STRATEGIC MANAGEMENT

Submitted By: Percival C. Bordeos Jr. -4ABE

Submitted To: Dr. Antonino Arturo C. Manahan

INTERNAL ASSESSMENT Company Profile Founded: 1969, with a single store in San Francisco We are: A leading global specialty retailer offering clothing, accessories and personal care products for men, women, children and babies. With about 132,000 employees and about 3,000 company-operated stores and over 250 franchise stores, our presence is felt around the world. Brands Gap (including Gap, GapKids, babyGap, GapMaternity and GapBody),Banana Republic, Old Navy, Piperlime, Athleta and INTERMIX. Headquarters World HQ: San Francisco Bay Area Product Design: New York City, San Francisco, Los Angeles, London Store Management, distribution and product manufacturing: Worldwide. Stores Total: Over 3,300 stores worldwide Company-operated stores: About 3,000 stores across the United States, United Kingdom, Canada, China, France, Ireland, Japan and Italy Franchise stores: Over 250 stores in locations across Asia, Australia, Eastern Europe, Latin America, the Middle East and Africa Employees

About 132,000 employees around the world support Gap Inc. and its five brands. Social Responsibility To us, it means everything from ensuring that workers are treated fairly to addressing our environmental impact. *Our Social Responsibility Specialists monitor factories in about 50 countries each year. *We established our Clean Water Program in 2004 to monitor our denim laundries' wastewater discharge and to meet our guidelines.*Our P.A.C.E. program, or Personal Advancement, Career Enhancement, empowers the mostly female garment workers who make our clothes in places like India and Sri Lanka.

Vision and Mission

Gap has no formal vision or mission, but the company does have philosophy and ethics statement.

Vision (Developed) Gap Inc.s vision is to be the first choice in family retail clothing while maximizing customer satisfaction and shareholder value. Our vision for how we work is built on four pillars: Think: customers first we consider the needs and value the diversity of thought, experience and perspectives among our customers. Inspire: creativity we open ourselves to new ideas, tapping into our diversity of perspectives. Do: whats right we treat every customer, supplier and employee with respect. Deliver: results we strive to create an inclusive environment where employees thrive and generate top performance. These cultural cornerstones are the filter for our decisions and behaviors. And we sum it all up in three words: Wear your passion. Wear Your Passion is the cultural foundation that links all of our brands, divisions and functions. It encompasses our goal of fostering a culture that retains the essence of what makes us special and focuses on how we need to evolve to succeed.

Mission (Developed)

Gap, Inc. is a brand-builder. We create emotional connections with customers (1) around the world (3) through inspiring product design, unique store and renowned ecommerce experiences (4), and compelling marketing. Our purpose? Simply to be a leader in the specialty family clothing (2) industry to make it easy for you to express your personal style throughout your life (7). We have more than 150,000 passionate, talented people around the world who help bring this purpose to life for our customers

(9), leading us to achieve a major competitive advantage. Across our company and embedded in our culture are key values that guide our success and continued growth (5): integrity, respect, open-mindedness, quality and balance (6). Every day, we honor these values and exemplify our belief in doing business in a socially responsible way (8).

Corporate Philosophy

Gap strives to be a leader in the specialty family clothing industry and has strongly espoused the importance of customers and employees. Its statement of corporate philosophy exemplifies this concern as shown in the 2010 Annual Report; At GAP Inc., we seek to make lasting, positive impressions on the people and communities where we operate- because we believe that doing whats right is good for business. That means delivering value to our shareholders while working to lessen our impact on the planet, advance the rights of garment workers and ensure that our company culture is one our employees can be proud of.

Code of Business Ethics

Gap has a well-established code of ethics, translated in 65 different languages, that dresses the different aspects and guidelines about its purpose, responsibilities, laws, reporting code violations, realizations, policy changes, and waivers. The code proposes a responsible and ethical work environment for all Gap Inc. employees and directors and addresses the following most common ethical problems; conflict of interest, discrimination or harassment, workplace violence, complaints to government agencies, international trade organizations, bribes and improper payments, anti-trust laws and selling practices, product integrity, commercial transactions, brand protection, and political contributions and activities.

EXTERNAL ASSESSMENT Family Clothing Retail Competitors - 2011 Company Revenues Gross Margin TJX Company $21.9B 26.90% Gap Inc. 14.6B 40.16 Nordstrom 9.7B 39.21 Abercrombie & Fitch 3.4B 63.77 American Eagle Outfitters 2.9B 39.46

Net Income $1.3B 1.20B 613M 150M 140M

PE Ratio 16.22% 12.24 17.55 63.40 16.67

Based on the graph, Gap, Inc. has revenue of 14.6 B and a net income of 1.20B as of 2011 in terms of assets and second to its greater competitor, which is TJX Company that has a revenue of %21.9B and Nordstrom that has a 9.7B revenue. These are the most competing brands worldwide in terms of Family Clothing retail competition.

Competitors

Abercrombie & Fitch Co. (A&F) An American retailer that focuses on casual wear for consumers aged 18 to 22. It has over 300 locations in the United States, and is expanding internationally. The company also operates three offshoot brands:Abercrombie kids, Hollister Co., and Gilly Hicks, in addition to a post-collegiate brand, Ruehl No.925, that closed in early 2010. Abercrombie & Fitch's main competitors are Aropostale and American Eagle Outfitters, though they are generally less expensive. Its younger subsidiary, Abercrombie kids, competes with Aropostale's P.S. from Aropostale, and American Eagle Outfitters's 77kids.

American Eagle Outfitters is an American clothing and accessories retailer based in Pittsburgh, Pennsylvania. It was founded in 1977 by brothers Jerry and Mark Silverman as a subsidiary of Retail Ventures, Inc., a company which also owned and operated Silverman's Menswear. The Silvermans sold their ownership interests in 1991 to Jacob Price of Knoxville,

Tennessee. American eagle is the parent company of Aerie and 77 kids. American Eagle announced the closure of its 77 kids stores in 2012. The brand targets 15- to 25-year-old males and females, with 911 American Eagle Outfitters stores, 158 aerie stand-alone stores and 21 77kids stores. In 1977, the first American Eagle store opens in Twelve Oaks Mall in Novi, MI as the destination for the great outdoors.

TJX Companies Inc. Is the largest international apparel and home fashions off-price department store chain in theUnited States. Based in Framingham, Massachusetts, the company originally evolved from the Zayre discount department store chain, founded in 1956, which opened its first branch of T.J. Maxx in 1976 and its first BJ's Wholesale Club in 1984. In 1988, Zayre sold their own nameplate to Ames, a rival discount department store chain, and the company renamed itself to The TJX Companies, Incorporated.

Nordstrom, Inc.

An American upscale fashion department store, founded by John W. Nordstrom and Carl F. Wallin and headquartered inSeattle, Washington. The company began as a shoe retailer, and has since expanded their inventory to include clothing, accessories, handbags, jewelry, cosmetics, fragrances and home furnishings in some locations. There are 231 stores operating in 31 states, which includes 117 Full-Line stores and 110 Nordstrom Racks. Nationally, Nordstrom competes with luxury

retailers Bloomingdales, Lord & Taylor, Neiman Marcus, and Saks Fifth Avenue.

New Entrance Other potentially Asian brands (UniQlo, Bench, Hang Ten, etc.)

Rivalry: Suppliers Subcompanies Abercroombie &Fitch American Eagle Outfitters TJX Companies Nordstrom, Inc. Target Market All family member's age bracket

Substitutes NONE

PORTERS FRAMEWORK ANALYSIS Gap Inc., is one of the leading family brand apparel in the world. Its competitors are Abercrombie & Fitch, American Eagle Outfitters, TJX Companies, Nordstrom, Inc, and others. For the threats of New Entrance, I can see a potential with the emerging Asian brands like Uni-Qlo, Bench, Hang Ten, etc. This could be a threat to them since they are starting to become global. About the substitutes, I cant find any substitutes for these casual wears as far as clothing style is concerned. It varies in brand but less in style. Whats common about these brands is that they are focused in being a household casual wear brand that may cater to all the age bracket in a family.

Competitive Profile Matrix (CPM) CRITICAL SUCCESS FACTORS TJX Companies

Weight Rating Weighted Score

Abercrombie & Fitch Co.

Weight Rating Weighted Score Weight

GAP Inc.
Rating Weigh ted Score

Customer Loyalty Financial Position Market Share Management Global Expansion International Branches Employees Family-Oriented Image Advertising Technology TOTAL

0.15 0.1 0.1 0.1 0.1 0.15 0.05 0.1 0.05 0.15 1.00

3 4 3 4 4 3 3 2 3 3

0.45 0.4 0.3 0.4 0.4 0.45 0.15 0.2 0.15 0.3 3.2

0.15 0.05 0.05 0.15 0.1 0.15 0.05 .20 0.05 .05 1.00

3 2 3 3 3 2 4 4 4 2

0.45 0.1 0.15 0.45 0.3 0.3 0.2 0.8 0.2 0.1 3.05

.15 0.1 0.05 0.1 0.1 0.10 0.10 0.20 0.05 .05 1.00

3 3 3 3 4 3 4 4 3 2

0.45 0.3 0.15 0.3 0.4 0.3 0.4 0.8 0.15 0.1 3.35

Legend: Rating: 4 major strength 3 minor strength 2 minor weakness 1 major weakness *The company who has the highest TOTAL is the strongest strategic position among the competitors in the industry.

Based on the CPM matrix, Gap Inc., obtained a weighted score of 3.35, while TJX Companies obtained a weighted score of 3.2 and Abercrombie and FItch obtained a weighted score of 3.05. Even if Gap Inc. has the highest weighted score, some of its factors have a varied score in rating and weight. Gap Inc. should prioritize competitive advantage and make additional improvements with factors that have low on rating allocating improvements with its technology and additional advertisements. The company should also focus on its Global Expansion in Asia since they had a goods trade deficit of approximately $62.1 billion as of March 2011 as well as investments in order to catch up in the future. This advantage can improve its management, customer service, financial position, number of branches, customer loyalty and security and safety and international relation. Lastly, the company should maintain its Family-oriented apparel image since they share a very big market share with that sector.

External Factor Evaluation (EFE) Matrix KEY EXTERNAL FACTORS Opportunities Green/Organic materials for clothes 0.06 4 3 0.51 3 2 2 0.54 0.28 0.12 0.24 Research and development of new and appealing 0.17 products. Global new market in Europe and Asia Penetration of e-commerce Developing and training of personnel Threats Economic downturn directly affects apparel retail 0.11 business. Global specialty apparel retail industry is highly 0.07 competitive Emerging fast fashion retailers The market for prime real estate is competitive Newly emerging Asian brands TOTAL 0.06 0.07 0.14 1.00 3 0.33 2 0.14 2 2 4 0.12 0.14 0.32 2.74 0.18 0.08 0.06 Weight Rating Weighted Score

According to the EFE Matrix of Gap, Inc., it scored 2.74. EFE Matrix based on the evaluation of general environment analysis of these external factors that affect the business to get the potential opportunities and threats for Gap, Inc. The weighted score indicates that the companys response had a huge effect in its existing Opportunities and Threats in the Apparel Retail industry. In the table, we can see that the densest factor is Global new market in Europe and Asia; it evaluated in a weight the average of 0.54. Europeans had been a good market for clothing since then. Asian countries on the other hand are becoming a good possible market for clothes nowadays since they are becoming aware of the global brands with

affordable prices. As a Filipino, I think that it will be a hit if they will increase the numbers of branches here in the Philippines. EFE Matrix above has its current competitive position or business strength in the industry is above average. This factors had been coping up well, which can be positively or adversely affect its financial positioning today.

INTERNAL ASSESSMENT Strength Gap, Inc. has had a long history of almost 40 years now. It is an established name and is distinct in its sector of market. An in-depth of Gaps brand strength is later discussed in this section. The other distinct strength that Gap has is its global approach. Since, it is a multinational company; it is recognized all over the world. Meanwhile, being a multinational company has helped Gap, Inc. to diversity its intra-country market risks. Gap also invests large sum of money in research and development. This has given the company regular boost to move forward. Gaps unique way of ready-made goods from different countries including Honduras, India, Bangladesh, and others has helped the company to reduce the labor costs. Meanwhile, it is interesting to look at a historical trend that the company has been able to sustain such a large supply chain and still been able to maintain enough inventories in the stock. Weakness Although Gap has excelled in its sector of apparels, it has some weaknesses that it needs to address. The companys narrow niche is one of the major weaknesses. It is limited in sales and growth. This has also increased the risks associated with the market. Even a minor competition from another clothing retailer can hamper the companys over-all growth. In addition, Gap does not have a distinct name in certain sectors like Nike or Reebok have in sporting goods. Furthermore, as illustrated by BusinessWeek, Gap has not been able to maintain a fashion identity.

Internal Factor Evaluation Matrix KEY INTERNAL FACTORS STRENGTHS Global brand recognition Stores located in worldwide Franchising system easily to expand Gap store internationally Multiple brands and brand extensions for a wide range of segments Huge customer and vendor base WEAKNESSES Nearly all merchandise depends on third-party vendors, which is outside of the US. Huge store base including unaffiliated franchisees Less attractive in trendy clothing Uncontrollable production processes Low numbers of stores in Asia TOTAL 0.11 0.06 .07 0.07 0.14 1.00 2 1 2 2 4 0.11 0.17 0.13 0.08 0.06 4 4 2 2 2 0.44 0.68 0.26 0.16 0.12 0 0 0.22 0.06 0.14 0.14 0.56 2.78 Weight Rating Weighted Score

Based on the table shown above IFE Matrix, Gap Inc., scores about 2.78. It weighted based on the companys higher than average rate and has a strong internal position. This reiterates the fact that the company is strong in terms of branches inside and outside America. It had increased in the number of foreign branches; positive value system of the employees, as well as the broad distribution of local branches and Global Brand Recognition rated as 4 which had been evaluated by the companys strengths. From the illustration table, it concludes that Gap, Inc. has a good internal structure.

Strengths and Weaknesses (Explained)

Strength

Global brand recognition GAP is globally recognized as American style, pop culture and the emotional affinity.

Stores located in worldwide GAP has 3,095 stores in worldwide as of January 30, 2010. Company-owned stores are located in United States, United Kingdom, Japan, Canada, France and Ireland. Franchisees-owned stores are located in other countries such as Turkey, United Arab Emirates and so on.

Franchising system easily to expand Gap store internationally GAP has franchise agreements with unaffiliated franchisees to operate Gap or Banana Republic brand stores worldwide.

Multiple brands and brand extensions for a wide range of segments GAP has 5 distinct brands such as Gap, Old Navy, Banana Republic, Piperlime and Athleta and brand extensions such as GapKids, babyGap, gapbody and GapMaternity.

Huge customer and vendor base

Weaknesses:

Nearly all merchandise depend on third-party vendors, which is outside of the US. Approximately 1000 vendors in 60 countries. 27 percent is produced in China. Third-party vendors can cause products shortage, shipment delay and increased costs.

Huge store base including unaffiliated franchisees Gap is limited to keep up with fashion trends, to train some methods and to control quality.

Less attractive in trendy clothing Gaps product lines are less attractive clothing to consumers who are interested in trendy clothing than competitors

Uncontrollable production processes Control of production processes is a key factor among fast fashion retailers