A 142 (STRATEGIC MANAGEMENT CASE STUDY)

Conduct a comprehensive analysis and generate several alternative of strategies

based on the case study. Highlight your method in generating those alternative of
strategies.
(20 marks)
Elements: Task Environment: Porters 5 forces
SWOT Analysis
TOWS or SWOT Matrix
*Sometimes depends on your lecturer for elements he / she want
Task Environment: Porters 5 forces
1. Threat of New Entrance
Theoretically, as companies grow and become bigger, the barriers for entry become larger
as well. Gap inc. is already a well-established retailer and has already overcome most barriers.
Thus, the threat of new competitors is relatively low due to the high startup costs of entering the
market. Since Gap Inc. and other firms in this industry tend to have a high quality brand image,
most firms have power over their suppliers, due to manufacturers competing for business.
In addition, brand equity also is Gaps advantage appealing to the esteem needs of the individual
customer which is strong brand loyalty detracts new entrants from entering the market. However,
the

entrant

of

well-established

international brands might pose a significant threat, but subject to their target market
and the pricing strategy.
Low switching cost
High supplier accessibility
High distribution channel accessibility

2. Threat of substitute products or service

segments

The products in the clothing and apparel sector are in-differentiable. The threat of substitute
products is low competitive force towards GAPs success. Players in the family apparel industry
share functionally the same products with the entire clothing sectors, so there are no substitutes.
As a result competition in the sector is extremely intense.
3. Bargaining power of buyers
Consumers enjoy high buying power in the apparel industry because of the intense competition.
Furthermore, because of the Gaps mid-level prices for the type of clothing it sells, the Gaps
strength

is

in

its

quality.

Still,

buyers

power because of the numbers of competitors and the ease at which buyers can

have
switch to

a different retailer.
Or
Overall the bargaining power of buyers is considered high because even though individual
buyers are small, and have little say in the prices of the product, they make the final decision on
whether or not to purchase the product.
4. Bargaining power of suppliers
Most of the 97% production is done overseas and multi fiber arrangements (MFA) which is
limited number of textiles that could be imported from a developing country resulted in chasing
quota. If production cost or wages increase, the companies start producing in another country.
Therefore, supplier power overall can be judged to be low. There is also little threat of vertical
integration by suppliers, as they are not residing within U.S. As such, the suppliers have limited
power to dictate the price and quality standards of the products as Gap Inc. has little dependence
on single sourcing.
5. Rivalry of competitors
Industry made up of thousands of small, local retailers that have fragments of market shares and
the top four family clothing retailers in the U.S. are Abercrombie & Fitch 63.40%, Nordstrom
17.55%, American Eagle Outfitters 16.67% and GAP inc. 16.22% each of these retailers offered
different styles of clothing and had different pricing strategies. All the evidence above leads us to

believe that rivalries and competitors is high competitive force. GAP is constantly competing
with its rivals to take the top spot in the family clothing industry.
SWOT ANALYSIS
Strengths:

Weaknesses:

1. Global brand recognition GAP is 1. Nearly all merchandise depends on thirdglobally recognized as American style, pop party vendors - which are outside of the US.
culture and the emotional affinity. It also offers Approximately 1000 vendors in 60 countries.
products to brand-switchers who like to 27 percent is produced in China. Third-party
experiment with different brands.

vendors can cause products shortage, shipment

2. Stores located in worldwide GAP has delay and increased costs.

3,095 stores in worldwide as of jan 30 2010.

2. Huge store base including unaffiliated

3. Franchising system easily to expand GAP franchisees - Gap is limited to keep up with
store internationally - GAP has franchise fashion trends, to train some methods and
agreement with unaffiliated franchisees to to control quality.
operate GAP or Banana Republic brand stores 3. Less attractive in trendy clothing - Gaps
worldwide.

product lines are less attractive clothing to

4. Multiple brands and brand extensions for consumers who are interested in trendy
a wide range of segments - GAP has 5 distinct clothing than competitors.
brands such as Gap, Old Navy, Banana 4. Uncontrollable production processes Republic, Piperlime and Athleta and brand Control of production processes is a key factor
extensions

such

as

GapKids,

babyGap, among fast fashion retailers

gapbody and GapMaternity.

5. Huge customer and vendor base
6. Good reputation among suppliers
Opportunity:

Threat:

1. Globalization - Global new market in 1. natural disasters

Europe and China. GAP is planning to open 2. Currency fluctuation reduce in customers
the 1st store in Italy and China and additional spending. General economic conditions, for
outlet stores in Europe and Asia.

instance, the fluctuation of the economy on the

2. Population growth - The new brand focuses interest rate, credit availability, and other

on women over age 35 and would offer a broad commodity prices has adversely affect the
range of sizes, with a focus on fit, and customer disposable income and decline in the
assortments that serve a variety of occasions. A purchase

of discretionary

items,

rapidly growing segment of the population, this including merchandise. Such condition could
groups

spending

about39%

of

power

womens

accounts
total

for adversely impact Gap Inc. sales and revenue.

apparel 3. Government regulations - Laws and

expenditures. Forth and Towne will launch in regulations

at

the

state,

federal,

and

four test stores in the Chicago market and one international levels frequently change, and the
in New York in fall of 2005.This represents an ultimate

cost

of

compliance

cannot

be

important long-term growth opportunity for the precisely estimated. The impact that may result
company.

from

changes

in

the

regulatory

or

3. Technology advancements - Online data administrative landscape can be predicted by

mining which is the data collected via no one. Any changes in regulations that
customers online shopping will enable Gap impacts employment and labor, trade, product
Inc. to analyze customers attributes such as safety, transportation and logistics.
shopping experience, spending habits, styles 4. Terrorism
and their favorite items. It will help to retain
loyal customers and improve requisition
process efficiency.
4. WTO - Under the terms of World Trade
Organizations (WTO) Agreement on Textile
and Clothing, US quotas on imports of textiles
and apparel from most WTO members were
lifted in January 2005. This will enable US
retailer to produce high quality merchandise at
a low cost, whilst providing the opportunity to
broaden their product portfolios. This event
would

improve

flexibility

in

obtaining

imported merchandise manufactured in WTO

countries.
5. AFTA -

TOWS matrix or SWOT matrix

IFAS

Strength:

Weaknesses:

1. Global brand recognition

1. Nearly all merchandise

2.
EFAS

Stores

located

in depends

worldwide

on

third-party

vendors

3. Franchising system easily 2. Huge store base including

to

expand

GAP

store unaffiliated franchisees

internationally
4.

Multiple

3. Less attractive in trendy

brands

and clothing

brand extensions for a wide 4. Uncontrollable production

range of segments
5.

Huge

processes

customer

and

vendor base
6. Good reputation among
Opportunity:

suppliers
S1,S2,O1 Market Penetration

W3,O3 Product Development

1. Globalization

S3,S4,O4

W1,O1

2. Population growth

Development

3. Technology advancements

S5,O1,O2

4. WTO

diversification

5. NAFTA
Threat:

S2,T2

1. natural disasters

Management

2. Currency fluctuation

S1, T3 Political Lobbying

3. Government regulations
4. Terrorism

Market

Human

Resource

strategy
business

Financial

W2,T3
Strategy

Restructuring

Recommend TWO (2) strategies based from your comprehensive analysis.

Provide justification for each of your recommendation.
(10 marks)
Elements:
Based on SWOT or TOWS Matrix, choose EITHER ONE (SO or WO or ST or WT) inside
2 POINTS to give elaboration. Remember elaboration must with STRATEGY INVOLVED
(Ex: Marketing Strategy).
*Sometimes depends on your lecturer for elements he / she want
Recommendation
As a result of the analysis shown above, we have managed to create some recommendations. In
our opinion, GAP Inc. needs to gain competitor advantage. To achieve this goal, we recommend
two groups of actions. First one would be changing model of retail and marketing, consisting of:
1. Hiring fashion designers to develop more design clothes answering consumer needs. (in 6
months time)
2. Frequent collection changes, like ZARA: changing collection every two weeks.
(in 2 years time)
3. Change of target group to reach unexplored niches and developing target markets. (long-term
plan)
The second direction would be a change in financial management. As for that we recommend:
1. Invest in on-line marketing instead of traditional one, to reach marketing goals with lower
cost. (in 6 months time)
2. Acquisitions in U.S. market (Ross Stores Inc.) to increase sales. (in 2 years time)
3. Investors value your company more than competitors, so its important to keep it that way.
(long-term plan)
4. Negotiate better prices for cotton using good relations with suppliers. (long-term plan).
Or

 online ship-from-store expansion and impact;

mobile ecommerce initiatives and impact, including multi-channel initiatives;
product improvements;
future marketing initiatives and spending; and

Store remodels.