Marketing Challenges in Old Navy - Case Study Example

MARKETING-PROBLEM DEFINITION Introduction This paper will define a problem in the Apparel Retail product brand, namely Old Navy. There are a number of problems that such retailers face such as competition from other retailers, declining sales, decreasing market share, changes in the environment and technology, raw material availability, high labor costs, and many more. In this paper we will discuss all these briefly generally. We will then examine the one problem in detail that Old Navy is facing; declining sales, which will be important enough as to design a research plan based on it. Discussion Old Navy The brand that I have chosen to analyze is Old Navy, one of the four fashion retail brands of Gap Inc. Before I start talking about Old Navy as a brand, it is important to for us to study the company that manufactures it. As mentioned above, Gap Inc. is the parent company of Old Navy. Gap opened its first store in San Francisco in the summer of 1969 and today, it has over 3100 stores and is one of the largest specialty retailers in the world (Gap Inc., 2008). The net sales of Gap Inc. decreased to $15.8 billion in 2007 from 15.9 billion. The net earnings in 2007 increased to $833 million (Gap Inc., 2008). Gap has always provided trendy yet reasonably priced clothes to its customers. As it holds, “Gap makes it easier to buy a pair of jeans”. It does this through its four operations: Banana Republic, Piper Lime, Gap and Old Navy. For over a decade, (founded in 1994), Old Navy is known to make casual yet trendy apparel for women, men, girls, boys, baby girls and baby boys. It also makes shoes and accessories but we will overlook that, for our purpose. Old Navy focuses on the family. The target audience of Old Navy, however, is the trend driven teenagers with a budget, a casual man, a mother who shops for the family. The clothing at Old Navy is more reasonable than all the other Gap subsidiaries. The most popular products at Old Navy are its tech vests and its fleece. It recently launched a ‘women’s plus’ line which is exclusively made as an online product (Gap, 2008). This has said to generate a significant volume of online sales for them. It also started a bath and body line, ONBody, which later slumped due to its failure with the customers. As far as promotion is concerned, Old Navy has a special item on sale each week which is known as the ‘Item of the Week.’ (Gap Inc, 2008). It has much-talked-about advertising campaigns. They are rather different from the usual Gap campaigns. These ones focus more on the family. Other information about Old Navy that we may need to consider in our problem definition is that it has had a recent change in management. The president of the company was replaced in 2006 to accommodate a new one, Tom Wyatt. Problem It is evident from our discussion above that Gap is experiencing a decline in sales. Other than that, Old Navy had to plummet all its efforts on its ONBody line. According to another article from the year 2000, “Gap Inc. has gone from bad to worse”. Its shares dropped to $27, which was a 14% low. The problem was mainly associated with its Old Navy operations, with a significant decrease in sales (Emert, C., 2000). Today, Gap is not any less different. It is still dealing with problems. Its sales are still declining. Analysts, surveyed by Retail Metrics, projected an 8.2 percent drop in sales. Gap, however, saw an 11 percent decline in same-store sales. It was even worse than the projection. On the other hand, the Old Navy decrease was more than twice as steep as the 11 percent that had been projected (Burke, H., 2008). According to its annual report, there are a number of potential risk factors that may limit or change the Gap results in its forward –looking statements. This must mean that Gap fears all those risks that may have caused it to go down in the past. The most grave of all these is unable to satisfy the customer and depending too much on customer spending patters, which in turn are effected by many other factors (Gap Inc., 2008) General Problems Generally, declining sales is always an indication of consumers not buying enough products. There could be many reasons for this. The market today has become a consumer’s market and consumers have a lot to choose from. Therefore, competition has increased. Competition is definitely a problem with Old Navy. There are many other national and international brands that provide trendy clothes at great prices and “make it easier to buy a pair of jeans.” In addition to this, consumers may possibly not consume because they do not have enough income to spend on items that are not necessary. This may not hold true for Old Navy because the items at the store are already reasonably priced. In times of depressions and hence unemployment, which is evident in the US today, people are likely to go to stores like Old Navy which provide cheaper products. Nonetheless, a change in the economy is always a threat. Consumers may also not buy a product because it fails to give them what they need and desire. This may be true for fashion retailers. They may not be able to gauge fashion trends. With the advent of so many different brands, these retailers may somewhat fail to provide its customers with great quality, high-end fashion products. Problems at Old Navy However, the opposite is happening with Old Navy. It is said to be losing customers because it has become too much of a fashion brand. There has been a plunge of about 24%. According to a news article, shoppers have rejected products at the Old Navy because they are not so safe anymore. The shoppers were not very enthusiastic bout the new collection along with new “slick” advertisements. Like I mentioned earlier, the target audiences of Old Navy are simple and very average people who like to buy casual items. These include mothers and middle aged casual men. With Old Navy focusing too much on fashion for the younger women, it is ignoring the desires of its core shopper (Sage, A., 2008). Its attempts at making high-fashion items were in response to flat sales of the past three years. The plan of focusing on fashion obviously backfired and did not work so well for Old Navy. As a result, it had to face inventory build-ups. It is important to note that Old Navy, at this time, is a company in transition. It has had a change in management. This may, somehow, have affected the change in the decision to produce in a different scope, even thought the new president has been successful at changing product turnarounds (Sage, A., 2008). Old Navy faces problem in product and brand differentiation. It has be en established already that the competition that the brand faces is immense. This competition is not just from local brands but there is also pressure from foreign trendier brands. In such a situation, it must be important for any company to sustain its brand image in the minds of its customers. More importantly, companies must have the ability to differentiate its brand from other rivals such as Wal-mart, kohl and Target Corp. Old navy, unfortunately, is having a problem with this (Sage, A., 2008). Old Navy is also facing problems with providing the kind of clothing an average American wants effortlessly (Sage, A., 2008). This may be because it is not able to gauge who its core customers are. Even it has been successful in identifying its customers and maybe even potential ones, it does not know what they want today. However, according to the parent company, it is determined to find a balance between fashion and basics. Implications The problem that Old Navy is facing, that is, declining sales is the consequence of all the other problems at Old Navy. Declining sales along with its other causing problems have implications for the company. There is so much that they can learn from all the problems they are dealing with. Once the problem has been identified, it is important to know how it can help the company. There are different suggestions and implications for Old Navy. Marketing Implications One of the reasons why sales at the Old Navy have gone down are because suddenly, Old Navy apparel has become too fashionable for its core customers. They have been marketing these products relevantly also. Previously, Old Navy focused on family values in its adverts. Lately, it has gone all ‘slick’ on its customers by making television commercials to go with their products. The implications that this has for marketing is that the marketing style and scope must be changed back to what it was previously. The core customer is the most important for any firm. It is this customer that makes the firm what it is. Old Navy might want to value what its core customers require. For this reason, it should find a balance and create adverts and design promotional campaigns that will reflect this balance, so that its average customer gets trendy yet safe clothes. More important than creating the right kind of advertising campaigns, Old Navy must focus on brand differentiation and bran equity. Some people say that it is just gambling away its brand. For this reason, it needs to remind its customers once again what Old navy is all about. It needs to tattoo its brand in the heads of its customers again. Production Implications This is the most obvious implication that arises as the result of all our earlier discussions. It is clear for Old Navy to see that it needs to change its production to meet actual customer demands. It has been facing inventory build ups. Therefore, production must be done at a level that is actually required. This will only be possible if they can first forecast their sales accurately. The company started merchandising goods that confused the customers. Production was differently (in terms of design) under a new designer that was hired by Old Navy. All these efforts caused product turnarounds; however, it damaged the core customer and produced goods they did not wish to buy. Therefore, production style must be balanced between trends and basics also. The average man still wants a trademark Old navy tee shirt and cargo pants. Personnel Implications There is not much to suggest what Old Navy can do about this. However, Old Navy has had a change of presidents. Because of this transition, there will be other changes in the company. There will be new design philosophies, and new ways of doing thinsg, maybe even new technology. As a result some of the employees and workers at Old Navy may be lost. Maybe some were more accustomed to the leadership styles of the former president. For these reasons, the new management along with the new leader must ensure that all the workers are satisfied and more importantly inspired as a result of change, and by their new leader. If not, they have to be motivated to work at the level that they are capable of. Conclusion Gap and Old Navy both make trendy clothes but at extremely reasonable prices. These are brands for everyone and that is what had them going until they stopped making what their customers wanted, frittered away their brand equity and started giving mixed messages in the form of changed advertisements. All these directly resulted in a decline of sales of 24%. These problems have many implications for the company. They should try and identify what their customers actually want to buy rather than only following trends. In addition to this, they must recreate their brand image in the minds of their customers. They might also find it useful to support the people of the organization through its transition. REFERENCES Burke, Heather. “Gap, Old Navy sales slide.” The Philadelphia Inquirer Oct 2008. Philly.com. Oct 15, 2008. http://www.philly.com/inquirer/business/20081010_Gap__Old_Navy_sales_slide.html Emert, Carol. “Gap's Earnings Sink Again as Old Navy Unit Underperforms” San Francisco Chronicle Aug. 2000. B2. Gap. 2008. Oct 15, 2008 < http://www.gap.com/> Gap Inc. “We are Gap Inc. 2007 Annual Report.” 2008. Oct 15, 2008. Sage, Alexandria. “Old Navy sales the victim of too much fashion”. Reuters April 2008. Thomson Reuters. Oct 15, 2008. http://www.reuters.com/article/ousiv/idUSN1319750620080413?pageNumber=2&virtualBrandChannel=0 Read More