This SWOT analysis of Gap Inc. revealed gaps in their armor that may render the firm unable to sustain attacks from competitors, the economy and other factors. Gap Inc. is a specialty retailer offering clothing and accessories for men, women, and children. Brands include Gap, Banana Republic, Old Navy, Piperlime, and Athleta. The company became a retail giant, using its strengths to its advantage and seizing opportunities. However, in these years, Gap Inc. is struggling in the midst of economic turmoil and additional threats to its existence.
STRENGTHS
Global brand recognition and Franchising
GAP is globally recognized as American style, pop culture and the emotional affinity. GAP’s main strength is through franchising. According to the DataMonitor, it operate through franchise agreements in more than 20 countries including au Australia, Chile, Egypt, Greece, Israel, Mexico, Russia and Thailand. These franchise agreements are with unaffiliated franchisees to operate Gap or Banana Republic store worldwide. The company has stores present in the US, Canada, the UK, France, Ireland, Japan, China and Italy making it more globally recognized.
Strong margins
DataMonitor show’s that Gap’s net profit margin was twice in comparison to its competitors in FY2011; Gap’s net profit margin was 8.2% while Ann Taylor Stores and American Eagle Outfitters had net profit margins of 3.7% and 4.7% respectively. According to DataMonitor the company has been able to achieve this through inventory and cost control, an efficient supply chain, repositioning of its Old Navy brand and introducing new product categories. It also has strong margins in comparison to many of Gap’s competitors. Gap had an operating margin of 13.4% in fiscal year 2011; while major competitors such as Ann Taylor Stores and American Eagle Outfitters had operating margins of 6% and 10.7% respectively in FY2011.Source: Datamonitor
Online Presence
Gap’s presence online offers user-friendly websites, easy online check-out for consumers, convenience, gives consumers variety as well as making the latest international trends accessible to consumers who are on the go while they enjoy international shipping.
The company’s online presence is not only beneficial to the consumers but also to Gap because they are also able to enjoy low operational costs. Consumers are able to shop all Gap brands (Gap, Banana Republic, Old Navy and Piperlime) at the same time and ship all products for a flat rate of $7.
WEAKNESS
Outside Vendors
Nearly all merchandise depends on third-party vendors, which are not in the United States. Almost 1000 vendors in 60 countries with 27 percent is produced in china. With the fact that Gap does not manufacture it’s items, this practice has led to quality issues due to the company’s reliance on third-party agents. According to the Datamonitor only 1% of merchandise sold in 2011 was manufactured in the United States while the remaining was outsourced in the other countries.
Low productivity in 2011
Having a marginal increase in FY2011, the company still reported a decline in sales in 2011 fiscal year. Gap experienced low sales per average square foot, with sales per average square foot decreased to $329 in FY2010 compared with $412 in FY2006. This in general represented a compound annual rate of change of 5% during FY2006–10.
Opportunities
Falling price of cotton
Cotton is a key raw material for production for Gap. In early 2011, the price of cotton increased reaching $2 per pound because of a shortage due to the financial troubles of 2008 and 2009. In August 2012 however, the price has continued to fall to 84.40 cent per pound. This is good news for the company since the price will reduce cost in production.
Source: USDA Market News.
Positive trends in the online channel
E-commerce in general offers a lot of positive things for consumers in general for the main fact that it’s helps retailers to keep costs low. This has been on the rise globally and has also become the most preferred channel for purchasing. Since Gap is already operating in online stores and offers international shipping to 90 countries; the company should capitalize on this, to generate more income and reach more of its consumers who are always on the go. This positive trend in online retail will help Gap sustain a competitive advantage for years to come. In addition, in the U.S. market alone for online shipping, it is expected to read a value of $13.5 billion by 2014.
Growing market in the US and UK for plus size apparel and children’s wear
Even though there were threats of low productivity in 2010, there is still a resilient market for the plus size apparel market and the children’s wear. In the US the plus size category accounted for 54% of the total US clothing market in 2009; and while the recent recession reduced spending of 4.3% in general, the children’s wear under the age of 16 remained constant.
Threats
Growing market for counterfeit products
When there are economic hard times, consumers search for substitute’s low cost alternatives or counterfeit products. Gap suffers a minimum loss of $200 billion in revenue and 750,000 jobs. In Europe, counterfeit products are estimated to be worth $8.2 billion. The availability of counterfeit products reduces the exclusivity of brand image, which is important for a company such as Gap.
Weak consumer spending in Europe and the United States
The national unemployment rate for both U.S. and the U.K. are still at a high of 8.1% for both countries. These two main developed countries are where the Gap derived 84.3% of its revenue in fiscal year 2010. This could negatively impact the upscale brands of Gap, Banana Republic, this as a result leads to less spending for a company like Gap In. because it has resulted in less spending on fashion. Consumers are now turning to less expansive retailers who are also tapping into the market of family clothing industry.
Rising labor costs in previously low-cost countries
According to the Economists, provinces in China raised minimum wages in 2010 at an average rate of 10% and it’s still on the rise. This is affecting production cost because; the rising cost is also affecting the supply chain of the company. Since Gap Inc. outsources most of it’s production, in the long run this may no longer be an option for the company.
Gap Inc. has more weaknesses and threats than strengths and opportunities according to the above SWOT analysis. The threats the company its up against could be detrimental to the firm, and the firm may not be able to improve in its areas of weakness. However, its initiatives to expand globally in key growth markets and its growing online presence can help the company to sustain a competitive advantage for years to come.
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