Corporate Strategy at Gap Incorporated - Case Study Example

A renowned multi-billion dollar corporation that specializes in fashion retailing - Gap Inc. has made its globally by extending into 4 major brands namely Gap, Banana Republic, Old Navy and Forth & Towne. Doris and Don Fisher began to invade the United States fashion industry in 1969 just because of the Doris flare for the perfect fit of jeans on him. He was determined to deliver fashion items that give comfort another aspect with style and class. This promulgated a very important feature in the industry that has been operating for more than 35 years and have tapped the other countries such as United Kingdom and Japan. One of their major external objectives is to ensure profitable earnings and lasting worth to all their shareholders. Despite the increase in the companys growth, Gap Inc. continues to harness their strengths and as proof - early this year, Gap Inc. announced their offer of $1.2 million shares of stock on the New York and Pacific Stock Exchanges. With merchandise that is wide and deep crossing all needs of Men, Women and even kids, they have consummated the market to trust the quality of their merchandise by delivering only the best selection of fashion styles and fits. It has been a leader in the specialty retailing industry and ever since their first store located in San Francisco they now have more than 3,000 stores all around the globe. Approximately, the company grows by 34 % as they accommodate new hires to be able to deliver the demands of the market. To date, Gap Inc. has more than 150,000 employees all across the globe that make it possible to demonstrate their dedication to offer special and personal fashion styles throughout the different stages in a persons life. Gap Inc. has made its own statue and place in the industry and it is inevitable to believe that the main reason they have lived on for this long is because they have corporate strategies that help them deliver the results they aspire for at the beginning of each fiscal year and relative to the main vision and mission of the corporation since 1969. Corporate strategy is vital in the company because it dictates their position in the market and how they shall be able to maintain and improve their state because each and every industry, most especially in the fashion industry, competition will always be closely around the corners and new blood may at anytime replace what we have at present. In other words, competitive strategy is the foundation of the financial grace that Gap Inc. has gained throughout the years and this paper shall ensure that these strategies are well-rounded, complete and balanced. After all, one of their major values should direct their corporate decisions to a balanced working environment, internally and that shall be explicitly recognized externally when they have fulfilled such. They are guided by the core values of integrity, respect, open-mindedness, quality and balance to create a working environment that caters to not only profitable monetary gains but also to be "socially responsible" in all steps the corporation makes. Since they are indeed a specialty shop, they absolutely do not manufacture their own merchandise and sourcing is their major business operation. Gap Inc. is dedicated to continuously improve their working environment to be able to give their employees what is justly theirs and perhaps even more. In line with this, the company keeps a detailed requirement in selecting their manufacturers all over the world that they abide by their Code of Vendor Conduct to ensure that they are dealing with suppliers who are at par with their values and guidelines relative to work ethics. This in line with their constant efforts in making a difference in the lives of workers at sweatshops and bring dignity and recognition that is due these garment factory workers. Gap Inc. is an active member of Ethical Trading Initiative (ETI) and Social Accountability International (SAI) to be able to commence their care and concern for their suppliers and their respective workers. This specialty retailing corporation has recently adapted a more intense and efficient factory monitoring and labor standards in all apparel businesses and indirectly there are able to uplift and improve the finished goods of their suppliers. It is ensured that manufacturers are visited once in the fiscal year by more than 90 full-time dedicated employees so they are able to create a business relationship that is intimate, sincere and efficient which shall be able to cater to the expectations of the market and give to the customer more than what they are expecting to see from the company in the next season. Information gathered states that in 2004, these employees have made 6,750 factory visits in 2,672 manufacturing sites that Gap Inc. works closely with as their main suppliers of their merchandise. Factory monitoring is the root for the success of the merchandise that is presented to the market. This is the reason why Gap Inc. seizes to put importance on the vitality of this process. They have Vendor Compliance Officers who are solely responsible for all occurrences during the manufacturing of their specified orders and are bounded by the Code of Vendor Conduct as well from the very onset of their business deal. Since Gap Inc. believes in the personal touch even in business transactions, they make it a point to engage these employees in being accustomed to the geographical demands of their jobs. They should be able to mesh with their assigned regions language, culture and history so they will be able to create a healthy business relationship with all their endeavors to come up with results as expected from them. All these officers are also tuned to making the lives of each and every factory worker comfortable and worthwhile. Relative to this business implication, a corporate strategy is likewise brought to our attention – the SOCIO-TECHNICAL approach. From the very of the commencement of their retailing business, they are able to curtail the fallout of their merchandise and they can easily implement QUALITY CONTROL MANAGEMENT and measures. This approach entails the specifications on giving attention the primary workers in the company who are considered at entry-levels because they conduct the hands-on actual production of the merchandise that shall determine the brand being carried. Gap Inc. uses this approach to disseminate proper guidelines in carrying out an efficient result even from the very beginning of the process. This strategy ensures that the workers are satisfied with the compensation and they are willing to go the extra mile to act upon their jobs accordingly as if it were there own. When the workers are satisfied and contented with their job it is scientifically proven that they are able to fabricate outcomes as projected and preferred. They are able to put their full attention and dedication to their work and in the process they shall reap results even without much effort and difficulty. There is a 2-path process that these officers are most concerned about in carrying out their responsibilities. The first is the initial factory approval. This process includes the garment manufacturers themselves, the factories they shall operate and their subcontractors, if any. A series of application steps are taken to be able to guarantee the suppliers taken; sample tests are also given for Gap Inc. to secure the results and follow the procedure as strictly and delicately as possible. Length of process is never tagged because it may take a week up to a year so that the selection is completed. Management employs a sourcing team that initiates the canvassing and with such a reputation, most often than not, the suppliers themselves approach the team and yield to be included in the application list. The sourcing team is trained momentously to engage themselves in suppliers who shall be at par with the qualifications that they have set. It is of great importance that the supplier retains a reputable and trustworthy position in the industry that could be determined by the past jobs they have done and the companies they have worked with. Additional to that, the Gap’s sourcing team immediately eliminates anyone who they deem to be unfit with their standards and they carry on until they have met a perfect match for their requirements. Though just like any other business, the standards are made to be strictly followed. However, it is inevitable that when some unwanted circumstances arise, such as time pressure, the sourcing team tend to settle for anything closest to their exact standard. These are instances that must be avoided so the level of standard and quality of the company’s merchandise will not be jeopardized. There is a compliance agreement with which the Code of Vendor Conduct is attached. This written agreement seals the business relationship between Gap Inc. and the supplier in terms of terms and conditions of the project. The Vendor Compliance Officer conducts an inspection in the factories of those suppliers who have signed the written agreement already and gives a written assessment to the Head Office regarding their recommendations as they are guided by the Code of Vendor Conduct. The Global Compliance Staff is situated at the Head Office in New York who appraises the recommendations and he either approves the order or rejects the application. The second is the on-going monitoring. The VOC makes it a point that the vendor is complying with the agreement and that they are able to produce as what they have agreed to do so. They may scrutinize the factories and because Gap Inc. is very much concerned with the workers, they can retrieve the agreement if the code is violated such as Forced Labor and the like are proven present in the process. Lastly, the factories are rated upon completion of work and records shall determine whether they could be accommodated once again or not. They use the 1-5 ratings that are documented and open to all sourcing teams for further reference. The process of retailing is rather a tedious job as compared to manufacturing because in the industry as a whole, Gap Inc. acts the mediator between the actual source and the end consumer. There are deemed to take note of concerns of both parties even though they may share the total opposite of perspectives. Product designers are primarily responsible for promulgating the process of producing the merchandise. They are tasked to use their creativity and translate their fashion sense thru their major responsibility- merchandise assortment. Gap Inc. retains a Product Development team that can enhance their inspirations and collaborated through drawings, swatches and color palettes. They are encouraged to be inspired by visiting different places around the world, most especially the fashion capitals in the world like Paris, Milan and the like. They also watch fashion shows and the mere observation of the people, keep them linked to their job description. When actual abstracted concepts make out concrete forms of clothing, then the designs are assorted per department (e.g.: Women’s pants, children’s dresses, etc.). The product assortments are categorized according to the clientele that they have built. Gap Inc. caters to all ages and both genders therefore they have a clientele that is very diverse. However, with the 4 different brands, they refer to various target markets as well. As soon as they are labeled and organized, then they are given to the in-house patternmakers. It is most efficient that they hire their own patternmakers because it would save the company the resource to retain a patternmaker specifically for sampling purposes only also with the risk of “leakage” in the industry of the up and coming merchandise of the business. Gap Inc. prepares their collection a year before the actual; therefore they also consult Forecasting services. This incurs additional expenditure for the company for they hire the expertise of companies to be inculcated in what the Product Designer’s inspirations. This plays at least 1% of their expenses for the fiscal year – it is absorbed the allocated budget prepared for Designer’s Department of the Company and it is further distributed among the 4 brands and their respective departments. Chain is now lengthened by the Merchandisers as they are assisted by the Planning and Distribution Specialists in quantifying the merchandise per style and color. The quantities are guided by the former to dictate the actual need of each store all over the world and how they should be able to attain stocks of each specific merchandise – also guided by their individual target markets and sales reports. The Merchandise managers shall now task the Buyers to coordinate with Sourcing Team and procure the production of the merchandise. Following the sourcing guidelines, the Buyer now requests for the samples within a specified duration. Mannequins and models are used to display the samples to be able to get the actual result and fit to a person’s body type. After a series of inspections and scrutinizing on the sample, the approved Purchase Order is sent which shall also state that both parties have agreed on the same terms and conditions. Gap’s Marketing Team coordinates with the vendors and takes a look at the approved samples. From this, a marketing plan is deduced that shall incorporate a marketing mix that shall stabilize the merchandise in their plan and devise a way to reach out to the clientele and have them avail of the product. As the production is being completed, they are exposed to final quality control and if they are set out for delivery, they are packaged as agreed and then shipped to the distribution centers. The distribution centers are scattered per region and Freight Expense is borne by Gap Inc. As they are stored and included in the present inventory, Gap is ready to allocate the merchandise according to the distribution list from the Head Office and each store shall receive what is budgeted for them. During this very same time, the Visual Merchandising team at the Head Office is preparing the guidelines for the floor display of all the stores. They are tasked to make the display as enticing as possible. An important corporate strategy is adapted: DIFFERENTIATION. It is vital that the Visual Merchandisers make a statement in their designs while enhancing the image of the brand. As John Kay(1993) mentioned in his claims, “ Adding value is the central purpose of business activity.” Value is defined as the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm’s net output. The value is seen by showing the individuality and uniqueness of their merchandise even from the display window from all the other stores opening the new season. Another important aspect to be able to be distinguished in this rapidly growing fashion retailing industry is to be able to sustain strong channel cooperation. As we noticed in the process, the key responsibilities are hierarchal and they demand a linear procedure for approval, thus, each and every department is well informed of the job being worked on and everyone could FOCUS on one and the same path. Also, all decision could be commenced on the same result and objective. Since Gap Inc. and for all its brands follow 4 seasons, they are obliged to change the floor setup as each new seasonal delivery comes around. The instructions from the Visual Merchandising Team shall eventually conduct spot checks on their stores although no specific guideline on doing so has been promulgated to date. It could be digested that the Corporation indeed has interrelated positions and this strengthens the union of the brand and shows great effects on the outcome. Gap Inc. is comprised of Gap- “fresh, casual American style”; Old Navy- “fun, fashion and value” ; Banana Republic- “ affordable luxury” and Forthe & Towne- “where lifestyle meets”. Qualified by their own taglines, their descriptive angle of differentiating themselves converge on a very definite thing, they are very much concerned with great service and quality clothing. Price factor is not their strongest point, rather they relish the quality angle of their merchandise wherein they claim that the clients get more than their money’s worth because of the fabrics and manufacturing process their merchandise go through. Gap features classic cuts and items while Old Navy is more graphic and sporty popularized by their performance fleece. Though across all 4, the merchandise could be used for work, casual and sometimes semi-formal, Banana Republic retains as the most luxurious in all because the styles are more elaborate than the first two and the fabrics are more extravagant. This puts a great impact on the tandem of the four that really make up Gap Inc. because its versatility brings the women to a haven wherein they are not restricted to visit because with the variety one way or another, there is an assurance that something will fit jut perfectly for each and every different kind of woman in the market. It is the experience that they are exposing as their asset because this shall help the women cut down on their shopping efforts and coming to one place can actually give them everything they can use as alternatives. The biggest competitor of Gap Inc, would be Abercrombie and Fitch Co.(ANF) and American Eagle Outfitters, Inc. and J.Crew Group Inc. According to the statistics, GPS or Gap Inc. holds at least 300% more of the market share as compared to ANF’s 5.08 B -which is the next largest. The foremost corporate strategy that Gap Inc. uses is the OVERALL COST LEADERSHIP. Indicators of such say that the corporation should have a sustained capital investment and access to capital. ANF started in 1982, and the rest followed respectively and it would be just to claim that GPS was the leader in the American fashion retailing industry as they are considered to be the first to emerge with such store. Though an alarming 135 stores of Gap closed in 2005 that was replaced by 175 new Old Navy stores. There seems to be a problem here because Gap seems to be losing its DIFFERENTIATION from Old Navy, causing much confusion for the market and they are influenced by its striking colors and display for it is more playful than Gap, Gap loses some of its potential clients. Though it should not be an issue when looking at it from a bigger scale of GPS, there is a need to create such strategy so that the company can avoid misuse of income only covers up expenses that just might be logically adapted by another brand, perhaps. Another angle to study is the fact that in 2005, from 2,994 stores it increased to 3,053. In business, the more stores does not necessarily and automatically dictate increased revenues because in all aspects, the opening of a new store still entails additional expenses that may or may not come from net earnings of the company. And the earnings per share increased also in 2005 by $0.3 as it was $ 1.21 in 2004.Moreover, in 2005 the sales of March was 9 % higher than that of last year. According to the Annual Reports, Operating Expenses decreased though the cost of revenue increased from $ 9,886 TO $ 10,154 in 2005 fiscal year. The revenue decreased from $16,267 TO $16,023 in 2005. With this decrease there was an effect in Net Income Available to Common Shares. However, the Total Stockholder Equity increased from $ 4,936 to $ 5,425 last fiscal year. This determinate gives absolute reference to fact that there were more assets acquired in 2005 than 2004. The decrease of Inventory made a difference in the decrease of assets because they were able to dispose of inventory of last seasons that were easily translated to cash but since it was a percentage of the markdowns that they usually conduct whenever they dispose of last season’s stocks, the gain was break even therefore it not bear a difference in the revenue for the present year of sale. The Net Tangible Assets in 2005 rose : $ 5,425 from $ 4,936 as well. Investments increased in 2005 as we have mentioned earlier due to increase in store openings of Old Navy that have brought about a new popularity in the neighborhood. People are not veering away from the classics and since individualism has become a conscious effort, people are inclined to patronizing what is usually graphic and candid. This is a marketing issue that Gap Inc. should pay attention to before it gets out of hand. They lost the positioning of their mother brand and have made Old Navy atop the rest which should have been a branch of the main which is Gap. This weakness of Gap Inc, bounces back to a specific competitive strategy that they must alter – DIFFERENTIATION in Gap in itself lost its ‘creative flair’ when Old Navy came into the picture. Though the former caters to a more ‘rusty’ image there is a sense of uniqueness because a lot of other brands such Ann Taylor have risen to cater to the ones who are seeking for ‘classic’ fashion items. The competitors of Gap can easily absorb this ‘classic’ clientele because it would be very easy to duplicate the former and simply announce a launch of their very own. It will take a while to build such a reputation because it took Gap years to do so but in terms of merchandise, the DIFFERENTIATION and CREATIVE FLAIR will be sacrificed. This is the edge of Old Navy that was optimized and this is the reason why they hold the bulk of $ 6.8 of 2005’s Net sales. Apparently, the international branches of Gap have the least percentage of the whole amount : $ 1.5. Though Gap U.S still remains to be second highest: $ 5.4, the alarming results globally can put a stall to its existence in the U.S though it is a local brand for them. A persistent thought that pushes me to believe that internationally, Gap has lost its clientele, that is because in Asia most especially, the proliferation of the “fakes” are very vast and it is hard to contain such spread. Another issue to look into is the fact that Gap Inc. uses manufacturers from almost 63 countries all over the world and yet they have the bulk of their items made in China. Just a couple years back, China boomed to be the fashion manufacturing capital due to the low cost of labor. However, Gap Inc. supposedly delicately chooses their merchants, still there is a fat chance for a merchandise to be slipped into another’s hand making it possible to create replicas of their very own. Given all these data, it would be best to seize the further implications and rationale for their numerical representations. Gap Inc. carries a scope and range of merchandise that is globally distributed therefore they bear a chunk of Salary Expense. Having this in mind, it’s important that the job descriptions and responsibilities are properly categorized so there will not be a repetition of tasks and this shall save the company at least 60% of their Operating Expenses. It is important the Gap Inc. exercises OVERALL COST STRATEGY and through the readings, it could be said they observe this corporate strategy. With the process that they follow in producing their merchandise it could be said that way to fulfill the first strategy, Gap Inc. has intensive supervision of labor. Additional to this, they devote much of their efforts in ensuring that the workers are well compensated because they made a willed stand for workers that giving them what are due them gives the buyer’s better results. Secondly, there must be sustained capital investment and access to capital. Gap Inc. is not liquid and has acquired or let go of other assets therefore the access to the capital may be to judgmental and rigid for it would be unfair to allow such a financial move when cash will be needed the expansion of Old Navy and Forthe & Throne branches. Another, the low cost in distribution is rather unpredictable because the statistics are inconsistent as well. Internationally, Gap dropped in 2001, increased in 2002 by 17%, increased in 2003 by 42% and decreased in 2005 by 11%. The flow is erratic and it would be best to make each store’s clientele base as accurate as possible, not to mention of it being updated. Differentiation’s strategically comes from STRON MARKETING ABILITIES and PRODUCT ENGINEERING. Being in a retail business, it is to the advantage that product development promulgates from them and they demand what they want off your season without personal relation on them manufacturing aspect of the business. An advantage of Gap is that what sets it apart is that the corporate reputation for quality or technological leadership has been very successful and progressive. Some measures of their corporate strategy come in the form of global focus. It seems as if they have lost touch with expanding internationally and they have stopped looking for other alternatives. They can not seem to get out of the pit whole in the United States because it is considered as the company’s bread and butter. There is also an intelligent use of new technology like there is a Web Conference for people who can not attend the actual annual meeting for the stockholders. With this comfort, people are enticed to believe that Gap Inc. is very much service-oriented and not only to sell solely. It is a major advantage and feature of Gap Inc. that they have made 4 different brands that shall cater to a wider and deep merchandise assortment. However, with the addition, there is a need for a revamp in the Marketing and Advertising Department of the Company. They must explicitly demonstrate the differences amongst the four and slowly they will never be able to contain all in just one brand though they are trying to do that with Forth & Towne, people will still identify themselves with one and the same thing. There is need to steer clear from mixing the clientele, they are meant to be segregated according to what is needed by their lifestyles. The re-defining of the respective and specific market for each of the 4 brands is the best strategy is engage in a more profound distinction of their personality and product designers are more guided as to how they shall portray their own brands to the market. SEGMENTATION of the market would be absolutely detrimental as Gap Inc. is expanding. If they are able to set the parameters for each GAP shall be able to enjoy its recognition as the mother brand. PURCHASE CRITERIA is another parameter that luckily, Gap Inc. has already established. This once again is to the advantage of the company and it should be optimized to assist each brand to be effortlessly recognized as its own. Having those definite purchase criteria for your definite market segment, there will be a free flowing organizational set up in corporation that handles 4 different enormous brands. Gap Inc. has two major weaknesses and I have mentioned the previous on Gap already. The second weakness that I seek as a very detrimental one is the fact that they must reformat their advertisements, particularly their print ads because they need to show that as whole it roots from one main vision that they want to give a new meaning into American Fashion Style that is worth re-introducing globally. The main point of mine, is that they need to veer away from the shadow that all 4 brands are mere sub brands of the other. By identifying a concrete parameter of differentiation amongst the 4 brands and all their other competitors; they may be able to pull up their rates and put their popularity back into the leader’s lounge. The pedestal must be equally fashioned across all 4 brands that Gap Inc. commits to the needs of each unique American and from the 4, there is a freedom of choice and since the alternatives are innately segmented already, the market will lose its confusion along the way and eventually would directly consult their brand loyalty and it would be one of the 4, indeed. No other alternative shall replace their choice and this will be the biggest accomplishment that Gap Inc. has yet to make. Perhaps, they could even re-structure the merchandise assortment for each. Since Gap is fresh and casual, they could put all the cottons and simple casual wear under that brand. For Old Navy, they could contain the sportswear, beach wear and funky fashion items within that brand. It would also help if they use the taglines I posted earlier as they do it online. As for Banana Republic, there is no need to re-assort the merchandise since between the 4, it is most luxurious and the difference is automatically detected through its pricing, therefore there should not be a problem with that. As for Forthe & Towne, given that it is the newest brand, they must try out this year as is but to also include it as one of the choices of Gap Inc.’s target market and not solely of Gap’s or Old Navy’s.   REFERENCES: 1.http://ccbn.mobular.net/ccbn/7/645/696/index.html 2. http://home.att.net/~nickols/competitive_strategy_basics.htm 3. Organizational and Social Perspectives on Information Technology. Richard Baskerville, Jan Stage and Janice Degross. 2000. United States of America. Kluwer Academic Distributors. 4. www.gapinc.com 5. http://finance.yahoo.com/q/co?s=GPS 6.”Exploring Corporate Strategy”. 7th Edition. Read More