Team 8 Matthew Bernat Kara Owens Heather OKeefe

Team #8 Matthew Bernat Kara Owens Heather O’Keefe Instructor: Bruyaka Section time & day: 2: 30 MW File Name: Gap_Case_Team 8_MW 230_Owens Submitter: Kara Owens

Leveraging a Common Capability for Gap Inc. • Strategic Issue: ▫ How can Gap build a successful corporate portfolio through a unified core competency? • Underlying Cause(s): ▫ Leveraging a common ability through creating a competitive advantage specific to their five brands. ▫ Synergies deviating away from their main core business, family clothing, do not currently exist. • Recommendation: ▫ Creating a strategy geared towards improved fashion responsiveness.

Snapshot • 2008 Recession has shrunk the family clothing industry by ~$4 billion • In 2010 consumer confidence was still unstable • Family fashion industry have a high probability of slow growth in the near future • 4 out of 5 GAP brands compete in the high priced lines, which compete in only 35% of the overall market • Increasing competition with the strengthening of the economy • GAP, INC revenues have been decreasing since 2005, however profitability is increasing slightly • 3 Key Factors to success in the fashion industry: Brand equity, fashion responsiveness, and financial management and inventory management 40, 000 Increasing Competition Number of establishme nts (units) 30, 000 20, 000 Number of enterprises (units) 10, 000 0 2006 2007 2008 2009* 2010* % change from 20062009 Exhibit 10 Gap N. America -26% Banana Republic N. America -12% Old Navy N. America -22% International 1 11% Other 2 15871% Total Gap Inc -12% Net sales $ 16, 500 $ 16, 000 $ 15, 500 Implication: GAPs downward spiral has been intensified by the 2008 recession. $ 15, 000 $ 14, 500 $ 14, 000 $ 13, 500 $ 13, 000 2006 2007 2008 2009 2010

GAP Inc. Remains A Cash Cow Core competencies - GAP lacks a strong core competency to leverage synergies between their different brands. Implication: Slow growth in GAP Inc. ’s cash cow brands are becoming dogs due to decreasing sales. High Low- Industry Growth -High Portfolio Management - GAPs competitive position is composed of mainly cash cows with the potential to become dogs. Both of which will not enable GAP to grow as a portfolio. GAP needs to establish a core competency in order to establish a portfolio focused on greater growth potential. Relative Market Share Stars Question Marks Piperlime/ Athleta Cash Cows Old Navy Low Dogs Gap Banana Republic

Effectiveness of Sharing Activities & Vertical Integration • Cost savings ▫ Replenishment inventory kept at common distribution centers to enable quick-to-ship delivery to its stores, regular inventory checks for quick markdowns if needed Reduced inventory carrying costs. � Implication: May be difficult to do in the future if GAP decides to expand its e-commerce efforts especially into international markets. ▫ Successful implementation of IT software platform common to GAPs operations increased monitoring of workflow and accuracy of financial forecasting. • Revenue & Differentiation Efforts ▫ Different product and market segments by acquiring Banana Republic, Old Navy, and Gap’s Piperlime shoe division as well as expanding internationally on some level has kept GAP Inc somewhat stable in the marketplace. • High Levels of Vertical Integration ▫ Focusing on the majority of their brand product design initiatives in-house impedes the opportunity to seek out potential bottlenecks in other areas that might need current or future attention. � Implication: Potentially giving right to design/develop “new” brands to outside third parties might have a potential drawback as the ability for GAP to control such actions becomes even more difficult to manage outside let alone meet the quality standards of the entire corporation. Overall Conclusion: The shared activities seen through increased revenue and cost savings by Gap Inc. has not been enough to offset the decrease in sales performance across its entire value chain. Other actions and/or changes are needed to increase sales performance and therefore profitability standings.

Turnaround Strategy III Strategic Issue: How can Gap build a successful corporate portfolio through a unified core competency? Alternative s Expand geographic scope - Operations in Asia Create a new star brand for plus-sized segment Create synergies by providing a Home & Décor Service Create a strategy geared towards improved fashion responsive ness Resolve Issue Likely No Likely Yes Resolves key aspects of the situation Continuing to expand franchise into more Asian countries could help steer company revenues upward at the same time introducing possible e-commerce initiatives that would be executed in these countries where their online market would dominate. Would create a new avenue for growth ; however, this would not resolve GAP’s core competency issue. This option would be not likely create enough added synergy to turnaround GAP’s net sales. Would increase Gap Inc. brand image if they expanded and incorporated their fashion and design skills into consumer homes. The clothes that customers buy would imitate the “makeover” that Gap Inc. could offer in providing that service. Currently GAP lacks the competency to respond successfully to fashion trends. Therefore, by adding a new system this would enable GAP to have three factors of success; brand equity, fashion responsiveness, financial & inventory manageemnt. Economic viability Risky; depending on the country coupled with a possible changing political and/or economical structure could have impact on the operations of that particular market. Risky; creating a new brand is difficult and the ability to build brand equity only occurs over time. If successful this option would still not aid the other brands. Medium Risk; implementation problems that could arise; however, competing with other competitors in the home & décor industry could reinforce the competition for both markets if done successfully. Risky; GAP would need to undergo a change of infrastructure in terms of streamlining its ability to create and bring fashion to market. Ranking 2 nd 4 th 3 rd 1 st

Implementation • Recommendation: Create a strategy geared towards improved fashion responsiveness • Plan specifics ▫ Need: Application service provider ▫ Fund: Take away some of the funding for advertising and use those cut funds for saving up for the ASP. ▫ Critical success factor: GAP Inc. would have learn the ASP program and comprehend and respond to the trend data collect by the real time and up-to-date daily purchases • Overall time frame: 1 to 2 years