Strategy, Analysis, Recommendation, and Implementation of the Company Gap Inc - Essay Example

Strategy, Analysis, Recommendation and Implementation of the Company Gap Inc. Introduction and Transition GAP is a trusted name in the world of fashion and is one of the leading companies in the specialty apparel industry. Since the opening of its first local retail stores in 1976, Gap Incorporated has successfully penetrated the US market and now holds a 26% stake in the industry. Given its prominent status and a large following from loyal customers, much is expected of Gap Incorporated in terms of growth and profitability. Thus, it is necessary for the company to devise effective customer retention programs. Growth opportunities abound elsewhere in the globe and Gap Incorporated should vigorously pursue expansion in international markets given the now saturated US market. Competitors such as Ambercrombie and Fitch are already moving towards this direction. However, given the Company's expertise, it is not yet late to launch the Banana Republic, Old Navy and Forth and Towne brands; and to capture a substantial share in these potential markets. Current Strategies The last five years have been commendable for GAP Incorporated due to the revived customer interest in its product lines. A lot of innovations were introduced in the previous year which reaped rewards for the Company, which includes the following: 1. Notable and foremost was the hiring of new and young designers, to augment and thereby feel the pulse of young customers; 2. Hands-on management of executives, from the centralized procurement of supplies, to ocular visits to the factories; these would ensure that products are manufactured in accordance with the company's penchant for quality, reliability and compliance to set international production standards; 3. The compensation package plus rewards system afforded to deserving executives achieved wonders for the company. In return, extra effort has been rendered, countless hours have been spent so that products could be delivered on time; 4. Massive shop expansion was a very aggressive stance of the company that helped prop-up sales. But some shops are not strategically located, if not poorly thought of, so that upper management decided to close these shops eventually. This hurt the image of Gap Incorporated and also transmitted wrong signals to competitors. Downsizing these shops would have been a better option since these shops are being used also by internet shoppers to pick up orders purchased online. Also, a rewards system for employees was not installed at the company's manufacturing plant. This is necessary in order to boost production and maintain quality standards in the product. Workers are after all the backbone of a company. 5. Increased online purchases really spiced up sales. Recommendation To increase Gap's profitability and create an extended market for its specialty apparel products, the company should expand in other countries. It is important to note that more than half of the world's population is concentrated in Asia which makes countries in this region a large potential market for Gap's various product lines. Furthermore, what is recommended is to adapt the sound and solid strategy employed by Gap Incorporated in the US; but only after some fine tuning stated as follows: 1. All efforts should be geared towards penetrating the Asian market with modifications employed to fit market preferences, i.e. Indonesia, Malaysia and Brunei Darussalam who are fairly conservative people will most probably require simple and conservative clothing as well. The fashion capital of Asia is Hong Kong. Neighboring countries, such as the Philippines, Thailand, Singapore, Japan, South Korea, to name a few do most of their shopping in this former British Colony. So, what is "in" in Hong Kong, will influence the choice of apparel throughout Asia. 2. Hire topnotch Asian designers to collaborate with Gap Incorporated's designers in the US for the development and introduction of new designs or product lines in these new markets. Asian designers would be adept with the style and fashion trends in the region while Gap's designers based in the US would ensure that the Gap-feel remains with the new product lineup. 3. Centralized materials procurement should be maintained, so that product quality is guaranteed. 4. Close and thorough supervision of executives in the manufacturing plants be observed, so that products could be delivered on time. 5. Construct manufacturing plants in Asian countries where labor is cheap, English literacy rate is high and the peace and order situation is stable. Countries like Indonesia, India, Malaysia, Thailand, Philippines or even China are potential sites. 6. Implement an effective advertising campaign that would cut across the target market or segments of Gap's brands. Frequent television ads and sponsorship will do well to make our presence in the region felt. The abovementioned strategies can be implemented within a 5-year period, as follows: YEAR 1 Research and Site Identification (Strategy 1) 2 Market Testing and Conceptualization of Designs (Strategy 2) 3 Construction and operation of Manufacturing plant (Strategies 3,4 and 5) 4 Brand Launching (Strategy 6) and Assessment Period 5 Full Operation Financial Impact: Manufacturing Plant Assumption: 20 working days; 50 units per person a day; 3,000 employees; 3,000,000 pieces per month (50 units x 3,000 employees = 150,000 pieces per day x 20 days) RAW MATERIALS : ($6 per piece x 3,000,000) $18,000,000 LABOR : ($10 per day x 3,000 x 20) $600,000 OVERHEAD : $5,000,000 TOTAL COST $23,600,000 / 3,000,000 pieces COST PER UNIT $7.87 Outlet in a shopping center: Assumption: Open 100 shops region wide; 1,000 pieces per day selling target (150,000 pieces / 100 shops = 1,500 pieces x 20 days = 30,000 per month / 30 days) LABOR AND OVERHEAD: ($300 a day / 1,000) $0.30/day SELLING PRICE/ UNIT: Cost per unit $7.87 Labor and Overhead 0.30 $8.17 Ad and Promo (5%) 0.4085 (8.17 x .05) Margin of Profit (25%) 2.0425 (8.17 x .25) Selling Price per Unit $10.621 MARGIN OF PROFIT IN A YEAR: $73,530,000 ($2.0425 X 1,000 pieces = $2,042.50 per day x 100 shops = $204,250 per day x 30 days = $6,127,500 per month x 12 months) Strategic Advantage Gap Incorporated will benefit much from the proposed expansion in Asia. In addition to the penetration of new markets and the conceptualization of new apparel designs, the company's image as an international brand will be enhanced. Locating its manufacturing plants in countries where labor is cheap is cost-effective for the company while an effective advertising campaign would also help promote the Gap brands and product lineup in these Asian markets. In the end, all these strategies will achieve increased profitability for Gap and the increased value of its brands in the global market. Synthesis Gap operates in a very competitive industry. To maintain one's leadership in the apparel business, Gap should employ relevant growth strategies to reinforce its existing market position-such as breaking into potential markets for the rollout of its existing products, exploring new market segments, and constantly updating and developing relevant apparel designs. While Gap is a known brand, it also should implement effective advertising campaigns and promotional measures to ensure the perpetuation of its brand names and product lines in the hope of creating more value for these valuable corporate assets. External Factor Evaluation Matrix Opportunities Weight Rating Score Market opportunities in Asia. 0.20 2 0.40 Online shopping 0.08 4 0.32 Cheap labor in Asia 0.15 1 0.15 Availability of Raw Materials in Asia 0.09 1 0.09 Threats Competitors of the industry 0.08 4 0.32 Regional instability 0.05 1 0.05 Political instability 0.05 1 0.05 Unfair government programs 0.10 3 0.30 Environmental threats 0.05 1 0.05 Copyright threats 0.15 4 0.60 1.00 2.33 A 2.33 total weighted score is an industry average. This indicates that GAP Incorporated did not effectively take advantage of existing opportunities to minimize the adverse effects of external threats. Internal Factor Evaluation Matrix Strengths Weight Rating Score Wide variety of products 0.15 4 0.60 Unique products (traditional) 0.08 4 0.32 Acceptable prices 0.05 3 0.15 Strong corporate policies 0.10 4 0.40 Has the capacity to support, respond and implement corporate responsibilities 0.10 4 0.40 Customer responsiveness (after sales reliability) 0.12 3 0.36 Weaknesses No rewards system for laborers 0.10 1 0.10 Non-strategic locations for retail stores 0.15 1 0.15 Inferior innovation of new products 0.05 2 0.10 Weak selling strategies 0.10 1 0.10 1.00 2.68 Gap Incorporated's many strengths are pulled down by its weaknesses because of missed opportunities or otherwise engaged in but then again resulted to failure. Competitive Profile Matrix Critical Factors Weight Gap Inc. Abercrombie & Fitch American Eagle rate score rate Score rate score Management 0.13 3 0.39 3 0.39 3 0.39 Ads & Promo 0.13 2 0.26 2 0.26 1 0.13 Product Variety 0.13 4 0.52 2 0.26 2 0.26 Customer Service 0.13 3 0.39 3 0.39 3 0.39 Competitive Workforce 0.10 3 0.30 3 0.30 3 0.30 Expansion 0.10 2 0.20 2 0.20 2 0.20 Customer Loyalty 0.06 2 0.12 2 0.12 2 0.12 Pricing 0.09 2 0.18 2 0.18 2 0.18 Financial Position 0.05 1 0.05 2 0.10 2 0.10 Trends 0.08 2 0.16 3 0.24 3 0.24 1.00 2.57 2.44 2.31 Achieving the highest rating is Gap Incorporated, followed closely by Abercrombie & Fitch and then American Eagle. Gap Incorporated's edge over competitors Abercrombie and American Eagle lies in its wide range of product offerings and product lines; that is why Gap needs to consider all opportunities available to boost its leadership in the industry. Grand Strategic Matrix RAPID MARKET GROWTH Quadrant II 1. Market Development 2. Market Penetration 3. Product Development 4. Horizontal Integration 5. Divestiture 6. Liquidation Quadrant I Quadrant III Quadrant IV SLOW MARKET GROWTH Gap Incorporated belongs to a fast growing market where competition is rather rigid. Even if the company is considered as one of the leaders in the industry, it still possesses a weak competitive position. This is due to the company's lack of initiative to adopt the proposed selling strategies. Strategic Position and Action Evaluation (SPACE) Matrix Computations: FS - ES => 3.40 - 3.17 = 0.23 ; IS - CA => 3.00 - 2.67 = 0.33 SWOT Matrix Strengths 1. Wide variety of products 2. Unique products (traditional) 3. Acceptable prices 4. Strong corporate policies 5. Has the capacity to support, respond and implement corporate responsibilities 6. Customer responsiveness (after sales reliability) Weaknesses 1.No rewards system for laborers 2. Non-strategic locations for retail stores 3. Inferior innovation of new products 4. Weak selling strategies Opportunities 1. Market opportunities in Asia. 2. Online shopping 3. Cheap labor in Asia 4. Availability of Raw Materials in Asia 1. Develop products for Asians (S1,O1) 2. Develop traditional products for Asians (S2,O2) 3. Construct manufacturing plants in Asia (S3,O3) 1. Find strategic locations for retail stores (W2,O1) 2. Use raw materials from Asia to innovate new products (W3, O4) Threats 1.Competitors of the industry 2.Regional instability 3.Political instability 4.Unfair government programs 5.Environmental threats 6. Copyright threats 1. Develop more products for clients (S1, T1) 2. Create more traditional or unique products (S2,T1) 3. Create a security system to avoid plagiarism (S5, T6) 1. Ads and Promos (W4, T1) 2. Create rewards system for laborers (W1, T1) Three (3) strategies were developed: Market development, Market penetration and Product development. Market development involves the implementation of extensive advertisement and promotions and also the strategic identification and selection of future retail store sites. The Market penetration strategy is a proposal to develop apparel products suited for the Asian market while Product development recommends the use of raw materials available in the Asian region for the new products that will be released in the market. Quantitative Strategic Planning Matrix Key Internal Factors Weight Market Development Market Penetration Product Development rate score rate score rate score Innovativeness 0.16 4 0.64 4 0.64 4 0.64 Customer Responsiveness 0.15 4 0.60 4 0.60 3 0.45 Efficiency 0.10 3 0.30 3 0.30 3 0.30 Marketing 0.17 3 0.51 4 0.68 4 0.68 Key External Factors Economic 0.10 3 0.30 3 0.30 3 0.30 Technological 0.10 3 0.30 3 0.30 3 0.30 Competitiveness 0.14 4 0.56 4 0.56 4 0.56 Socio-cultural 0.08 2 0.16 4 0.32 3 0.24 TOTAL 3.37 3.70 3.47 Market development aims for the rollout of aggressive selling approaches in the form of advertisements and promotions and also the strategic positioning of its retail stores. Market penetration aims to capture Asian customers, who compromise half of the earth's population. Product development aims to find new sources of materials that could be used to develop new products. Bibliography Bates, D.L.1984.Strategy and Policy:Analysis, formulation and implementation/D.L. Bates, David L. Eldredge.Iowa;Wm.C.Brown. Higgins, James M.1983.Organizational Policy and Strategic Management.2nd ed.Chicago:Dryden Press McGlashan, Robert.Strategic Management. Schellenberger, Robert Earl and Glenn Boseman.1982.Policy Formulation and Strategic Management:text and cases.2nd ed.New York:Wiley. Strategy Operations Management.2000oOxford:Butterworth-Heinemann. Read More