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Task Environment: Porters 5 forces

1. Threat of New Entrance
Theoretically, as companies grow and become bigger, the barriers for entry become
larger as well. Gap inc. is already a well-established retailer and has already
overcome most barriers. Thus, the threat of new competitors is relatively low due to
the high startup costs of entering the market. Since Gap Inc. and other firms in this
industry tend to have a high quality brand image, most firms have power over their
suppliers, due to manufacturers competing for business.
In
addition, brand equity also is Gaps advantage appealing to the esteem needs of th
e individual customer which is strong brand loyalty detracts new entrants from
entering the market. However, the entrant of well-established
international brands might pose a significant threat, but subject to their target mark
et segments and the pricing strategy.
2. Threat of substitute products or service
The products in the clothing and apparel sector are in-differentiable. The threat of
substitute products is low competitive force towards GAPs success. Players in the
family apparel industry share functionally the same products with the entire clothing
sectors, so there are no substitutes. As a result competition in the sector is
extremely intense.
3. Bargaining power of buyers
Consumers enjoy high buying power in the apparel industry because of the intense
competition. Furthermore, because of the Gaps mid-level prices for the type
of clothing it sells, the Gaps strength is in its quality. Still, buyers have
power because of the numbers of competitors and the ease at which buyers can
switch to a different retailer.
Or

Overall the bargaining power of buyers is considered high because even though
individual buyers are small, and have little say in the prices of the product, they
make the final decision on whether or not to purchase the product.
4. Bargaining power of suppliers
Most of the 97% production is done overseas and multi fiber arrangements (MFA)
which is limited number of textiles that could be imported from a developing
country resulted in chasing quota. If production cost or wages increase, the
companies start producing in another country. Therefore, supplier power
overall can be judged to be low. There is also little threat of vertical integration by
suppliers, as they are not residing within U.S. As such, the suppliers have limited
power to dictate the price and quality standards of the products as Gap Inc.
has little dependence on single sourcing.
5. Rivalry of competitors
Industry made up of thousands of small, local retailers that have fragments of
market shares and the top four family clothing retailers in the U.S. are Abercrombie
& Fitch 63.40%, Nordstrom 17.55%, American Eagle Outfitters 16.67% and GAP inc.
16.22% each of these retailers offered different styles of clothing and had different
pricing strategies. All the evidence above leads us to believe that rivalries and
competitors is high competitive force. GAP is constantly competing with its rivals to
take the top spot in the family clothing industry.

SWOT ANALYSIS
Strengths:

Weaknesses:

1. Global brand recognition GAP is

1. Nearly all merchandise depends

globally recognized as American style,

on third-party vendors - which are

pop culture and the emotional affinity. It

outside of the US. Approximately 1000

also offers products to brand-switchers

vendors in 60 countries. 27 percent is

who like to experiment with different

produced in China. Third-party vendors

brands.

can cause products shortage, shipment

2. Stores located in worldwide GAP

delay and increased costs.

has 3,095 stores in worldwide as of jan

2. Huge store base including

30 2010.

unaffiliated franchisees - Gap is

3. Franchising system easily to

limited to keep up with fashion trends, to

expand GAP store internationally -

train some methods and to control

GAP has franchise agreement with

quality.

unaffiliated franchisees to operate GAP

3. Less attractive in trendy clothing -

or Banana Republic brand stores

Gaps product lines are less attractive

worldwide.

clothing to consumers who are

4. Multiple brands and brand

interested in trendy clothing than

extensions for a wide range of

competitors.

segments - GAP has 5 distinct brands

4. Uncontrollable production

such as Gap, Old Navy, Banana Republic,

processes - Control of production

Piperlime and Athleta and brand

processes is a key factor among

extensions such as GapKids, babyGap,

fast fashion retailers

gapbody and GapMaternity.

5. Huge customer and vendor base
6. Good reputation among suppliers
Opportunity:

Threat:

1. Globalization - Global new market in

1. natural disasters

Europe and China. GAP is planning

2. Currency fluctuation reduce in

to open the 1st store in Italy and China

customers spending. General economic

and additional outlet stores in Europe

conditions, for instance, the fluctuation

and Asia.

of the economy on the interest rate,

2. Population growth - The new brand

credit availability, and other commodity

focuses on women over age 35 and

prices has adversely affect the customer

would offer a broad range of sizes, with a

disposable income and decline in the

focus on fit, and assortments that serve

purchase of discretionary items,

a variety of occasions. A rapidly growing

including merchandise. Such condition

segment of the population, this groups

could adversely impact Gap Inc. sales

spending power accounts for about39%

and revenue.

of womens total apparel expenditures.

3. Government regulations - Laws and

Forth and Towne will launch in four test

regulations at the state, federal, and

stores in the Chicago market and one in

international levels frequently change,

New York in fall of 2005.This represents

and the ultimate cost of compliance

an important long-term growth

cannot be precisely estimated. The

opportunity for the company.

impact that may result from changes in

3. Technology advancements - Online

the regulatory or administrative

data mining which is the data collected

landscape can be predicted by no one.

via customers online shopping will

Any changes in regulations that impacts

enable Gap Inc. to analyze customers

employment and labor, trade, product

attributes such as shopping experience,

safety, transportation and logistics.

spending habits, styles and their favorite

4. Terrorism

items. It will help to retain loyal

customers and improve requisition
process efficiency.
4. WTO - Under the terms of World Trade
Organizations (WTO) Agreement on
Textile and Clothing, US quotas on
imports of textiles and apparel from
most WTO members were lifted in
January 2005. This will enable US retailer
to produce high quality merchandise at a

low cost, whilst providing the

opportunity to broaden their product
portfolios. This event would improve
flexibility in obtaining imported
merchandise manufactured in WTO
countries.
5. AFTA -

Tows matrix or SWOT matrix

IFAS

EFAS

Strength:

Weaknesses:

1. Global brand

1. Nearly all

recognition

merchandise depends

2. Stores located in

on third-party vendors

worldwide

2. Huge store

3. Franchising system

base including

easily to expand GAP

unaffiliated franchisees

store internationally

3. Less attractive in

4. Multiple brands and

trendy clothing

brand extensions for a

4. Uncontrollable

wide range of

production processes

segments
5. Huge customer and
vendor base
6. Good reputation
Opportunity:

among suppliers
S1,S2,O1 Market

W3,O3 Product

1. Globalization

Penetration

Development

2. Population growth

S3,S4,O4 Market

W1,O1 Human Resource

3. Technology

Development

strategy

advancements

S5,O1,O2 business

4. WTO

diversification

5. NAFTA
Threat:

S2,T2 Financial

W2,T3 Restructuring

1. natural disasters

Management

Strategy

2. Currency fluctuation

S1, T3 Political

3. Government

Lobbying

regulations
4. Terrorism

Recommendation:
As a result of the analysis shown above, we have managed to create some
recommendations. In our opinion, GAP Inc. needs to gain competitor advantage. To
achieve this goal, we recommend two groups of actions. First one would be
changing model of retail and marketing, consisting of:
1. Hiring fashion designers to develop more design clothes answering consumer
needs. (in 6 months time)
2. Frequent collection changes, like ZARA: changing collection every two weeks.
(in 2 years time)
3. Change of target group to reach unexplored niches and developing target
markets. (long-term plan)

The second direction would be a change in financial management. As for that we

recommend:
1. Invest in on-line marketing instead of traditional one, to reach marketing goals
with lower cost. (in 6 months time)
2. Acquisitions in U.S. market (Ross Stores Inc.) to increase sales. (in 2 years time)
3. Investors value your company more than competitors, so its important to keep it
that way.(long-term plan)
4. Negotiate better prices for cotton using good relations with suppliers. (long-term
plan).
Or

online ship-from-store expansion and impact;

mobile ecommerce initiatives and impact, including multi-channel

initiatives;

product improvements;

future marketing initiatives and spending; and

Store remodels.