inventory management by specialty retailers worldwide was the practice of bar coding via universal product codes (UPCs). The bar code provided a universal language, with an alphabet composed of alternating black and white parallel lines, which encoded product information and was read by laser scanners.
Another significant use of that technology was in the point-of-sale (POS) systems. POS scanning equipment at the checkout counter, which was linked to a computer, was able to read the Universal Product Code (UPS) labels on products, instantly providing the retailer with detailed sales data. POS scanners also reduce labor cost, by eliminating the need to mark items individually, and enhanced price accuracy.
Given the need to maximize efficiency in distribution and turnover, retailer had embraced electronic data interchange (EDI) as a source for quick and accurate transactions.
Most stores offered an alternative way of shopping, some through the internet, some through catalogs. Specialty stores had a good and reliable customer service. The store personnel were trained to answer customers’ questions regarding product mix. One of the main strengths of those stores was the ability to establish one-on-one relationships with the customer. Stores gathered the information about their customers and studied their spending habits.
3. Describe important trends that occurred in the specialty apparel retail portion of the retail industry in 2002. What are the key required skills for success in this industry?
The industry sells a variety of clothing, accessories, and body care products to individual customers of all genders, ages, sizes and income levels. Their decisions to buy are influenced by a number of different factors such as price, style, quality of the fabric and color.
Products are sold through retail stores, catalogs, and companies’ websites. All customer groups have different preferences as to where they like to buy. For some, convenience or speed may be important; others like to spend time doing their shopping and enjoy the experience.
Retailers have a chance of manufacturing their goods in-house or outsourcing the production to outside vendors. All firms in the segment use a number of ways of advertising their products, from TV and radio commercials, to outdoor billboards, newspapers and magazines, to advertisements on the internet. The industry takes advantage of the available industry in different ways both to reach the consumer and to improve operating efficiency. This is a fiercely competitive market domestically as well as internationally.
Specialty retailers that built strong brand names were likely to take away market share from those that did not. Those that concentrated on strong brand management were also likely to reap the rewards of increased customer loyalty, thus improving long-term growth prospects. If a company was able to build its retail store name into a brand, it would also be able to leverage that name into other categories.
Products
Specialty apparel retailers sold a wide variety of clothing, accessories, and body care products.
Customers
Specialty apparel retailers catered to women and men of all ages, sizes, and income levels. For specialty retailers, stores had to be stocked with goods that appealed to those customers.
Sales/Distribution
Specialty apparel retailers sold their products through retail stores, catalogs, and websites.
Manufacturing
Retailers could choose between manufacturing the products they sold and outsourcing the production to vendors.
Advertising/Promotion
Specialty retailers have been using all means of advertising their products to reach the customers. Companies have used television, print, outdoor, and the Internet.
Geographic Region
Specialty apparel retailers operated in domestic and international markets. Most large competitors had some kind of presence abroad.
Technology
Technology used by specialty apparel retailers included e-tailing, interactive kiosks, bar coding, and electronic data interchange.
Competition
Retailing was a fiercely competitive industry. Besides competing with each other, specialty retailers also faced competition from department stores and discount stores.
Describe the Gap’s business-level strategy. How well does the strategy enable the company to meet the challenges presented by this industry?
Gap Inc. strategies are tailoring its store to appeal to unique markets by developing multiple formats and designs. The banana republic stores offer a sophisticated image for an upscale customer seeking modern luxury, whereas Gap stores appeal to a broader demographic of customers. The Old Navy is designed to appeal to families and younger customers by emphasizing fun, fashion, and value through a store experience that aims to be novel
Gap Inc Strategy has been to appeal to its target market by satisfying their needs while re-establishing their business and differentiating their products from one another
Gap competes on the basis of cost leadership and differentiation. This hybrid strategy was implemented based on the retail industry. To deal with the competition they differentiate its products.
Supply Chain optimization
Gap continued to transform its supply chain using their economies of scale to drive efficiency and flexibility. This included aggressively buying fabric across divisions providing faster product delivery to stores and implementation, more discipline in internal work process
Inventory management
Gap does not carry much replenishing inventory in stores therefore much of the inventory is maintained in the company’s distribution centers in USA, Canada England and The Netherlands. And distribution centers operated by their partners in Europe and Japan
Human Resources
They always attract and retain best talent in retail industry. They always utilize the Breadth and depth of the talent within allowing them to explore and develop new ideas for the future while also running day to day business. They created a culture that inspire creativity and entrepreneurial ability
Growth opportunities in the existing and in new operations
Gap pays attention on providing compelling products in engaging in environment while strengthening the operations as well as growth opportunities in Gap, banana republic and Old Navy. They pursed new initiatives that fuel growth over long term. They always strive to deliver superior value for the shareholders thru revenue and earnings growth as well as dividends.
They expanded into the plus size market a likely extension of its customer base. They also expanded its product line to involve house goods such as picture frames rugs and bed décor
Their main concern was to improve customer service. And, they developed an innovative approach to achieve success. They also changed the recruiting of sales staff and trained them more efficiently and effectively to handled the customer service function. This was a vibrant move. They also met customer needs by providing “trend right “approach product in easy to shop environments.
How it faces the challenges in the industry
GAP uses multichannel strategy.
Company saw its bricks-and-mortar stores not as an impediment, as many Internet pure-plays liked to assert, but as a key asset that it could leverage to give consumers a complete shopping experience:
Consumers benefited in several ways:
Customers could return products to stores even if they bought them online.
Banana republic offered free alterations.
Customers could do product research first on the Web and then buy at brick-and-mortar store. Customers were more comfortable buying online because of GAP’s well-established brand and reputation
Creating value: economics of internet based commerce.
Gap was concentrating on satisfying the customers and creating more values for them.
Gap created emotional connections between customers through inspiring product design.
Incentives, great return policy, alterations and in-store promotions made customers more satisfied with the brand and created more value for them.
Compare the business level strategies of each of the major competitors in the Gap market. What are the relative advantages and disadvantages of each firm? Are the advantages sustainable over time?
The main business level strategies of each of the major competitors of Gap are Competitive Advantage, Low-cost Differentiation, Competitive Scope, Broad Target, Narrow Target, Cost leadership, Differentiation, Cost Focus Differentiation
Firms must offer relatively standardized products with features or characteristics that are acceptable to customers at the lowest competitive price. Firms must consider their value chain of primary and secondary activities, economies of scale and link those activities to implement a cost leadership strategy. The new CEO of Gap Inc, Paul Pressler, and the new president of the Gap U.S., Gary Muto, were faced with various alternatives in order to put the company ahead of competition. Both alternatives focused on customers, existing and new and the mix of products offered to them. Both maintained that changes were needed. Each one, however, had a different view on what exactly needed to be done.
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The advantages of this strategy are to extend the customers base. It proposed that the Gap would target the plus size markets. In a sense Gap should offer the same mix of products such as clothing, accessories and the body care products to an expanded customer base. The benefits of these alternatives were that Gap would get into major unsaturated markets with substantial growth opportunities. The industry under study sells a variety of clothing, accessories and body care products of all genders, ages, sizes and income levels. Their decisions to buy are influenced by the number of different factors such as price, style, quality of the fabric and color.
Product is sold through retail stores, catalogs, and companies’ websites. All customers groups have different preference as to where they like to buy. A number of factors influence those decisions. For some, convenience or speed may be important; others like to spend time doing their shopping and enjoy.
The strategy is to maintain the same customer’s base and to extend the product line offered to them. Besides, jeans, casual wear, active wear etc, Gap would also offer various goods such as pictures frames throw rugs, pillows sheets etc. The advantage of this alternative was that Gap would be stretching the brand that was widely known and identified with quality
The main two advantages are; one is to get into major un-statured market with substantial growth opportunity and another is wider range of product and stretching the brand. For the time being the both advantages are sustainable, however in order to stay in competitive market the strategy has to be modified based on the market trend.
Which of the two strategic options presented at the end of the case should the Gap pursue in the future? Why? Which strategy better allows The Gap to compete effectively? And at the same time to limit imitation?
Gap Inc. pursed a hybrid strategy option containing elements both cost leadership and differentiation customer as defined by Porter. It relied strong brand differentiona and had made considerable investment in brand image as well as services.
At the same time the strategy also contained several characteristics affiliated with the cost leadership approach including economies of scale and scope, simple product designs, and low cost distribution.
The alternative option presented to extend the customer base. In this connection, it proposed the plus sizes (16-26) and extended plus sizes. In order to expanded customer base, it offered same mix of products such as clothing, accessories and body care products.
The benefit of this alternative was it would get major unsaturated markets with substantial growth opportunities.
This alternative was feasible because of the brand recognition of Gap had in the market which could be extended into a new customer groups, and widely recognized high quality Gap products.
This alternative could also win against competition due to having a good relationship with venders and produce as the quality and size requested. Beside this could also be winning strategy because the competitors such as Wal-mart, Target, H & M and Macy’s were offered only a limited selection of such products and poor quality and styles whereas Gap was known as classic and comfortable styles and high quality and durable fabrics. Since Gap had its own brand name where as other were just in beginning and started to build a brand name.
The second alternative was to maintain the same customer base and to extend the product line offered to them. Besides the regular offered such as jeans, casual wear, sleepwear, active wear, it also offered home goods such as picture frames, pillowcase, towels, comforters etc.
Benefit of this alternative was it stretched its brand that was widely known and identified with quality.
This alternative was also feasible because Gap could use the experience of its sister division, banana republic to better plan and executive this strategy. Similarly, Gap could also access the reliable vender of banana republic with supplying high standard product.
Through this strategy, Gap would be able to win against the competition because the company would be able to offer a broader range of products than most of its competitors. The only Discounters and Departmental stores were offered wider range of products but they are lacked in quality compare to Gap. In terms of quality, Gap was better than Wal-mart, Target, J.C. Penny or Macy’s because Gap has established one to one relationship with customers and offer reliable customer services and product information. It’s also using a recognized brand name and images to market its product. Where as competitors was beginning to build their brand.
The drawbacks of this strategy was stretching a new product a lot may chances of diminishing the quality of product. In addition, required a valuable store space, which cost a lot for company.
As the competition in cloth industry was continued to increase and company was facing problem of absence of merchandized and logistics. In order to compete in the competitive market, and get ride off the problem and maintain own status in the market, Gap changed its management and the new management offered above stated two alternative strategies.
Both alternative strategies seemed worth for Gap to improve its market. However both alternatives have advantages and disadvantages, nevertheless both has presented the views about how to achieve the same results of maintaining and increasing the market share and getting ahead of the competitors. However, if we see the income statement of Gap of last three years, i.e. 2000, 2001 and 2002, the net profit is going to decrease year by year. In this periphery, management has to study both alternatives in depth at the same time to be discovered more alternatives in other strategic area to stay in competitive market.
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