Gap Inc. Report

Gap Inc.
Company Report
2016
Contents
1. Executive Summary ................................................................................................................. 1
2. Business Strategy......................................................................................................................... 1
3. Leadership ................................................................................................................................... 3
4. Organizational Structure .............................................................................................................. 4
5. SWOT Analysis ........................................................................................................................... 5
5.1 Strengths ................................................................................................................................ 6
5.2 Weaknesses ............................................................................................................................ 7
5.3 Opportunities ......................................................................................................................... 8
5.4 Threats ................................................................................................................................... 9
6. PESTEL Analysis ...................................................................................................................... 10
6.1 Political Factors ................................................................................................................... 11
6.2 Economic Factors ................................................................................................................ 12
6.3 Social Factors ....................................................................................................................... 12
6.4 Technological Factors .......................................................................................................... 13
6.5 Environmental Factors ......................................................................................................... 13
6.6 Legal Factors ........................................................................................................................ 13
7. Marketing Strategy .................................................................................................................... 14
7.1 7Ps of Marketing .................................................................................................................. 14
7.2 Segmentation, Targeting & Positioning............................................................................... 16
7.3 Marketing Communication Mix .......................................................................................... 17
7.3.1 Advertising........................................................................................................................ 17
7.3.2 Sales Promotion ................................................................................................................ 18
7.3.3 Events & Experiences ....................................................................................................... 19
7.3.4 Public Relations ................................................................................................................ 19
7.3.5 Direct Marketing ............................................................................................................... 20
7.3.6 Personal Selling ................................................................................................................ 20
8. Porter’s Five Forces Analysis .................................................................................................... 20
9. Value-Chain Analysis ................................................................................................................ 23
9.1 Primary Activities ................................................................................................................ 24
9.2 Support Activities ................................................................................................................ 27
10. McKinsey 7S Model ................................................................................................................ 28
11. Corporate Social Responsibility .............................................................................................. 30
11.1 CSR Programs and Initiatives ............................................................................................ 30
11.2 CSR Criticism .................................................................................................................... 31
12. Recommendations ................................................................................................................... 32
List of Figures
Figure 1 Gap Inc. organizational structure ...................................................................................... 4

Figure 2 Gap Inc. annual lobbying budget .................................................................................... 11
Figure 3 Gap Inc. Porter's Five Forces .......................................................................................... 21
Figure 4 Apparel market share in the US ...................................................................................... 22
Figure 5 Gap Inc. Value chain analysis ......................................................................................... 24
Figure 6 Gap Inc. McKinsey 7S Framework ................................................................................. 28
List of Tables
Table 1 Gap Inc. SWOT analysis .................................................................................................... 6
Table 2 Gap Inc. brands and respective products .......................................................................... 14
Table 3 Gap Inc. segmentation, targeting and positioning ............................................................ 17
Table 4 Gap Inc. CSR performance............................................................................................... 31
1. Executive Summary
Gap Inc. is a global apparel retail company that owns Gap, Banana Republic, Old Navy, Athleta,
and Intermix clothing, fashion and accessories brands. The first GAP store was opened in 1969
by Doris and Don Fisher and today Gap Inc. is the largest specialty apparel retailer in the North
America with 3,721 company-operated and franchise store locations around the globe. The
company has more than 140,000 employees worldwide1 and its organizational structure can be
characterized as hybrid integrating certain elements of divisional and hierarchical organizational
structures.
Gap Inc. uses cost leadership business strategy for all five brands within its portfolio offering
fashion, apparel and accessories products for much cheaper prices compared to the prices of
premium fashion brands. Apart from cost leadership, competitive advantages possessed by the
company include a strong portfolio of distinct brands across multiple channels, a global presence
of the brand and strategic relationships with its suppliers. At the same time, Gap Inc. has certain
weaknesses such as declining sales and profits, failure to utilize online sales channels in an
efficient manner, dependency on external manufacturers and others.
The company has been struggling with declining sales and profits during the last two years. Net
sales for fiscal 2015 decreased 4 percent to USD 15.8 billion compared with USD 16.4 billion
for fiscal 2014. Gross profit for fiscal 2015 was USD 5.7 billion compared with USD 6.3 billion
for fiscal 2014.2 The range of initiatives introduced by CEO Art Peck to deal with this problem
includes focusing on core products that contributed to the global success of the company, start
selling on Amazon and engaging in international market expansion.
2. Business Strategy
Gap Inc. pursues cost leadership business strategy in the global market of fashion, style and
accessories. The retailer offers stylish and fashionable clothing items and accessories for
1
Annual Report (2015) GAP Inc.
2
1
competitive prices. In simple terms, Gap business strategy is associated with offering people the
opportunities of being ‘cool’ and ‘stylish’ for affordable prices. Gap Inc. portfolio comprises
Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. Gap competitive advantage has
been traditionally associated with innovative casual design of clothing items and accessories and
the variety of choice that enables the opportunities for self-reflection for a wider range of
customer segment.
For the past few years, the fashion retailer has been facing challenges in terms of maintaining its
US and global market share and ensuring the growth of revenues. During the fiscal year of 2015,
Gap Inc. experienced a decline of both, sales and gross profit. Net sales for fiscal 2015 decreased
4 percent to USD 15.8 billion compared with USD 16.4 billion for fiscal 2014. Gross profit for
fiscal 2015 was USD 5.7 billion compared with USD 6.3 billion for fiscal 2014.3
Gap business strategy to deal with the issue of declining sales as announced by CEO Art Peck
includes the following plans and initiatives.
1. Focusing on its Gap’s core products that contributed to the global success of the
company. Specifically, the senior management has expressed a commitment to return
Gap iconic denim, including a rich assortment of on-trend silhouettes, washes and
fabrications.
2. Start selling on Amazon. The company has shun association with online retailers for
more than a decade mainly because online stores are not able to convey attractive store
desing and the point of purchase marketing efforts of the brand. However, in a most
recent meeting with shareholders CEO Art Peck announced that “Gap is open to selling
its merchandise on Amazon or other third parties in the U.S.”4
3. International market expansion. The management is planning to open additional Old

Navy stores outside of the United States, including in Mexico, Japan, and China, open
additional Gap stores in China, open additional international outlet stores, and continue to
grow online sales internationally.5
3
4
Safdar, K. (2016) “Gap CEO Says He’s Open to Selling on Amazon” The Wall Street Journal, Available at:
http://www.wsj.com/articles/gap-ceo-says-hes-open-to-selling-on-amazon-1463584218
5
2
3. Leadership
Since founding the company with his wife Doris Fisher in 1969, Donald Fisher has been at the
helm of Gap leadership serving as CEO until 1995 and Chairman of the Board until 2004, and as
company director and Chairman Emeritus until his death in 2009. Millard "Mickey" Drexler
served as GAP CEO from 1995 until 2002 and he is credited for transforming the company into a
global brand. It has been noted that “Drexler possessed the fashion instincts that built the Gap
brand and image into a destination for multiple target customer groups”.6
Drexler was forced to resign in 2002, following the decline of sales and a loss of USD 7.7
million in 2001. Paul S. Pressler from Disney was named as the new CEO due to his reputation
as operations wizard to restore discipline to the floundering company.7 Failing to appreciate the
nuances of the fashion business Pressler oversaw a further decline in sales and brand image.
Currently, GAP’s senior management team is led by CEO Art Peck and he is focused on
executing the company’s strategy to engage customers and maximize shareholder returns. Today,
Gap leadership is faced with a serious challenge of declining sales and profitability. Net sales for
fiscal 2015 decreased 4 percent to USD 15.8 billion compared with USD 16.4 billion for fiscal
2014. Gross profit for fiscal 2015 was USD 5.7 billion compared with USD 6.3 billion for fiscal
2014.8 This is the outcome of the brand using its perception of ‘coolness’ along with a set of
other issues.
Despite the complexity of the current situation for Gap Inc., there are optimistic views that CEO
Art Peck may be successful in turning around the business partially due to his experience of two
decades in management consultancy. Moreover, Mr. Peck is credited with the development of
franchise strategy for the business.
CEO Art Peck reshuffled Gap leadership as a part of his attempt to turnover the business. The
most notably, top executive changes include the demotion of Ms. Marissa Webb from the role of
6
Joslin, R., Lueck, P., Martino, C., Rhoads, M., Watcher, B., Chapman, R. & Christian, G. (2009) “Gap, Inc.: Has
the Retailer Lost Its Style? Arizone State University
7
Lee, L. (2007) “Paul Pressler's Fall From The Gap: Hailed on his arrival, the former CEO is now viewed as the
wrong guy at the wrong time” Bloomberg, Available at: http://www.bloomberg.com/news/articles/2007-02-25/paul-
presslers-fall-from-the-gap
8
3
creative director of Banana Republic following the decline of sales for the seventh time in eight
months by September 2015.9
4. Organizational Structure
Gap Inc. organizational structure can be characterized as hybrid integrating certain elements of
divisional and hierarchical organizational structures. Gap organizational structure has the
following pattern:
Art Peck Chief Executive

Officer
Corporate Services
Global Global Global
President, President, President,
EVP and Chief Financial Officer Old Navy Gap Banana
Republic
EVP, Global General Counsel,

Corporate Secretary & Chief
Compliance Officer EVP and President President
EVP, Global Talent and General and and
Sustainability Manager, General General
Greater Manager, Manager,
China Intermix Athleta
EVP, Strategy & Chief Customer
Officer
EVP, Global Supply Chain:

Logistics and Product Operations
EVP, Global Supply Chain:

Logistics and Product Operations
EVP and Chief Information

Officer
Figure 1 Gap Inc. organizational structure
9
Gap September Sales Decline Poses Challenges For CEO (2015) Business Finance News, Available at:
http://www.businessfinancenews.com/24863-gap-inc-september-sales-decline-poses-challenges-for-ceo/
4
As it is illustrated in Figure 1 above, Gap organizational structure is divided into five divisions
with each division representing a separate brand and headed by a president. At the same time, the
organizational structure of each division is highly hierarchical and there are multiple levels of
management between the president of the division and a shop floor assistant.
In 2016, as a part of an initiative to address declining sales and profitability, Gap CEO Art Peck
announced plans for global restructuring that includes reducing the numbers of Gap stores in the
US, withdrawing the Old Navy fascia in Japan and making head office redundancies.10
Moreover, store closures also involved Banana Republic brand bringing the total expected store
closure count to 75 by the end of fiscal 2016.11
There are also occasional brand-specific changes in organizational structures led by the
presidents of respective brands. For example, a major restructuring introduced in Gap brand in
2015 included combining e-commerce and marketing organization into one unit and elimination
of Creative Director role resulting in Rebekka Bay’s departure from the company. 12
Organizational structure of Gap Inc. may be subjected to further changes to a considerable extent
in the foreseeable future to address serious challenges the company is facing. Specifically, net
sales for fiscal 2015 decreased 4 percent to USD 15.8 billion compared with USD 16.4 billion
for fiscal 2014. Gross profit for fiscal 2015 was USD 5.7 billion compared with USD 6.3 billion
for fiscal 2014.13 Accordingly, we can expect the company to engage in downsizing of
management layers along with further store closures in developed countries to concentrate more
in strategic developing countries such as China, India and former USSR-blog countries.
10
Waller-Davies, B. (2016) “Gap sales and profits decline as global restructure begins” Retail Week, Available at:
https://www.retail-week.com/sectors/fashion/gap-sales-and-profits-decline-as-global-restructure-
begins/7011345.article
11
Gap reports earnings in line with Street expectations, announces 75 store closings
(2016) CNBC, Available at: http://www.cnbc.com/2016/05/19/gap-inc-reports-earnings-in-line-with-street-
expectations-announces-75-store-closings.html
12
Gap Inc. Press Release (2015) Available at:
http://www.gapinc.com/content/gapinc/html/media/pressrelease/2015/med_pr_gapbrand_12915.html
13
5
5. SWOT Analysis
SWOT is an acronym for strengths, weaknesses, opportunities and threats related to

organizations. The following table illustrates Gap Inc. SWOT analysis:
Strengths Weaknesses
1. A strong portfolio of distinct brands 1. Declining sales and profits

across multiple channels 2. Failure to utilize online sales channels
2. Global presence of the brand efficiently
3. Presence of timeless iconic products 3. Dependency on external manufacturers
4. Strategic supplier relationships 4. Loss of ‘coolness’ to a certain extent
during the past five years
Opportunities Threats
1. Increasing the efficiency of online sales 1. Further decline of sales and profits
2. International market expansion 2. Risks related to global sourcing and
focusing on Asia manufacturing
3. Celebrity endorsement 3. Inability of the management to turn
4. Formation of strategic alliances around the business
4. Further increase in the cost of labor
Table 1 Gap Inc. SWOT analysis

5.1 Strengths
1. Gap Inc.’s portfolio comprises Gap, Banana Republic, Old Navy, Athleta, and Intermix
brands, addressing the needs of different customer segments within clothing and fashion
industry. Gap is associated with optimistic American casual style, whereas Athleta offers
performance and lifestyle apparel for the fitness-minded woman. Moreover, there is a
range of Gap sub-brands such as GapKids, GapBody, GapMaternity, GapFit and
babyGap that effectively appeal to the needs and preferences of relevant customer
segments. Gap Inc’s current strong portfolio of distinct brands is a considerable strength
from a viewpoint of appealing a wider customer segment with positive implications on
the volume of revenues.
2. Gap Inc. is a global company with almost 3,700 stores worldwide, including company-
operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan,
China and Italy, and franchise stores in Asia, Australia, Europe, Latin America, the
6
Middle East and Africa.14 The global presence of the brand plays an integral role in terms
of market penetration of new products along with providing substantial benefits in the
forms of economies of scale.
3. The company’s product portfolio comprises a set of timeless iconic products such as
1969 Denim Jeans, khakis and worker shirt. These products are credited for Gap’s global
success, among other factors. It can be argued that company is set to benefit from its
timeless iconic products for the foreseeable future due to their steady popularity among
the target customer segment for several decades.
4. Gap Inc. maintains strategic relationships with its more than 1000 suppliers with factories
in about 40 countries15. The company visits about 1,000 factories that makes its clothes
each year assessing and fixing issues and assisting to increase their capabilities16. In
2016, the company embraced supplier transparency practices disclosing the list of
factories that produce its clothes around the world.
5.2 Weaknesses
1. Declining sales and profits is a major weakness the company is failing to address for the
last two years. Net sales for fiscal 2015 decreased 4 percent to USD 15.8 billion
compared with USD 16.4 billion for fiscal 2014. Gross profit for fiscal 2015 was USD
5.7 billion compared with USD 6.3 billion for fiscal 2014.17 Although, GAP’s CEO Art
Peck introduced a set of initiatives to address the issues such as re-focusing on core
products, start selling on Amazon and intensification of international market expansion,
these strategies may fail to get the business back into the profitability track.
2. GAP is lagging behind the competition in terms of efficient utilization of online sales
channel. The company launched Piperlime, an online brand in 2006 to offer a mix of
private label and branded apparel and accessories. “Despite efforts to publicize the brand,
including via cameo appearances on the reality design show Project Runway, it never
14
Global Presence (2016) Gap Inc. Available at:
http://www.gapinc.com/content/gapinc/html/investors/realestate.html
15
16
Gap Global Sustainability Report 2013 – 2014
17
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gained the currency or clear identity of Gap’s other main brands.”18 While there are many
factors that caused Piperlime to fail, lack of GAP’s competency in efficient utilization of
online sales channels was one of the major factors.
3. Gap Inc. is heavily dependent on overseas manufacturers for the supply if its products. In
FY2015, approximately 98 per cent of the company’s merchandise was produced outside
the USA19 and the current situation makes the business highly vulnerable to a wide range
of external factors such as disruption in the supply chain, changes in rules and
regulations, customs tariffs and others.
4. Loss of ‘coolness’ to a certain extent during the past decade is one of the most
noteworthy weaknesses associated with Gap. It has been noted that “Gap was once so
cool that Sharon Stone wore one of its turtlenecks to the Oscars. But as consumers turned
to cheaper fast-fashion alternatives, Gap failed to catch up. In the age of Instagram and
instant fashion, the retailer's designs feel dated.”20
5.3 Opportunities
1. Increasing the efficiency of online sales is an obvious opportunity to be explored by Gap

Inc. “The company has an opportunity to increase its sales amidst the positive outlook of
electronic consumer market. According to in-house research report the US online retail
sales is expected to reach USD 369.6 billion in 2019 growing at a CAGR of 9.5% during
2014-2019. Apparel, accessories, luggage and leather goods market is expected to grow
at a CAGR of 12.8% during the same period.”21
2. International market expansion focusing on Asia is another noteworthy opportunity for

Gap Inc. “According to the IMF report the GDP of developing economies is projected to
grow by 4.3% in 2016 and 4.7% in 2017. This growth is primarily supported by
developing and emerging countries including China and India. China's GDP is forecast to
18
Kapner, S. (2015) “Gap Abandons Its Online Brand Piperlime” The Wall Street Journal, Available at:
http://www.wsj.com/articles/gap-abandons-its-online-brand-piperlime-1422047850
19
20
Schlossberg, M. (2015) “Gap isn't cool anymore — here's its master plan to change that” Business Insider,
Available at: http://www.businessinsider.com/gaps-plan-to-be-cool-again-2015-8
21
Global Data (2016)
8
reach 6.3% in 2016 and 6% in 2017, whereas India is expected to record a GDP growth
of 7.5% for the next years for both 2016 and 2017. Factors such as growing affluence,
increasing brand-consciousness and low penetration of organized retailers in these
countries make them attractive destinations for global retailers. Emerging markets
including India, Russia, China and Brazil are among the most attractive destinations for
global retailers seeking expansion. Gap has taken several initiatives to expand its
presence in the Asian market.”22
3. The fashion retailer has an opportunity to increase its brand appeal via an effective
utilization of celebrity endorsement. Specifically, the company needs to employ
celebrities and personalities who are highly popular with the target customer segment as
brand ambassadors. Moreover, it is important to communicate the association of brand
ambassadors with GAP to the target customer segment via using multiple marketing
communication channels in an integrated manner.
4. Formation of strategic alliances represents an attractive opportunity to be considered by

Gap Inc. senior level management. Specifically, the company needs to enter into strategic
cooperation with businesses operating in other industries but targeting the same customer
segment to decrease operational costs in general and supply chain management,
distribution and marketing costs in particular.
5.4 Threats
1. Net sales for fiscal 2015 decreased 4 percent to USD 15.8 billion compared with USD
16.4 billion for fiscal 2014. Gross profit for fiscal 2015 was USD 5.7 billion compared
with USD 6.3 billion for fiscal 2014.23 There is a risk that senior management may fail to
address the problem of declining sales in an effective manner with negative implications
on company’s long-term growth prospects.
2. Delays in the shipment or delivery of Gap’s products due to the availability issues of
transportation, work stoppages, port strikes, infrastructure congestion, or other factors,
and costs and delays associated with transitioning between vendors, could adversely
22
Global Data (2016)
23
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impact its financial performance. For example, the work slowdowns and stoppages at
U.S. West Coast ports at the end of fiscal 2014 and beginning of fiscal 2015 created
product delivery delays that impacted the company’s ability to effectively manage its
inventory and deliver seasonally correct product in a timely manner, which impacted its
financial results for fiscal 2015.24
3. There is a threat that despite all of their effort, Gap leadership may fail to reverse the
current decline in sales and profitability with obvious threat on the global market share of
the company. This is because there are several distinct challenges that need to be
addressed by the company and each challenge is highly complex on its own account.
4. Further increase in the cost of labor can be mentioned as another noteworthy threat for
Gap Inc. “Labor costs in the US have been increasing in the recent past. The tight labor
markets, government mandated increase in minimum wages and a higher proportion of
full-time employees result in an increase in labor costs. The federal minimum wage
provisions are contained in the Fair Labor Standards Act (FLSA). The minimum wage
rate in the US remained at USD 7.3 per hour in January 2016. The 29 states and the
District of Columbia have minimum wages more than federal rate. These wages range
from USD 7.5 per hour in Maine and New Mexico to USD 10.5 per hour in Washington,
D.C. The minimum wage in California increased to USD 10 per hour in January 2016. In
FY2016, the company has 141,000 employees includes both full-time and part-time
employees. It has taken several initiatives to expand its stores, which requires increasing
its employee base. Therefore rising manpower cost may impact its stability and
operational efficiency of the company.”25
6. PESTEL Analysis
PESTEL is a strategic analytical tool and the acronym stands for political, economic, social,
technological, environmental and legal factors. Gap Inc. PESTEL analysis refers to the analysis
24
25
Global Data (2016)
10
of potential impact of above external factors on the bottom line and long-term growth prospects
of the business.
6.1 Political Factors
There is a set of political factors such as political stability in the market, relevance of
bureaucracy and corrupt practices, the freedom of press, home market lobbying practices and
others that can affect Gap Inc. in multiple levels. The company is engaged in lobbying its
political interests. However, as it is illustrated in Figure 2 below, Gap Inc. annual lobbying
budget is not fixed and it fluctuates significantly year by year to reflect specific political issues
the business wants to address each year.
Figure 2 Gap Inc. annual lobbying budget26
Gap Inc. has also been involved in a political controversy and has been accused of causing racial
controversy to get spectacular press coverage and social visibility. The company’s Twitter
campaigns included an image of “two white girls in poses that look quite painful, next to a third
white girl using a smaller black girl as an armrest”27 The campaign caused a massive controversy
and debate attracting thousands of retweets and likes, the story being covered by more than 214
26
Open Secrets (2016) Available at: https://www.opensecrets.org/lobby/clientsum.php?id=D000000547 s
Shuptrine, C. (2016) “Is Gap Inc Exploiting Racial Tension to Raise Brand Awareness?” The Huffington Post,
27
Avilable at: http://www.huffingtonpost.com/chris-shuptrine/is-gap-exploiting-racial-_b_9839818.html

11
news articles.28 Another instance of Gap marketing campaign involved an image of a happy
interracial family, causing debates on social media platforms about the issue of interracial
marriage.
6.2 Economic Factors
Gap Inc. market share and revenues are affected by a great range of economic factors directly or
indirectly. Changes in foreign exchange rate is one of the major economic factors that have
direct implications on Gap’s financial performance. For example, the company’s net sales for
fiscal 2015 decreased USD 638 million, or 4 percent, compared with fiscal 2014 primarily due to
the unfavorable impact of foreign exchange of about USD 363 million.29 The negative effect of
foreign exchange was primarily caused by the weakening of the Canadian dollar and Japanese
yen against the U.S. dollar.
An additional range of factors such as changes in inflation rate and tax rate in the US, the rate of
unemployment, the cost of labor, changes in consumer disposable income and others can also
affect the performance Gap Inc. in the US and international markets.
6.3 Social Factors
The issues of aging population in Europe and other global demographic changes are important
social factors that are going to affect Gap Inc.’s business strategy and customer targeting
practices. Increasing popularity of same-sex marriages in developed countries can be mentioned
as another important social factor that may affect fashion and accessories retail business.
Specifically, this social tendency has been reflected on Gap Inc.’s marketing strategy via a set of
campaigns during the last several years.
Gap Inc. is also greatly impacted by additional range of social factors such as changes in family
values, changes in the level of education of customers, changes in consumer attitudes and
28
29
12
opinions towards fashion and clothing, media perception of the brand and health and welfare of
the target customer segment.
6.4 Technological Factors
Generally, prominent technological factors that impact Gap Inc. include industry-specific
technological innovations and breakthroughs, decreasing life cycle of technology, changes in
energy consumption practices, shifts in manufacturing maturity and capacity and others.
Gap Inc. duly recognizes the importance of technological factors and commits to relevant
investments in a regular manner. Moreover, the company engages in product innovations with
the use of the latest technology in a regular manner. Athleta's new innovative fabric that offers
360-degree stretch in both length and width can be mentioned to illustrate this point.
6.5 Environmental Factors
The performance of Gap Inc. can be indirectly impacted by a set of ecological factors such as
global warming, air pollution, thickening of ozone layer and others. Moreover, the impact of
environmental factors on Gap Inc. performance can be direct as well in cases of environmental
disasters such as earthquakes, flooding, tornados etc.
Any corporation of a size of Gap Inc. is expected by stakeholders in general, general public and
non-governmental organization in particular to behave in a socially responsible manner and to
illustrate commitment in dealing with a wide range of environmental issues. Neglecting this
expectation may result in damage to the brand image via negative online and offline press
coverage.
6.6 Legal Factors
Gap Inc. is directly impacted by a set of legal factors such as trade regulations anti-trust rules
and regulations, data protection regulations and others. Additionally, there is a wide range of
rules and regulations relating to employee health and safety, consumer protection laws,
employment laws, and competitive rules and regulations that need to be adhered by Gap Inc.
13
Changes in these rules and regulations are most likely to impact Gap Inc. performance in direct
and indirect manner and in ways that are difficult to predict.
7. Marketing Strategy
7.1 7Ps of Marketing
Gap Inc.’s 7Ps of marketing consists of product, place, price, promotion, process, people and
physical evidence elements of the marketing mix
Product. Gap Inc. portfolio comprises five distinct brands and Table 2 below illustrates the
main categories of products sold under each brand.
Brand Main products

GAP all things denim, tees, button-downs, and khakis, must-have trends
Banana Republic clothing, eyewear, jewelry, shoes, handbags, and
fragrances with detailed craftsmanship and luxurious materials
Old Navy a wide range of clothing products
Athlete apparel and gear for a range of activities from yoga to strength
training and running, as well as seasonal sports, including skiing
and tennis
Intermix Clothing, shoes, bags and accessories
Table 2 Gap Inc. brands and respective products
Products belonging to Gap Inc. portfolio are designed and positioned as ‘cool’ and ‘trendy’ and
they are used by the target customer segment to express their individuality. The company offers
an extensive variety of range in terms of size, colors and design.
Place. The retailer uses online and offline sales channels in an integrated manner. There are
3,721 company-operated and franchise store locations within Gap Inc. portfolio and most stores
are open seven days a week.30 Customers have an opportunity to find the address of the nearest
store to their location from the official website of the company.
Starting from recently, the company has been attempting to increase the extent of utilization of
online sales channel. In a notable move, Gap’s CEO Art Peck “told shareholders that Gap is
30
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open to selling its merchandise on Amazon or other third parties in the U.S.”31 The company also
offers online shoppers to the opportunity to purchase multiple brands within its portfolio from a
single website into one shopping card.
Price. Gap Inc. pricing strategy integrates the combination of psychological and product line
pricing techniques. In 2016, the company has engaged in price optimization integrating “a cloud
based optimization system to localize the pricing of inventory in its network of retail stores. The
new strategy will enable Gap to optimize price in several ways, such as identifying the location
of the closest distribution centers to stores so as to minimize cost.”32
Promotion. Gap Inc. uses a range of elements of the marketing communication mix such as print
and media advertising, sales promotions, events and experiences, public relations and direct
marketing in an integrated manner in order to communicate the marketing message to the
representatives of the target customer segment. The marketing message attempts to associate the
consumption of Gap Inc. products with the perceptions of style, expressing individuality,
ecceptance and being ‘cool’.
Process. The range of processes critical to Gap Inc.’s success include employee recruitment and
selection, marketing research, new product research and development, sales, product return,
customer service processes and others. The company attempts to gain efficiency in relation to
each of these processes.
People. Gap Inc. has more than 140,000 employees and the company hires seasonal employees,
primarily during the peak end-of-year holiday period.33 Interpersonal, communication and
customer service skills in general are critically important qualities for shop-floor level
employees, whereas back office employees need to possess the qualities of creativity, ability to
work under pressure and being aware of unique aspects and important trends in fashion and
accessories industry.
Physical evidence refers to items related to recognition of brands within Gap Inc. brand. For
example, for Gap brand these include the word ‘GAP’ written in white letters within blue square.
Physical evidence of Athleta brand, on the other hand, comprises creative and casual design of
the store environment decorated with a few pictures of people engaged in sports games.
31
Safdar, K. (2016) “Gap CEO Says He’s Open to Selling on Amazon” The Wall Street Journal, Available at:
http://www.wsj.com/articles/gap-ceo-says-hes-open-to-selling-on-amazon-1463584218
32
Can Gap's Price Optimization Strategy Improve Its Profitability? (2016) Forbes, Available at:
http://www.forbes.com/sites/greatspeculations/2016/06/21/can-gaps-price-optimization-strategy-improve-its-
profitability/#446cb9ed4cff
33
Annual Report (2015) GAP Inc
15
7.2 Segmentation, Targeting & Positioning
Gap Inc. segmentation, targeting and positioning practices refer to ways in which the fashion and
accessories retailer identifies specific groups within the population to sell their products to and
increases the attractiveness of its products to this specific group of buyers.
Segmentation includes dividing population into groups according to certain characteristics, while
targeting implies choosing specific groups identified as a result of segmentation to sell products.
Positioning refers to the selection of the marketing mix that is the most attractive for the target
customer segment.
Gap Inc. uses multi-segment type of positioning and accordingly, the company exploits more
than one customer segment with different brands within its portfolio. For example, Gap brand
targets individuals interested in American casual style, whereas the target customer segment for
Athleta includes fitness-minded women. The company also uses imitative positioning style
occasionally by imitating the design of luxury clothing brands such as Ralph Lauren
Corporation, Versace, Giorgio Armani, Louis Vuitton and others.
The following Table 3 illustrates Gap Inc. segmentation, targeting and positioning:
Type of Seg- Gap Inc. Target Customer Segment

segmen- Men-
tation tation
crite-
ria
Gap Banana Old Navy Intermix Athleta
Republic
Regio North North America North North North
Geogra- n America Asia, Europe America America America
phic Asia, Europe Asia
Den- Urban, Rural Urban, Rural Urban, Rural Urban Urban
sity
Age 3 – 45 18-40 3 – 40 18 – 45 16 - 50
Demog- Gen- Males & Males & Males & Males & Females
raphic der Females Females Females Females
Life- Bachelor Bachelor Stage Bachelor Bachelor Bachelor
cycle Stage Newly Married Stage Stage Stage
stage Newly Couples Newly Newly Newly
Married Full Nest I Married Married Married
Couples Couples Couples Couples
Full Nest I Full Nest I Full Nest
Full Nest II I
Occup Students, Students, Students, employees employees,
ation employees, employees, employees, , professiona
16
professionals professionals professionals profession ls
als
Behavi- Degre 'Hard core 'Hard core 'Hard core 'Hard core 'Hard core
oral e of loyals' loyals' loyals' loyals' loyals'
loyalt 'Soft core 'Soft core loyals' 'Soft core 'Soft core 'Soft core
y loyals' 'Switchers' loyals' loyals' loyals'
'Switchers' 'Switchers' 'Switchers' 'Switchers'
Benef Cost Self-expression Self- Self- Functionalit
its advantage expression expression y
sough Self- Cost Perception
t expression advantage of leading
healthy
lifestyle
Perso Easygoing Easygoing Easygoing Determine Determined
nality d and and
ambitious ambitious
User regular users, non-users, non-users, non-users, non-users,
status or ex-users of potential users, potential potential potential
a product users, users, users, first-
first-time time users
users,
regular
Psychog Social Lower working working middle middle
-raphic class class/working class/middle class/middle class/uppe class/upper
class/middle class/ class/ r class class
class/
Lifest Struggler Aspirer Succeeder Aspirer Aspirer
yle34 Aspirer Succeeder Explorer Succeeder Succeeder
Explorer Explorer Reformer Explorer
Table 3 Gap Inc. segmentation, targeting and positioning
7.3 Marketing Communication Mix

Gap Inc. marketing communication mix comprises print and media advertising, sales
promotions, events and experiences, public relations and direct marketing as discussed below.
7.3.1 Advertising
Gap Inc. uses print and media advertising extensively as one of the main tools to communicate
the marketing message to the target customer segment. In 2015, the company spent USD164
34
According to Cross Cultural Consumer Characterization by Young & Rubican
17
million on measured media in the U.S., a 26.4% decline over 201435. The most popular platforms
used by Gap Inc. include magazines and journals, TV, radio and banners on city centers. In 2016,
Gap’s Athleta brand released its first TV advertisement with the campaign ‘Power of She’
focused on female empowerment supporting the debut of the Athleta Girl apparel line, which
targets ages six to 14.36
Moreover, viral marketing represents an important additional tool within Gap Inc. marketing
strategy and the company has a history of using viral marketing in a controversial manner.
Specifically, the company’s Twitter campaign included an image of “two white girls in poses
that look quite painful, next to a third white girl using a smaller black girl as an armrest” 37 The
campaign caused a massive controversy and debate attracting thousands of retweets and likes,
the story being covered by more than 214 news articles.38 Another instance of Gap marketing
campaign involved an image of a happy interracial family, causing debates on social media
platforms about the issue of interracial marriage.
7.3.2 Sales Promotion
As a fashion, apparel and accessories retailer, Gap Inc. uses various sales promotions techniques.
The use of sales promotions by Gap has the following patterns:
1. Loyalty cards – Each brand within Gap Inc. portfolio – GAP, Old Navy, Banana Repubic and
Athleta offers its own gift card, as well as, electronic gift card. A gift card by any above brand
can be used across all Gap Inc. sites and stores. Once applied online, a gift card can be delivered
within 3 – 5 business days in a s p e c i a l e n v e l o p e w i t h a p e r s o n a l i z e d m e s s a g e .
2. Point of sale materials such as posters and display stands in stores is one of the main sales
promotions techniques extensively used by Gap Inc. The fashion, apparel and accessories
retailer is experienced in presenting the product in its best way or show the customer that the
product is there in each store across its brands.
35
Pasquarelli, A. (2016) “Reporting Continued Dip in Sales, Gap Plans to Ramp Up Marketing” Adage, Available
at: http://adage.com/article/cmo-strategy/gap-plans-ramp-marketing/305521/
36
Pasquarelli, A. (2016) “Gap Inc.'s Athleta Debuts First TV Spot” Advertising Age, Available at:
http://adage.com/article/cmo-strategy/gap-s-athleta-debuts-tv-spot/303576/
37
38
18
3. Money off coupons. Although Gap Inc. brands do not offer money off coupons directly from
their website or in their stores, discount coupons for Gap Inc. products can be purchased from a
range of third party websites such as www.retailmenot.com, www.coupons.com,
www.groupon.com and others.
Apart from above, the company seldom uses additional sales promotion techniques such as
competitions and free gifts.
7.3.3 Events & Experiences
Gap Inc. is not famous for sponsoring and hosting various events and experiences that promote
specific products and promote brand image in general. A few cases of events and experiences
organized by Gap Inc. include Gap pride event. In June 2016 employees in the New York City
Pride parade marched past the 17th Street Gap store and San Francisco was gearing up for the
walk ahead. Similar events were organized around the globe - in Japan for Rainbow Pride,
in Toronto, and stateside from Chicago to Albuquerque.39
Gap Inc. events and experiences are aimed at increasing the level of brand awareness among the
public in general and the target customer segment in particular. Moreover, Gap Inc. attempts to
communicate the brand value offer to the target customer segment in indirect manner.
7.3.4 Public Relations
Public relations can be defined as a “discipline which looks after reputation, with the aim of
earning understanding and support and influencing opinion and behavior. It is the planned and
sustained effort to establish and maintain goodwill and mutual understanding between an
organisation and its publics”.40 Gap Inc. runs its public relations practices via online press
releases, annual reports, speeches and seminars. An annual Global Sustainability Report is also
used by Gap Inc. as an effective PR tool.
39
Hunt, T.R. (2016) “COAST TO COAST, CONTINENT TO CONTINENT: GAP INC. WEARS ITS PRIDE”,
aDressed, Available at: http://adressed.gapinc.com/blog/2016/6/27/2016-pride
40
Chartered Institute of Public Relations (n.d.) Available at: http://www.cipr.co.uk/content/careers-advice/what-pr
19
7.3.5 Direct Marketing
Direct marketing can be defined as “as a marketing strategy to build stronger, more personal
relationships between the buyer and selected customers directly” 41. In other words, in direct
marketing there are no intermediaries between the buyer and the seller in terms of promotion and
distribution. Gap Inc. uses direct marketing occasionally via sending marketing emails to
representatives of the target customer segment.
7.3.6 Personal Selling
Personal selling is “person-to-person communication with a prospective customer in order to

develop a relationship, identify customer needs, match goods/services with those needs,
communicate benefits to customers, and gain commitment to purchase goods/services that satisfy
customer needs”42 Gap Inc. does not use personal selling element of the marketing
communication mix.
8. Porter’s Five Forces Analysis
Gap Inc. Porter’s Five Forces analysis includes a critical analysis of five separate forces that
shape the overall extent of competition in fashion, apparel and accessories industry. Developed
by Michael Porter (1979)43, five forces analysis remains as one of the most important strategic
analytical tools for competitive analysis for more than three decades. Figure 3 below illustrates
the essence of Porter’s Five Forces.
41
Moore, K. & Pareek, N. (2010) “Marketing: The Basics” 2 nd edition, Taylor & Francis, p.168
42
Siguaw, J.A. & Bojanic, D.C. (2004) “Hospitality Sales: Selling Smarter” Cengage Learning, p.2
43
Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review
20
Bargaining Bargaining
power of power of
buyers suppliers
Threat of
Threat of new substitute
entrants Rivalry products or
among services
existing
firms
Figure 3 Gap Inc. Porter's Five Forces
Rivalry among existing firms clothing and accessories industry is fierce. Gap Inc.’s major
competitors include Abercrombie & Fitch Co., American Eagle Outfitters, Inc., Belk, Inc.,
Guess, Inc., J. C. Penney Company, Inc., J.Crew Group, Inc., Michael Kors Holdings Ltd, Urban
Outfitters, Inc., Williams-Sonoma, Inc. and others.
It is important to note that “despite being one of the bigger apparel players in the U.S., Gap Inc.
holds less than 5% market share, which clearly indicates the diverse nature of the U.S. apparel
industry. Higher shares are held by multi-brand retail chain Macy’s (9%) and general
merchandise retailer Wal-Mart (over 7%). J.C. Penney (3.3%) and Target (5.4%) also hold a
similar portion of the market, and American Eagle Outfitters, Aeropostale and Abercrombie &
Fitch together account for just over 2% of total U.S. apparel sales.”44 The figure 4 below
illustrates a rough pattern of retail landscape in the US.
44
Forbes (2015) Available at: http://www.forbes.com/sites/greatspeculations/2015/07/15/gap-inc-is-gradually-
losing-its-share-in-the-u-s-apparel-market-to-fast-fashion-counterparts/#7469a03e7817
21
Figure 4 Apparel market share in the US
Bargaining power of Gap Inc. suppliers is low. The company purchases from about 1000
suppliers with factories in about 40 countries. Gap’s two largest vendors each accounted for only
about 5 percent of the dollar amount of its total fiscal 2015 purchases 45. Accordingly, Gap Inc.’s
business is not dependent on any particular supplier and this fact increases its bargaining power
in dealing with supplies.
Furthermore, for the majority of suppliers it is critically important to have business with Gap Inc.
due to the high volume of its orders. Additional factors that contribute to the bargaining power of
the apparel and accessories retailer in dealing with its suppliers include its ability to substitute
suppliers and minimum supplier substitution costs in most cases.
Threat of new entrants into fashion, apparel and accessories industry is moderate. Access
to distribution channels represents one of the most significant barriers for new market entrants,
since it is difficult to find vacant places in attractive locations to open new stores. Moreover,
major market players such as Gap, Macy’s and Zara derive tremendous benefits from the
economies of scale and this opportunity is not available for new market entries, at least during
the first few years of operations. The need for large capital requirements to set up the business
and expected retaliation from the current market players are additional challenges to be faced by
potential new market entrants.
45
22
Bargaining power of Gap Inc. buyers is great. In clothing, apparel and accessories industry
there are many choices for customers in terms of brands and the variety of products offered by
these brands. There are no barriers or additional costs for Gap Inc. customers to switch to any of
its competitors and this is a major factor fuelling buyer bargaining power.
Threat of substitute products or services for clothes, apparel and accessories are almost
non-existent. Clothing is one of the basic human needs and there is no direct or even indirect
substitute to satisfy this need. There might be some threat for substitute products and services for
premium fashion brands such as Burberry, Prada and Ralph Lauren since consumers may switch
to cheaper alternatives such as Gap, Next and Marks & Spencer in times of economic difficulties
or due to a wide range of reasons. However, for clothing brands pursuing cost leadership
strategy such as Gap and Primark, there is no threat of substitute products and services.
9. Value-Chain Analysis
Value chain analysis is a strategic analytical tool that analyses the sources of value creation for
businesses. Gap Inc. value chain analysis presented below critically analyses the most important
primary and support activities that contribute to the competitive advantage of the apparel and
accessories retailer. Figure 5 below illustrates the essence of value chain analysis.
23
Figure 5 Gap Inc. Value chain analysis
9.1 Primary Activities
Inbound logistics
Gap Inc. inbound logistics involves purchasing from about 1,000 vendors that have factories in
about 40 countries. During the fiscal year of 2015, approximately 99 percent of purchases, by
dollar value, were from factories outside the United States, while the remaining 1 percent of all
purchases were from domestic factories. Moreover, about 24 per cent of total purchases by dollar
value during the same period were made from factories based in China.46
Due to the massive purchase volumes, economies of scale can be specified as the main sources
of value creation for Gap Inc. Moreover, the company benefits from strategic, long-term
relationships with its suppliers. In 2016, the company embraced supplier transparency practices
disclosing the list of factories that produce its clothes around the world.47
46
47
24
Operations
GAP Inc. business operations are conducted in two formats48:
1. Gap Inc. has company-operated stores in the United States, Canada, the United Kingdom,
France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and beginning in October 2015,
Mexico.
2. The company also has franchise agreements with unaffiliated franchisees to operate Gap,
Banana Republic, and Old Navy stores throughout Asia, Australia, Europe, Latin
America, the Middle East, and Africa.
Gap Inc. has 3,721 company-operated and franchise store locations throughout the world. The
company derives value in operations primary activities mainly through opening its stores in
locations and shopping centers frequently attended by the representatives of the target customer
segment.
Outbound logistics
Gap Inc. outbound logistics involves warehousing and distribution of products to the customers.
Gap maintains a large part of its inventory in distribution centers. The company owns about 8.6
million square feet of distribution space in the following locations:49
 Fresno, California;
 Fishkill, New York;
 Groveport, Ohio;
 Gallatin, Tennessee;
 Brampton, Ontario, Canada;
 Rugby, England.
The company creates value in outbound logistics by leasing some parts of distribution space it
owns to other companies as an additional source of revenue. Specifically, out of 8.6 million
48
49
25
square feet of distribution space owned by Gap Inc. approximately 117,000 square feet is leased
to and occupied by other businesses.50
Marketing and sales
Gap Inc. marketing and sales efforts involve utilization of various components of marketing
communication mix such as print and media advertising, sales promotion, events and
experiences, public relations and direct marketing. The company’s advertising expenses equaled
to USD 578 million, USD 639 million, and USD 637 million in fiscal 2015, 2014, and 2013,
respectively.51
Gap’s sales and margins are highly fluctuating in nature. The volume of sales usually peak
during the end-of-year holiday period. Over the past five years, the company’s reported gross
margins have ranged from a high of 39.4 percent in fiscal 2012 to a low of 36.2 percent in fiscal
2015 and fiscal 2011. In addition, over the past five years, Gap’s reported operating margins
have ranged from a high of 13.3 percent in fiscal 2013 to a low of 9.6 percent in fiscal 2015.52
Gap Inc. creates value in marketing and sales aspect of the business by providing online
shoppers the opportunities of purchasing multiple brands within its portfolio into one shopping
card. Additionally, brands within Gap Inc. portfolio are competent in effective utilization of
point of sales marketing within stores.
Service
Service primary activities within value chain analysis refer after the sales service provisions
provided by businesses. Gap Inc. has a competitive product return policy. Customers can return
items bought at Gap, Old Navy and Banana Republic within 45 days of purchase and items
purchased from Athleta may be returned at any time. Moreover, the company stays connected to
its customers via multiple channels including e-mail communication, social media and text
messaging.
50
51
52
26
9.2 Support Activities
Infrastructure. Gap Inc.’s infrastructure includes its wide range of support systems and
functions such as finance, planning, quality control and general senior management. Gap
organizational structure is hybrid and it integrates certain elements of divisional and hierarchical
organizational structures. Gap organizational structure is divided into five divisions with each
division representing a separate brand and headed by a president. At the same time, the
organizational structure of each division is highly hierarchical and there are multiple levels of
management between the president of the division and a shop floor assistant.
Human Resource Management. Gap Inc. has more than 140,000 employees globally. The
company hires seasonal employees, primarily during the peak end-of-year holiday period. In
terms of HRM, the main sources of value for Gap Inc. relate to effective application of intangible
employee motivation tools. This strategy enables the company to maintain its competitive
advantage based in cost leadership. In 2015, the company provided job training and store
internships through its This Way Ahead program to more than 2000 teens and young adults.
Technology Development as a secondary activity in the value chain involves the use of
technology to increase the effectiveness of primary activities in terms of value creation.
Generally, technology-related sources of value creation include an effective integration of
technology into a wide range of organizational processes and procedures, breakthroughs via
investments in new technology development, sharing technology with other firms to save costs
and others. Up to date, Gap Inc. has not been able to adopt technology development as a solid
source of competitive advantage.
Procurement activity within Gap Inc.’s chain of support operations relates to the ways resources
are acquired for the business. Due to the size and scope of Gap Inc.’s business operations, the
company runs complex procurement activities in the global scale, aiming to adhere to fair
business practices.
27
10. McKinsey 7S Model
Gap Inc. McKinsey 7S model explains how seven elements of businesses can be aligned to
increase the overall effectiveness. According to McKinsey 7S framework strategy, structure and
systems represent hard elements, whereas shared values, skills, style and staff are soft elements.
The essence of this model is this: there are links between elements in a way that a change in one
element causes changes in others. As it is illustrated in Figure 6 below, shared values are
positioned at the core of Gap Inc. McKinsey 7S framework, since shared values guide employee
behavior with implications in their performance.
Figure 6 Gap Inc. McKinsey 7S Framework
Hard Elements
Strategy. Gap Inc. uses cost leadership business strategy for all five brands within its portfolio -
Gap, Banana Republic, Old Navy, Athleta, and Intermix. The company offers fashion, apparel
and accessories products for much cheaper prices compared to the prices of premium fashion
28
brands such as Prada, Dolce & Gabbana and Gucci. In other words, Gap Inc. business strategy
capitalizes on the willingness of consumers to express themselves via clothes, to feel stylish,
‘cool’ and trendy in the cost effective manner.
Structure. Gap organizational structure is hybrid and it integrates certain elements of divisional
and hierarchical organizational structures. Gap organizational structure is divided into five
divisions with each division representing a separate brand and headed by a president. At the
same time, the organizational structure of each division is highly hierarchical and there are
multiple levels of management between the president of the division and a shop floor assistant.
Systems. There is a wide range of systems such as supply-chain system, quality control system,
sales system, finance system, employee selection and recruitment system and others that
facilitate Gap Inc. business operations. The company subjects the level of efficiency of its
system into a critical analysis in a periodic manner in order to find and utilize opportunities for
improvement with positive implications on the volume of sales.
Soft Elements
Skills. Employee skills and competencies is one of the critical success factors in the fashion
retail industry. As GAP’s CEO rightly acknowledges “not only is talent one of our top priorities
– it makes our other priorities possible”53. The company runs various training and development
programs to nurture employee skills and competencies. For example, during the period of 2013 –
2014 Gap Inc. provided job training and store internships through its This Way Ahead program
to more than 2000 teens and young adults.
Staff. Gap Inc. has more than 140,000 employees globally. The company hires seasonal
employees, primarily during the peak end-of-year holiday period. In terms of HRM, the main
sources of value for Gap Inc. refers to effective application of intangible employee motivation
tools. This strategy enables the company to maintain its competitive advantage based in cost
leadership.
Style. Visionary leadership style is the main leadership style extensively exercised in Gap Inc.
Specifically, the CEO Art Peck has a vision to restore the ‘cool’ image of the brand and he is
active in communicating this vision to employees at all levels. An effective exercise of visionary
53
29
leadership style can provide Gap Inc. the advantages of promoting innovation, learning,
creativity and relationships, all in the effort to share and attain a common goal above.
Shared values. Gap Inc. strategic level management attempts to promote the values of diversity,
freedom of self-expression, and stylishness to organizational stakeholders. For Gap Inc. these
values are well aligned with other elements within the framework of McKinsey 7S as listed
above.
11. Corporate Social Responsibility
Gap Inc. management rightly acknowledges Corporate Social Responsibility (CSR) as one of the
critically important aspects of the business. The company has won a number of awards for its
CSR programs and initiatives, including 2016 Catalyst Award in recognition of its commitment
to equality, diversity and inclusion54. Moreover, in 2015 Gap Inc. was named as The Most
Ethical Company by The Ethisphere Institute.55
11.1 CSR Programs and Initiatives
Gap Inc. releases Global Sustainability Report annually and it includes the details of CSR
programs and initiatives engaged by the company. Table 4 below illustrates the highlights from
the latest report for 2013-2014:
Categories of Gap Inc. Performance

CSR activities
Supporting local Gap’s employees volunteered 558,000 hours in 2014 alone
communities
Educating and The company provided job training and store internships through its This
empowering Way Ahead program to more than 2000 teens and young adults.
workers
Labor and Over the past several years the company raised the hourly wage to USD 10
human rights for more than 60,000 employees
Employee health The company has a centralized online reporting system that tracks all
and safety incidents and injuries. The information is analyzed at least quarterly to
assess risks and develop prevention measures
Gender equality P.A.C.E. program aims to support female employees and suppliers gain the
and minorities skills and confidence to advance at work and at home. The program aims to
54
55
Gap Inc. Press Release (2015) Available at:
http://www.gapinc.com/content/gapinc/html/media/pressrelease/2015/med_pr_2015_WME.html
30
educate one million women throughout the world by 2020.
Gap Inc. pays female and male employees equally for equal work
In 2015, women represented more than 70 per cent of Gap’s senior

leadership.
The company sponsored 6 employee resource groups to promote diversity

and inclusion.
Environment
a) energy The fashion retailer has installed LED lights, which use 80 percent less
consumption energy and last 5–10 times longer, at more than 30 percent of its U.S. stores
b) water The company developed Clean Water Program requiring its suppliers
consumption special treatment of water used to launder Gap, Banana Republic, and Old
Navy denim to ensure that it’s clean and safe when it leaves the denim
laundry facility
c) Waste
reduction and Gap has announced to achieve 80 percent waste diversion from landfill for
recycling its U.S. facilities by 2020 compared to the base year of 2015
d) CO2 The company aims to achieve 50 percent absolute reduction of greenhouse

emissions gas (GHG) emissions by 2020 in its owned and operated facilities globally
from 2015 levels
Sustainable Gap visits about 1,000 factories that makes its clothes each year
sourcing
Starting from 2016, the company discloses the list of factories that produce
its clothes around the world
Other initiatives Thanks to Gap’s Women+Water program 17,000 people in India now have
and charitable access to clean water. The company partners with fabric mills and the
donations Natural Resources Defense Council to conserve water and fight pollution
Table 4 Gap Inc. CSR performance56
11.2 CSR Criticism
Along with CSR initiatives and programs as illustrated above, Gap Inc. has faced criticism on the
grounds of human rights abuses and running sweatshops by a number of its suppliers in
developing countries. “Like many retailers, the company has long touted its corporate
responsibility chops, only to have international labor and human rights groups accuse it of
looking the other way when it came to scrutinizing suppliers’ factory conditions overseas.
56
Figures taken from Global Sustainability Report 2013 – 2014
31
One NGO accused a major Gap supplier in Bangladesh of working its employees up to 100
hours a week while cheating them on their wages and denying women their mandated maternity
leave. HRW has logged similar complaints in Cambodia just last year, with workers as young as
12 denied bathroom breaks while toiling in dangerous conditions as they stitched garments for
Gap’s stores. These shenanigans of Gap and its peer companies are partly why labor advocates
here in the U.S. oppose the controversial Trans Pacific Partnership (TPP) trade agreement; even
though this trade treaty claims U.S.-made textiles could actually see growth in these emerging
markets.”57 It has to be noted that despite the few incidents listed above, Gap Inc. performs
comparably well in terms of CSR, taking into account its large size and the scope of its
operations.
12. Recommendations
On the basis of discussions and analysis above, the following recommendations can be
formulated to Gap Inc. in order to address the current challenges faced by the business and
increase its long-term growth prospects:
1. This report has identified that the potentials of online sales is currently not fully utilized
by Gap Inc. The failure of Piperlime, an online brand belonging to Gap Inc. portfolio is a
convincing illustration of the presence of issues in online segment of the business.
Accordingly, the senior level management is recommended to increase the efficiency of
online sales by attracting highly qualified professionals with proven experience and
leadership in e-commerce sales.
2. Gap Inc. is recommended to engage in international market expansion strategy in order to

reduce the current high level dependency of the business on UK home market. Rapidly
emerging economies such as China, India and former USSA bloc countries are attractive
markets where Gap Inc. should focus on. Attractiveness of these markets are associated
with increasing consumer spending power in emerging economies, coupled with market
saturation in developed countries where Gap Inc. traditionally operates.
57
Kaye, L. (2016) “Gap Inc. Takes a Stand on Supplier Transparency” Triple Pundit, Available at:
http://www.triplepundit.com/2016/09/gap-inc-takes-stand-supplier-transparency/
32
3. The company needs to re-focus on a set of timeless iconic products such as 1969 Denim
Jeans, khakis and worker shirt. Previously, these products have greatly contributed to
Gap Inc. becoming one of the most popular clothing brands in the US with a solid global
presence due to their design and quality. Re-positioning of these products at the center of
an effective marketing communication strategy can play an instrumental role in terms of
dealing with the current problems of declining sales and profits.
4. The potential of celebrity endorsement as an effective marketing strategy is currently

underutilized by Gap Inc. The senior management in general and senior marketing
management in particular is recommended to address this situation by recruiting
celebrities from show business and sports who are popular among the target customer
segment as brand ambassadors.
33

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Gap Inc.

Figure 1 Gap Inc. organizational structure ...................................................................................... 4

3. International market expansion. The management is planning to open additional Old

Art Peck Chief Executive

EVP, Global General Counsel,

EVP, Global Supply Chain:

EVP, Global Supply Chain:

EVP and Chief Information

Figure 1 Gap Inc. organizational structure

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to

1. A strong portfolio of distinct brands 1. Declining sales and profits

Table 1 Gap Inc. SWOT analysis

1. Increasing the efficiency of online sales is an obvious opportunity to be explored by Gap

2. International market expansion focusing on Asia is another noteworthy opportunity for

4. Formation of strategic alliances represents an attractive opportunity to be considered by

6.1 Political Factors

Figure 2 Gap Inc. annual lobbying budget26

Avilable at: http://www.huffingtonpost.com/chris-shuptrine/is-gap-exploiting-racial-_b_9839818.html

6.2 Economic Factors

6.3 Social Factors

6.4 Technological Factors

6.5 Environmental Factors

6.6 Legal Factors

7.1 7Ps of Marketing

Brand Main products

Type of Seg- Gap Inc. Target Customer Segment

Table 3 Gap Inc. segmentation, targeting and positioning

7.3 Marketing Communication Mix

7.3.2 Sales Promotion

7.3.3 Events & Experiences

7.3.4 Public Relations

7.3.6 Personal Selling

Personal selling is “person-to-person communication with a prospective customer in order to

8. Porter’s Five Forces Analysis

Figure 3 Gap Inc. Porter's Five Forces

9.1 Primary Activities

GAP Inc. business operations are conducted in two formats48:

Marketing and sales

Figure 6 Gap Inc. McKinsey 7S Framework

11. Corporate Social Responsibility

11.1 CSR Programs and Initiatives

Categories of Gap Inc. Performance

In 2015, women represented more than 70 per cent of Gap’s senior

The company sponsored 6 employee resource groups to promote diversity

d) CO2 The company aims to achieve 50 percent absolute reduction of greenhouse

11.2 CSR Criticism

2. Gap Inc. is recommended to engage in international market expansion strategy in order to

4. The potential of celebrity endorsement as an effective marketing strategy is currently

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