Market Performance of Gap Inc - Case Study Example

Gap Inc. Insert Insert Insert Insert Table of Contents Executive summary 3 Hypothesis 4 Information analysis 4 CSR Audit 8 Analysis of alternatives 9 Recommendation 9 Works Cited 10 Appendices 11 Executive summary Gap Inc. is a known cloth distributor company. With outlets all over the world, Gap has had some successes in the midst of challenges and issues raised. Among the identified issues are, fighting with versatile markets as well as keeping to the demands of the market. The company has also faced challenges in pricing especially in countries where business grounds are not level for everybody. However, the main focus of Gap is not to engage in price wars, the company has maintained its quality which is the main selling point for American products. This paper thus highlights the issues Gap has had to deal with, analyze the company’s strength, weaknesses, and opportunities. The paper will later do a CSR audit as well as make recommendation to the company. Hypothesis To review the Issues faced by Gap Inc. in it operations as a growing apparel brand Information analysis Gap Inc. has experienced tremendous growth since its inception in 1969. Its expansion has led it to be among the top selling brands in the U.S. and abroad. Through its organization and ability to meet customer needs, Gap Inc. grew from single store in U.S. to over 3500 outlets distributed in United States, Canada, United Kingdom, German, and Japan. This expansion came with a number of issues that were environment associated thus leading the management to make decisions based on how to handle the issues. The first issue that Gap Inc. had to deal with was the decreasing sales of Levi’s products. This motivated the company to venture into private-labeled products that has been the main sale in the company to date. The company invested in strengthening brand royalty by enhancing advertising and marketing of the company products. When private labeled products suffered low sales, Old Navy products were invented as a way of attracting customers back to the company’s products. Old Navy products were low cost products yet similar merchandise to Gap stores. Changing fashion trends is one of the major issues experienced by every apparel company (Hines & Bruce 64). The company’s inventory is affected since retailers must order merchandise in advance. The preparation for peak selling calls for higher inventory levels that have to happen before the season. To manage such huge inventory, Gap is faced by an issue that expose it to price shifts and demand that are related to timing of merchandise purchases. Such issues expose the company especially when production is from foreign countries meaning currency differences may check in. Japan market is highly traditional. Gap’s consideration of establishing long-term business relationships is one way of ensuring that the company adheres to set business rules. The market distribution system, which is hard to break in, is well handled through long term relationships that market the company thus ensuring the company get sales despite the tough conditions in the market. However, Japan market is still the best place to source merchandise for Gap Inc. Japan is capable of providing high quality products for export to foreign companies like Gap at lowest production cost. Gap like many other U.S. based apparel companies buy their merchandise from cheap labor countries like Taiwan, South Korea and Hong Kong. These companies enjoy low inventory costs that make them a bigger profit margin when they sell the products. However, the cost of apparel is likely to change in future when countries like Hong Kong will strengthen their dollar against the U.S. dollars. The more the apparel industry in Hong Kong gets stronger, the higher the inventory cost that foreign countries will pay. Despite the fact that Canada worked as a great investment venture to GapKids products, Banana republic may not do well in the market. The Canadian apparel market is likely to be affected by the increase in housing costs and taxes that has lead to a new economizing behavior on clothing. As the adult population became more knowledgeable on clothing and value attached to each purchase, Banana Republic may struggle in it expansion. The best thing will be to merge every other division with Gapkid to reduce on operation cost as well as reduce inventory cost. Every business in an open market suffers from competition (Mourdoukoutas 76). Gap suffers tougher competition in the United Kingdom market especially because its competitors in Europe ship goods duty free and those from Asia have less inventory cost since goods are manufactured by cheap labor. This does not give Gap advantage over others even with few trade barriers imposed by the government. A well performing company has well described strengths, weaknesses, and opportunities (Griffin and Fleet 157). Gap Inc. being among the most successful companies is strengthened by the fact that it purchases merchandise from many sources. This ensures that Gap’s operations are secured from any effect that is manufacturer based. However, this can also be a disadvantage especially when political instability is concerned. In times when restrictions are imposed on U.S. imports by the politically instable countries, Gap operations will be greatly affected. For example, china constitutes of over 50% of Gap’s foreign merchandise. The recent threat of U.S. denying china most favored nation (MFN) status is a cause for concern to Gap’s management since the move is likely to affect Gap’s operating cost. To be successful in business, one needs to be sure, of what the customers need to be able to produce as per the expectations (Sarin 361). Gap makes specification for the kind of products its target market would want to purchase. This strength ensures that the company delivers the best the customers can find in the market. Customer loyalty is strengthened which makes Gap continue growing. Gap Inc. has shown capability to rebound into any economic condition to the company’s advantage. This is particular evident when Gap ventured into Canadian market. Despite the fact that the Canadian companies suffered recession, Gap was able to grab the opportunity by becoming a dominant player in the apparel industry. Gap took advantage of the few restrictions on foreign investments imposed by Canadian government to opening of new stores in 1989. Gap’s centralized distribution centers in the U.S. works as a positive impetus to acceptance in the Canadian market. This covers the fact that most of Gap’s merchandise is produced abroad and give the company advantage over other apparel companies buying goods from the same countries but have to base in the U.S. Gap therefore benefits from low cost of doing business since import costs from the United States are substantially lower in Canada. Gap has capitalized in advertising in all form of media. This is a positive initiative especially when considering the German market. Germans have shown higher interests in well-known American products and can pay any amount for such products. The company’s strength in advertising will build the brand image and thus help in increasing sales despite the rising unemployment, higher rents, and higher taxes experienced by the population. The fact that Canada allows investments with few restrictions creates an opportunity for Gap to consider opening more stores in the country than they already have. The market in Canada is likely to do better because there are few traditional barriers experienced in other countries like Japan. On the other hand, Gap has a great opportunity in German because of its ability to produce high quality branded apparels. The brand name and the company’s strength in advertising place the company in a better position to capture the market without minding the prices on the items. I believe that the best countries that Gap invested in are Canada, United Kingdom, and Australia. Canada particularly has a softer ground for U.S. companies especially because it eliminates tariffs on goods of U.S origin since 2000. Gap being a brand from the U.S. did better in Gapkids stores. This was a good motivation to consider opening Banana Republic stores despite the fact that their goods are more upscale. On the other hand, United Kingdom apparel market is receptive to Gap products because it is a U.S. based company. The British believe that American apparel products are good compared to European apparel products. This aspect makes United Kingdom one of the best countries where Gap expansion will be guaranteed. Especially for older consumers, Gap products are likely to sell more. Australia market is the best country for Gap to invest. The new standard rates may even affect the company’s internal manufacturing standards. Australian market also has stiff competition in availing apparels to consumer. The market has chain stores, department stores, mail orders, and boutiques that avail mixed apparels to customers. The only benefit to be enjoyed by Gap is the ability to create a niche as a single brand stand-alone store. This will force the company to target particular markets that are able to purchase high-end products at any cost. France is not a good place for Gap business. Despite the stiff competition faced, duties applied to all non-EU countries makes operation cost for Gap products to be higher than their competitors from Europe. The higher production cost for U.S goods and lower duties on goods from countries where production costs are higher disadvantage Gap since the company will be forced to offer their products at higher costs than the market is willing to offer. U.S. based companies should thus consider establishing manufacturers from developing countries, who enjoys the advantage of preferential tariff treatment, if the company has to enjoy full benefits of the French market. Japan is good for Gap as a manufacturer but not as a consumer market. The strict rules set by Keiretsu system limits U.S. companies in how much they can do in the market. The other issue is there are other competitors who have easy access to Japan market than Gap. For example, Asia companies have easy access to the market though their pro1ducts are of low quality than U.S. products. However, Gap still maintains its position in terms of delivering high quality products. A number of government regulations that work as market entry barriers also face Japanese market. CSR Audit Apparel market is one diverse market with constant changes in requirements dictated by changes in fashion and season (Rogers 82). Although U.S. products are well known for quality, Gap Inc. has been on the forefront stressing to the world on CSR. The company has invested in sustainability advancement, and empowering people from developing world. Although the company released their environment report 10 years later after the first report, more effort had been channeled to energy efficiency, conservation measures and waste reduction. Gap has also invested in man power creation and empowerment. The company has brought more women whom they empower with like skills and technical education necessary at work and in life. In addition, the company introduced volunteer ship program that allows people to contribute to the society besides fighting for human rights on employees. However, Gap Inc. is among the many countries that purchase goods from low waged countries such as Hong King, Taiwan, and South Korea. These countries through cheap labor have flexible manufacturing and response system, as they are afraid their unemployed population may increase when manufacturing moves to other countries. Though U.S. companies manage to reduce inventory cost, the manufacturing countries suffer low wages, which is an impediment to economic growth. To be able to tell the world about human rights, Gap should stop purchasing goods from countries where human rights are not observed. Analysis of alternatives Gap Inc. is faced by challenges on growth in this ever-changing market. The success of the company is depended on brand loyalty that will assist in increasing market share. To achieve that, the company the company should consider the following alternatives. Building the brand instead of competing for price per unit basis Diversifying their products to meet the demand in each market Merging their products in markets where individual products cannot do well on their own. Recommendation In markets like japan, developing long-term relationships, and showing, willingness to contribute to local communities stands out as the best way to enter the market. Many Gap products are expensive for many markets. Gap should therefore consider reducing costs to be able to increase profits in markets like Japan. For countries where Gap derives their merchandise, free-trade zones will help increase profits by reducing duties and VAT costs. The company should consider centralized advertisement as a way of reducing costs. Free trade agreements that have already been signed should be the key target for Gap operation in foreign markets. Works Cited Griffin, Ricky and Fleet, David V. Management Skills: Assessment and Development. Cengage Learning, 2013. Print. Hines Tony and Bruce, Margaret. Fashion marketing: Contemporary Issues. ,Butterworth-Heinemann, 2007. Print. Mourdoukoutas, Panos. Business Strategy in semiglobal economy. M.E. Sharpe, 2006. Print. Rogers, Stephen C. The supply-based advantage. AMACOM Div American Mgmt Assn, 2009. Print. Sarin, Sharad. Business marketing: Concepts and Cases. Tata McGraw-Hill Education, 2013. Print. Appendices Read More