GAP, Inc.: Strategic Alternatives Based on SWOT

Executive summary

GAP Inc. operates in a highly competitive industry and has to quickly respond to emerging trends and new competitors. The evaluation of current market position and business operations confirms the necessity for changes and implementation of detailed strategic planning on all levels: corporate, business, and functional.

The financial success of the company primarily depends on the strategic management team. It is imperative that the company develops and successfully implements the profitable business plans and strategies in order to achieve the predetermined goals.

Strategic management is common in all businesses, and requires strategy formulation, strategic intent identification, vision and mission statements, external, and internal environment analysis. (Aswathappa, Keddy, pp.13-29).

The analysis of the internal environment and TWOS matrix suggest several ways to decrease costs, increase profits, and benefit the company as a whole. There are several alternative strategies GAP Inc. may use to achieve its objectives and sustainable competitive advantage. The company’s strengths in quality and variety of product will maximize the opportunity of store expansion. GAP Inc. technological awareness enables the company to add new features for online shoppers and minimize the threat of substitutes. The high technologies, innovation in textile manufacture, and agreements with the partners will minimize weaknesses of brand identity and issues in paying systems.

The successful development and implementation of chosen strategies, as well as analysis and evaluation of the results is closely controlled and monitored by CEO. His immediate reaction to emerging industry trends and execution of necessary changes shall aid ensuring the company’s success.

Industry trends.

Mission statement and objectives. The international apparel retail industry is highly competitive. The original mission statement of the company underlined the necessity to create emotional connections with the customers. Thus far, GAP Inc. has put people at the center of their business. According to CEO Art Peck (2018), the “success depends on our people: the ones who design, make and sell our products, and the ones who buy them.” (A. Peck, 2018). Its mission, stated in 10-k report (2017), is “to continue to connect with customers around the world … and bring the brand to value-conscious customers.” (10-k, p.1).

To efficiently compete with local, foreign, and international apparel companies, GAP Inc. continues to build its brands and overcome many challenges specific to the retail industry. One of the key objectives of the company is to transform the product in line with market needs and develop the advanced operating platform.

The main business priorities of GAP Inc. are product, experience, talent, and growth. (A. Peck, p.2). Offering the high quality products and delivering multiple innovations would help to create a unique customer experience and build the consumers’ loyalty. In order to keep up with newly developed high technologies, GAP Inc. needs to constantly improve its digital and mobile services. Attracting and retaining great talent is important for creative functions and business as a whole. Constant growth and improvement is important to deliver sufficient and stable results.

Emerging trends. The emerging trends in any industry influence the sales and profitability of the company. They can either boost sales and increase the revenues or freeze important deals and substantially decrease profits. It is hard to predict the financial and economic outcomes of the emerging trends impact. However, to stay competitive GAP Inc. has to always be ready for new challenges and address them in timely manner. Changing customers’ tastes, fashion, and innovations in textile or sewing techniques have to be considered when choosing the business strategy.

Healthy nutrition, environment-friendly products, and sport are very popular nowadays. People prefer non-GMO and organic foods, and try not to use plastic bags to reduce water pollution. The apparel industry is not an exception: many companies already refrained from using natural fur in their designs. People want to save the nature and wear the environment friendly clothes. To avoid monetary losses and unsatisfied customers, GAP Inc. needs to follow the emerging trends.

Such issues as recycling, waste elimination, energy saving, manufacturing at mills and laundries, and water pollution should be properly addressed in order to create the environmentally friendly product lines. For example, the investment in high quality equipment and inventory and professional training programs for employees would substantially decrease the defective products.

Prosperity as the result of investments. GAP Inc. wouldn’t achieve its current financial standing and economic position on the international market without investing in the development of new technologies. Investment in supply chain, marketing, advertisement campaigns, remodeling of the existing stores, and information technologies drives the customers engagement and loyalty, and enables the company to gain market share.

GAP Inc. has to further develop the digital and mobile shopping services. As customers shift from brick-and-mortar stores to e-commerce, the company needs to find the ways to connect its physical stores to digital and open online divisions. (Pozzi, p. 569). The company’s IT department needs to work as twice as hard on the digital integration and customer personalization in an effort to improve the online shopping experience.. Due to high competition in the industry, GAP Inc. has also to continue its investments in strengthening brand awareness and customer acquisition.

These investments will create an easier online shopping process, help to control and monitor the customer data, and further assist in analyzing the customers’ preferences and needs.

Internal competitive advantage.

CEO and his role. In addition to ensuring the continued financial profitability of the company, the CEO is also responsible for the firm’s corporate social responsibility, values, and ethics. He has to lead by example, promote, and support the fair treatment and dialogue between the workers and the management. CEO has to ensure that the company takes social responsibility for all its actions, abides the laws, respects the established norms, and protects the human rights. Reputation is important to both customers and stockholders. The internal competitive advantage can be achieved only when each employee is happy and willing to work for the company’s best results.

CEO has to set up the long-term goals and find the ways to accomplish them. He should participate in various projects aimed to improve the manufacturing practices. Donations and charity events enable the company to prove its social responsibility. For example, Art Peck is one of the participants of the project to conserve about 10 billion liters of water by 2020. Moreover, under the supervision of CEO, GAP Inc. pursues the accepted society norms and standards and donated $1 million to Boys and Girls Clubs after Black Friday 2018. (Gap Inc., 2018).

Human Resource as internal competitive advantage driver. A company can’t efficiently operate without an HR department. Its main task is to help employees with adaptation process, and to make this process easy and smooth. HR personnel should provide the necessary training for new staff regarding safety and security rules, company’s principles, professional ethics, and behavior requirements. Given GAP Inc.’s global presence, the company has to also provide the necessary training to all expat workers as it helps to prevent the unexpected issues.

For example, GAP, Inc. was involved in child-labor scandal in India several years ago. (Gendelman, 2007). As a result, the company lost the society trust and had some monetary losses. To avoid and prevent similar issues, the company needs to control its operations more carefully, especially in foreign countries. Moreover, GAP, Inc. should make some investment in research and learning prior to entering the foreign markets. The unfamiliarity with local traditions, customs, and accepted norms could cost the company its reputation and monetary losses. Accordingly, it directly influences the financial performance of the company. Cooper, Martin, and Burke (2011) underline that companies need about eleven years to rebuild the corporate reputation. The stockholders might need even more time to fade scandals from their memory.

Internal analysis – SWOT.

SWOT analysis is a useful tool that helps managers to identify how the internal and external factors interact to create the sustainability and competitive advantage. It is used in the early stages of marketing planning and helps the top managers in problem solving and decision-making, as well as demonstrates the need for changes and improvements. A few researches in article of SWOT Methodology (2011) underlined that SWOT analysis “is widely used … for analyzing internal and external environment in order to attain a systematic approach and support for decision situations.” (Ghazinoory, Abdi, and Azadegan-Mehr, p.24). Strengths and weaknesses help to identify the firm's internal abilities or disadvantages, evaluate company’s culture, operational capacity, and financial resources. Opportunities and threats help to identify some of the external factors such as competitive forces, new technology developments, and suppliers.

Strengths. The core strength of GAP, Inc. is the quality and variety of products. The variety of product offerings allows GAP, Inc. to attract customers with different income level and social status. While targeting the wide segment of consumers, the company continues to achieve its goal for further expansion. The firm satisfies the need for different types of customers by presenting several brands. Also, the company makes the investments in “strengthening brand awareness, customer acquisition, and digital capabilities.” (10-K, p.20).

In addition to the product variety and sustainable market position, GAP, Inc. is technologically developed. The company uses digital means for advertising its products and running marketing campaigns. Each of the brands has its own website to make the process of online shopping easier. Moreover, GAP, Inc. has Facebook page and multiplevapps in Apple Store.

Strong management guidance, corporate social responsibility, and human resource management are among many of the company’s strengths. GAP, Inc. is constantly working on improvement operating conditions, monitoring its factories, integrating labor standards into business practices, and collaborating with partners to drive industry-wide change. (Wright, Sage-Gavin, 2006). The company also offers great benefits to its employees which include but not limited to saving and retirement plans, paid vacation, merchandise discounts, employees stock purchase plans, and tuition reimbursement.

Today, GAP, Inc. has strong market position, brand recognition, high level of ethics and corporate values. However, in the era of high speed Internet and various digital platforms GAP, Inc. faces competition from many other online retailers. The company needs to further develop its technological awareness, and make substantial investment in the information technology department.

Weaknesses. Unfortunately, GAP, Inc. still has a few weaknesses specific to apparel industry. The feeble brand identity is the predominant weakness of the company. The customers can find basic cloths and business apparel in many other stores. GAP, Inc. may need to hire some creative designers to create and develop unique product features that customer can easily identify. For example, they may follow Gucci’s example; the company has a lot of recognizable trademarks including green and red stripes.

Another company’s weakness is the reliance on the third party manufacturers. Given that GAP Inc. has many manufacturing factories in Bangladesh, China, India, Pakistan, Mexico, Taiwan, and other countries, the company faces some difficulties in purchasing the production rights. Manufacturing products in a foreign country is always associated with risks in terms of culturally accepted norms and standards.

In addition, Gap, Inc. also has some problems with paying system. Nowadays, most of the consumers pay for their purchases using either Google or Apple Pay applications in their gadgets. During the presentation of GAP Inc. Balanced Growth, CEO A. Peck underlined the importance and necessity to create and develop the “proprietary scaled e-commerce platform … enhanced native mobile apps with credit cards management… and Apple pay in mobile browser”. (A. Peck, p.16). Many hi-tech savvy people don’t carry credit cards anymore. Unfortunately, GAP, Inc. does not currently accept these payment methods.

Such weaknesses decrease the company’s competitive advantage. The unique brand identity is needed to retain loyal customers, and attract new ones. The research of foreign country’s laws and norms may help in reducing the power of third party manufacturers. To solve the problem of available paying system, the company may enter in agreement with partners to accept all available payment methods.

Opportunities. Among others, GAP, Inc. opportunities include the stores expansion, and technological opportunities in E-retailing. The company is planning to drive innovation in apparel retailing and accelerate U.S. comparable store sales. Moreover, GAP, Inc. has a great growth potential in further expanding into the emerging and existing markets. For example, the company expects net openings of about 25 company-operated store locations. (10-K, p.22).

The use of computer capabilities and technological innovations may both improve the marketing campaigns and increase the online sales. Given the convenience of online shopping, many consumers opt in for this option. The company can compete in E-retailing only if the website is practical, glitch free, and easy to use.

The store expansion should probably be developed simultaneously with product expansion. The company may expand its production lines by creating and launching the sporty goods, maternity, or plus-size apparel. To advertise and sell the new products, GAP, Inc. should invest in website design. There is a plenty of companies, which provide such services. For example, the company may seek some Google services to interact with the consumers.

Threats. The core threat of the company lies in its inability to control neither the prices of raw materials nor the prices of its competitors. Constant changes in consumer tastes and lifestyle choices may also be considered as threats and affect the company’s revenues. The shift in consumer behavior towards more environmentally friendly products represents an enormous threat for the company.

Another major threat for the company is credit rating. According to Dow Jones (2018) Fitch ratings lowered GAP’s, Inc. credit rating to junk status. (Press release, 2018). The company may face some difficulties to raise capital (regardless if it is a debt or equity capital) due to downgrading. GAP, Inc. should concentrate on re-establishing its brand position.

Threats are largely associated with urgency of decision-making process. The faster the company addresses the constantly changing external factors, the more chances it has to succeed. The reason for the credit rating to fall is the result of decline in sales. The top managers should closely work with financial team of Gap, Inc. to increase sales volume. Threats and opportunities are salient in executive decision-making and “evoke some form of organizational action.” (Chattopadhyay, Glick, Huber, p.939).

Alternative strategies. TOWS matrix describes the strategies for sustainable competitive advantage based on SWOT analysis. (Table 1, Appendix).

1. Today, the alternative and plus-size models are in high demand, overstepping the ancient fashion stereotypes. To maximize opportunities for store expansion, there is a need to create and add new product lines to existing variety of apparels. An idea to add new brand of plus-size clothing, for example, will enable GAP to target new audience and attract new customers. There is a proper way to use technological awareness in order to maximize e-retailing quality. For example, the creation and inclusion of “what-if feature” in online shopping will help to find best styles for particular consumer. Some customers are not sure if they fit in particular model, style, or design of the clothing. Entering the personal data (e.g. height, or another body dimension), the customer will be able to see how well the product will fit. The constant monitoring and on time update and refinement of current software and hardware are needed to increase speed and quality of online transactions, as it will save time and reduce costs.
2. In an effort to minimize the dependence on raw material prices, GAP Inc. has an opportunity to use technological awareness and science to create a new textile. The more variety of raw material the company uses, the more chances it has to be independent of the poor harvest of silk, for example. It will enable the company to replace or use less cotton and natural silk (in case of the unexpectedly increased prices). To match or beat the competitors’ prices, GAP Inc. may use technological innovations and new equipment in production process. It will allow minimizing the production costs and improve competitive advantage. The increase in credit ratings followed by sales boost directly depends on the advantages taken from technological innovations.
3. The advantages of store expansion can be used to minimize the cultural gap. It is given the specific store location and area of operation, that the company may include limited addition or ethnicity-oriented product lines to existing collection. For example, GAP Inc. can include clothing with Indian vibes in the locations with high concentration of Indian population. To eliminate the existing issues in paying systems, the company needs to hire IT team or enter into an agreement with such giants in technological innovations as Microsoft or Apple. In addition, computer capabilities enable the company to improve its corporate culture and social responsibility. It is also anticipated that social media and public networks will enable the company to run the marketing campaigns more effectively and reach the wide spectrum of targeted audience.
4. There are always ways to minimize weaknesses and avoid threats. GAP Inc. can invest in research and development prior to entering into a new market. It will help to find cheaper suppliers, and minimize the risks associated with local government policies and laws. The analysis of competitors’ strategies for mistakes enables the company to avoid unnecessary costs. Another important issue that needs to be addressed is intellectual property. There are many examples when the major companies file the lawsuits against each other for the usage of particular combination of colors, design, letter, etc. (e.g. Gucci vs. Guess lawsuit about trademark, logo, design, and motif in 2009). The intellectual property of the company has to be properly managed and protected, as it will help to avoid the unnecessary lawsuits with shareholders, competitors, and customers.

Conclusion. To stay competitive in the market, GAP Inc. should quickly respond to the latest fashion trends and satisfy the customers’ demand. The fresh design ideas are needed to create brand awareness and loyalty such that the company’s products continue to be in high demand. The tastes and consumers lifestyles are constantly changing, and GAP Inc. has an opportunity to effectively use social media for marketing campaigns in order to remain high-sought brand within a highly competitive retail industry.

Any major change whether in business operations or in marketing campaign should be supported by an investment. The identified issues and suggested alternative strategies require the stockholders’ consent. The CEO, investors, and executive management should be fully involved in strategic planning. The constant analysis of both internal and external environment enables the company to adapt to new market conditions.

References

1. Art Peck (September 6, 2017). GAP Inc. Balanced Growth. Retrieved from http://www.gapinc.com/content/dam/gapincsite/documents/090617_GPS_Goldman_Presentation_FINAL.pdf
2. Aswathappa, K., & Keddy, G. S. (2009). Strategic management: concepts and cases. Himalaya Publishing House.
3. Burke, R. J., Martin, G., & Cooper, C. L. (2011). Corporate reputation: Managing opportunities and threats. Farnham, Surrey: Gower.
4. Gendelman, A. (2007). Gap moves to recover from child labor scandal. Retrieved on November 24, 2018 from https://www.nytimes.com/2007/11/15/business/worldbusiness/15iht-gap.1.8349422.html
5. Chattopadhyay, P., Glick, W. H., & Huber, G. P. (2001). Organizational Actions in Response to Threats and Opportunities. Academy of Management Journal,44(5), 937-955. doi:10.5465/3069439
6. Ghazinoory, S., Abdi, M., & Azadegan-Mehr, M. (2011). Swot Methodology: A State-Of-The-Art Review For The Past, A Framework For The Future. Journal of Business Economics and Management,12(1), 24-48. doi:10.3846/16111699.2011.555358
7. Pozzi, A. (2013). The effect of Internet distribution on brick-and-mortar sales. The RAND Journal of Economics, 44(3), 569-583.
8. Press release: Fitch affirms the Gap, Inc. at ‘BB+’; withdraws all ratings. (2018). Dow Jones International News.
9. The GAP, Inc. (GPS). (2017, November 6.). A Message from Art: Good Business Can Change the World. Retrieved November 20, 2018 from https://corporate.gapinc.com/en-us/articles/2017/11/a-message-from-art-good-business-can-change-the-wo
10. The GAP, Inc. (2018). Form 10-K 2017. Retrieved from
11. http://investors.gapinc.com/phoenix.zhtml?c=111302&p=irol- sec&secCat01.1_rs=51&secCat01.1_rc=10&control_selectgroup=0&x=30,33,43,40&y=21,15,19,11
12. Wright, P.M., & Sage-Gavin, E. (2006). Corporate Social Responsibility at Gap: An interview with Eva Sage-Gavin. CAHRS Working Paper Series. Cornell University: LRI School.

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