Managing Organization: Gap Inc - Case Study Example

Managing Organization: Gap Inc Question 1 Gap Inc is amongst the largest clothing retailers in the world. They own the banana republic, Forth & Towne, and the Old Navy companies. They specialize in apparel and design, offering clothing for the whole family. The Gap industries have developed the Potter’s five forces model to focus and fight on the competitiveness in the market place. The five forces models have helped the company determine its attractiveness, showing its relationship with competitors, suppliers, and buyers within the industry as stated in Porter (2003, p.130). This information has enabled investors to develop an internalized analysis of the competitiveness of the company. This has further enabled the investors create new strategies, plans and investing decisions to be used. The model strategies include: fighting against rival firms, dealing with the treats of substation, dealing with the treats of new entrants, checking on the power, and considering the power of the buyer. Rivalry against existing firms: The Gap clothing company has adopted some aspects of rivalry among firms by considering the size of the firms, product /service range, the industry size and tread and the different strategies these other companies use. The existing rival firms include the American eagle, TJ Maxx, and Abercrombie & Fitch (Bob, 1995, p.50). Gap Company seeks to gain a larger share of the market through switching costs to consumers is low. This is due to the Gap’s top competitors TJ Maxx who competes on price only. Gap is finding a way to re established a wider range of consumers who are loyal to the brand. It has created such higher end clothing outlets as banana republic, Old Navy, and Forth & Towne. Threat of New Entrants The treats associated with new entrants include barriers to entry, switching costs, access to distribution brand equity, and the government policies. While have a number of competitors in the fashion industry as an introduction of new brands as Polo, Lacoste Tommy Hilfiger. These companies sell their clothing to department stores like Dillard’s. Competition is high because their switching costs are so low. Gap has an advantage since capital for starting up such industries is high. New entrances will initially suffer from cost disadvantage from existing firms such as GAP Inc as stated in the Gap (2005, p.17). The threat of new entrants is there, but it is hard and expensive to match the shares Gap has in the market. Threat of Substitute Products: Substitute products influence the buyer propensity to substitute. The price of substitute’s products is relatively, and Gap experiences the problem. Gap has thus reestablished a larger group of brand loyalists using their “back to basics” simplistic style. This is what the consumers that consumers had known and loved. Another way Gap fights this is the introduction of their other brands like the Old Navy. Brand loyalists will buy a particular brand regardless of the price. The Old Navy brands offered at lower costs, is stylish, and thus does not face the threat of substitute products (The Gap, Annual Report, 2005, p.45) Bargaining Power of Buyers/Customers: The bargaining power of customers determines the price of a commodity. Gap Company is not a price competitive industry thus offer moderate prices. The Price of a commodity is highly sensitive, but the majority of the buyers will to pay for Gap's moderate priced clothing. These moderate prices accommodate customers with less spending power compared to other cloth companies. Gap Inc.’s prices are lower than Abercrombie & Fitch, and Buckle. The quality and brand name, and price of Gap Inc are relatively high leading to high bargaining power of customers. Bargaining Power of Suppliers: Bargaining power of suppliers is a fundamental aspect of Gap Inc. If not properly calculated, there could be excess cost and high inventory. With the numerous suppliers of fabrics and other materials, the Gap Company prefers to do shopping for the manufacturer's cloth and their ability to design according to their standards. With the high quality, brand image Gap Inc. has real power over their suppliers. Question 2- how the company positions itself to achieve competitive advantage Michael potter describes the three strategies used to analyze the competitive advantage of a business. These strategies include the segmentation strategy, differentiation strategy and the cost leadership strategy. Gap Inc. is a highly competitive clothing retail industry. The Gap is implementing technology containing intrinsic competitive advantages that give the corporation a head up on the competition. The GAP will now be able to access inventory data easily through a handheld device. According to Sullivan (2011, p.44), this technology has improved communication between locations and branches, has a more convenient way of shopping in case a customer needs a product not found in a given branch. The segmentation strategy of having different branches with effective communication widens their market. Analysts monitor the sales reports and determine which stores needs restocking and the particular product that needs restocking. The replenishment shipments occur once or three times a week depending on the sales. The process goes on until the season ends. Customers have is a lifetime experience, which has increase customer retention and highly generating profits. The Gap has a Website that advances expansion. It has a differentiation strategy with the slogan of encouraging people to know their selves and celebrate their uniqueness. Gap Company focuses on serving people of all ages, not just teens and young adults, and people of low purchasing power. This seen in their friendly commodities cost enhanced by the cost leadership strategy. This starts with Gap designers who not only focus on design but culture too. Designers participate in fashion shows to get the actual idea of what different target segments in market prefers. After participation, the designers work together with a focus of translating the gained inspirations of new design into reality. (The Gap, Annual Report, 2005, p.22) asserts that The Gap Inc. experiences competition from Abercrombie & Fitch and the American eagle Company. Management of the company has been the key factor as customer feedback highly put into consideration as Gap aims at committing itself to customer satisfaction. Question 3- How does the company deliver on the competitive strategies The Gap clothing company has adopted various approaches to deliver on the competitive strategies. This paper discusses the value-chain management approach, the turnaround / retrenchment strategies, and methods of growth. Value chain management (Potters) Potter develops a system of separating the business system into a series of value generating activities called the “chain value.” This system enables the better understanding of business activities that enable it to gain its competitive advantage. Inbound logistics, operations. Outbound logistics, marketing and sales, and services provide a form the primary support activities that lead to a business gaining its advantage competitiveness. Gap’s investment in brand image is the most noteworthy aspect of the value chain management. Gap Inc. is recovering from a wrong decision in value- chain management in 2000 (Porter 2003), To achieve and sustain competitive advantage, GAP Inc. sticks to its foundation and structure in order to supply chain in an a consistent manner. Gap has implementing a polished product differentiation strategy, with a strong focus on brand development and unique advertisement. Gap Inc. has grown wide from the point of being a small shop in California; having undergone many challenges, and learnt many lessons. Gap Inc. or any of its subsidiaries, for example, do not tailor baby boomers. They create their own broad image they do not rely on celebrity status. Gap Inc. strictly adheres to high quality, basic, casual clothing. It creates to deliver to the various classes of people. Having realized that they are in the world where consumers are interested in fashion, and consider the moderate price too, they minimize labor costs thus being able to keep production cost down and remain competitive. Turnaround / retrenchment strategies In the 1990s, Gap Inc. was in perfect relationship with American pop culture and tastes. The brands were affordable, stylish, and everyone was wearing Gap clothing. Majority of the people had latest pair of khakis or a cardigan from Gap. Gap Inc., a blue jeans retailer founded as a San Francisco in 1969 by Doris and Don Fisher. They had a vision of making it effortless for customers to find a pair of jeans (Rothstein, 1995, p.100). The Fishers expanded their company during the 1970s by adding active wear. This increased the number of consumers, and it went into public in 1976. Millard “Mickey” Drexler hired, as the company is present in 1983 and made a rapid expansion. Millard developed a combination of acquisitions, new ventures, and strategies that transformed Gap from a company with annual revenues of $400 million to $14 billion annually. Its stores increased from 450 stores in 1983 to 2,000 stores in 2002. As of 2010, Gap’s five brands included Gap, banana republic, Piper lime, Old Navy, and Athleta. Paul Pressler was the new CEO of the company in 2002, resigned in 2007, and replaced by Glen Murphy. These CEOs implemented turnaround strategies that produced positive results. The 2002 turnaround strategy successfully eliminated all long-term debt by 2007. The company’s turnaround strategy launched in 2007 aimed at improving Gaps quality by expanding internationally. He aimed at changing the quality, style and the image of Gulf. In 2008, Gap opened stores in Middle East (Bob, 1995, p.120). The company’s profit improved in 2009, its annual revenues continued the decline that began in 2005. This decline brought about by with the company’s rapid expansion, which created a long-term debt of nearly $3 billion. There was a decline in the store sales in all the branches including the U.S. International Gap, banana republic, and Old Navy Stores. The decline approximated at 5%, 7%, 4%, and 12% in the year 2005, 2006, 2007, 2008, and 2009. During the first quarter of 2010, Comparable-store sales had improved slightly. The Gap stores had 2% increase comparable-store sales while banana republic comparable-store sales improved by 5 % between the first quarter of 2009 and the first quarter of 2010. The Old Navy comparable- store sales in the first quarter of 2010 improved by 7 % over the same quarter in 2009. International sales have not changed from the first quarter of 2009 to the first quarter of 2010. The slight improvement in comparable-store sales is a sign of the Gap’s latest turnaround strategy. This facilitated by the gradual improvement of the US economy, which had declined since 2008 and grew by 2.7 % during the first quarter of 2010 (The Gap, Annual Report, 2005). Methods of growth Gap Inc. provides a comprehensive business update showing its vision of building momentum in its growth strategies. It also addresses product and marketing changes in progress in its North America business. Gulf has about 3,100 company-operated stores and 200 franchise stores in 36 countries. It also foresees the online order shipping to an average of 90 companies. The company has a dream of increasing the total sales and in North America to about 30 % by 2013. To achieve this, the GAP Company has developed growth strategies as: • A formula for international growth The Gap Inc. International President is Stephen Sunnucks. He outlines the open opportunities for the company to grow internationally. The company enters with brand-building flagship stores and smaller stores in outlying areas. It also creates an online expression of the brand. • Online investments aimed at expanding market share The Gap Inc. Direct President Toby Lenk has a vision of getting $1.5 billion in revenue by the end of 2012. He aims at reaching $2 billion in revenue with an operating income of $500 million by the end of fiscal 2014. Athleta, one of Gaps outlets expected to grow to 10 stores in North America by the end 2011 and to have 50 stores by the end of fiscal 2013. Other methods of growth include new product categories and faster product pipeline in place, improving productivity of North American real estate to reduce square footage in North America, Financial outlook and strong long-term strategy by rebuilding its financial performance. The company has developed Forward-Looking Statements that act in the safe harbor as described by Patrick & Talbot (1996, p.90). Private Securities Litigation Reform Act of 2005 has a provision of the statements those forward-looking statements: • Growth strategy through multiple brands, channels and geographies; • Future revenue mix between North America, international and online; • International growth and creation of more companies in China, Europe, and Japan. Expanding franchise worldwide; expansion of the old navy and international online expansion. • Overall consistency, including in products, marketing, execution, and results; • Maintaining expense discipline; • Rebuilding financial performance; • Future online revenue and operating income; • Online ship-from-store expansion and impact; • Mobile commenced initiatives and impact, including multichannel initiatives; • Product improvements; • Future marketing initiatives and spending; and store remodels. In conclusion, Gap clothing company has is a selling opportunity. It is clothing retail industry that is intensely competitive to its high number of competitors. Gap clothing company characterized by its emphasis on differentiation, and not cost leader ship, which in with quality management stands strong in the competitive clothing industry. References ‘The Gap Press Release’, 1995, reported in Business Wire Information Services. Bob, H 1995, ‘Not a Living Wage, (Op-Ed)’, New York Times. July 24. Patrick, J & Talbot, R 1996, Hoover’s Handbook of American Companies, Austin, TX, The Reference Press. Porter, M 2003, Competitive Strategy: Techniques for Analyzing Industries and Competitors Rothstein, R1995, ‘USAID Teaching El Salvador How to Suppress Labor’, The Sacramento Bee, (Final Edition). Share, and Business Performance’, Industrial Management, May 1, pp 23-28. Sullivan, E. A, 2011, Marketing News, Vol. 45 (15), pp 44. The Gap, Annual Report, 2005. Women's Wear Daily, 2/3/2012, Vol. 203 Issue 23, p5-1, 1p Zaczkiewicz, A 2005, WWD: Women's Wear Daily. Vol. 189 Issue 134, p2-2, 1/4p Read More