The Gap Inc Applying the Generic Competitive Strategies

The Gap Inc; Applying the Generic Competitive Strategies

The Gap Inc., established in 1969, has grown to become one of the largest retailers in the family clothing industry. Currently, the company operates 3,100 company-operated stores and 200 franchise stores in 36 countries, and serves over 90 countries via online sales (Jenkins, 2011). The company owns five apparel brands that span the age spectrum and appeal to varied consumers seeking different price points; Gap, Banana Republic, Old Navy, Athleta and Piperlime. The Gap Inc. rapidly expanded in the 1990's in response to consumer demands for affordable, stylish clothing and sales reached all time highs. The economic down turn in the United States during the mid-late 2000's along with new entrants into the market challenged the Gap's sales, and the company has been struggling to improve financial performance. Corporate leadership has changed and new strategic plans were implemented in attempts to curtail further decline and increase sales. Turn around strategies were not always in sync with stake holders in the company, and key personnel departed (Thompson, Petraf, Gamble, & Strickland, 2011) leaving the company with confusion and pressure from rivals.

Identifying a strategic plan to guide The Gap is imperative. Proactive planning will ensure the company sets a path to keep and gain market share and to remain viable in an uncertain economy. According to (Thompson et al., 2011, p. 14) clear strategy serves as a "roadmap to competitive advantage, its game plan for pleading customers and its formula for improving performance". The question for The Gap, Inc is what strategy model to utilize to achieve competitive advantage amongst its many rivals. Before settling on a strategy, it is important to have a complete understanding of the threats by others, and the opportunities to embrace.

The clothing industry is highly competitive field and subject to the whim of consumer preferences and demand (D'Innocenzio, 2010). Assessing the competitive forces that face the Gap using the Five- Forces Model of Competition described in Thompson (Thompson et al., 2011, figure 3.3) is useful when determining a strategic plan. Below lists the threats and opportunities for Gap Inc:

Rivalry Among Competing Sellers: Rivalry is one of the strongest forces of competition facing the Gap. Current threats are companies that can respond to the fashion industry changes quickly. H&M, Forever 21, and Inditex, a Spanish company that currently has over 4,500 stores worldwide are competing for the same customer base. Inditex is well known for rapidly adjusting to demands of the buyer and changes inventory every two weeks ("Inditex," 2005). The Gap, Inc is slow to respond to change in trends and lacks a fast track product pipeline. New designs viewed on the fashion runways do not translate into new product lines for the Gap collections. In the U.S. TJX, Ross, Abercrombie and Fitch and American Eagle Outfitters all showed an increased market share while the Gaps share decreased in 2009 (Thompson et al., 2011). Gap has increased internet presence, and currently offers Piperlime which is exclusively online.

Potential New Entrants: There are low entry barriers to the clothing industry. Research and development costs are minimal, however developing brand recognition in a brand conscious market can take significant time and expense. Gap has well established name recognition, along with market saturation of stores in key locations.

Substitute Products: There are no identified risks in products that might be offered by other close industries.

Suppliers: Thin profit margins in the clothing industry dictate strong relationships with suppliers. The Gap has suppliers in over 60 countries which exposes the company to social, political and economic risks in all countries. However, this "portfolio approach" allows for negotiation and increased bargaining power (Thompson et al., 2011). As well, import restrictions could impede manufacturing and shipment of products. (Moas, 2010).

Buyers: Buyers have multiple choices when making purchasing decisions in the clothing market. Inability to quickly adapt to consumer demands and provide leading fashion has been a concern with the Gap. Shifts in consumer demands that are not immediately met may lead to decline in brand loyalty.

Understanding the industry and the competitive environment must be considered when deciding on which strategic model to implement. The Gap Inc. has strong brand recognition in the clothing industry, but face threats from other companies that can meet rapidly adjust to changes in consumer demands.

The Gap must also assess internal strengths and weaknesses when developing and initiating a strategic plan. Global brand recognition and five distinct stores that cater to differing target markets is an advantage over companies that serve a smaller market niche. Managing value chain expenses is a competitive advantage as the company has no long term debt with strong liquidity (Moas, 2010). Other strengths include a new technology that increased efficiency in distribution at its Ohio fulfillment center. The Gap Inc. also increased internet presence outside the U. S. thereby increasing online sales by 15% in 2010 (Hauser, 2010). Franchise relationships have Gap stores established globally which has increased market visibility in over 36 countries. The company has a strong social presence and works with suppliers to ensure fair labor practices.

Weaknesses for Gap include over saturation of stores in the U.S. which led to over 100 store closures in 2010. Another concern is "cannibalization" of its own product with little distinction by consumers between the Gap and Old Navy brands that preferred the lowest price (Moas, 2010). Anticipating fashion trends and having key personnel that can lead product development and keep up with rapidly changing buyer desires is important in the clothing industry ("Fashion apparel industry overview," 2010) however it is not strength of the Gap.

After a thorough internal