Gap Inc. in 2010: Is the Turnaround Strategy Working?

Background

The Gap was founded as a single blue jeans store in 1969 by Doris and Don Fisher. After expanding its product line, the company went public in 1976 and began a rapid expansion strategy by hiring Millard “Mickey” Drexler as its president in 1983. Under Drexler, Gap became the second-largest apparel brand in the world in 1992. Gap firstly acquired the Banana Republic chain in 1983, expanded internationally in 1989 and then launched Old Navy in 1994. Despite it fitted perfectly to American fashion and tastes in the 1990s, Gap suffered a decline in 2000. Drexler was fired in 2002 and then Paul Pressler replaced his position. Pressler launched the Internet-only retailer Piperlime.com and began to expand brand into new worldwide. For now, the Gap has evolved into a major clothing retail company with five well-known brands, including Gap, Banana Republic, Old Navy, Athleta, and Piperline. The firm sells a variety of casual-style and chic clothing to men, women, and children in over 3,100 stores worldwide in 2010.

Problem Statement

Though adopting turnaround strategy since 2002, the market share and sale of Gap Inc. were still at decreasing and the brand image was injured. To truly turnaround the company’s current situation, Gap has to re-evaluate its current strategy and find out the next step.

Issues and Symptoms

Strategic issue: the company has a slow product-to-market cycle times.

Evidence: From the financial summary for Gap, it showed the excessive cuts in expenditures related to design, product development, and marketing and in the supply chain.

Strategic issue: existing and new-entry competitors continued taking the market share.

Evidences: Foreign newcomers Uniqlo, H&M, and Zara emphasized “fast fashion” which has achieved huge success and affected industry structure.

Strategic issue: the company still faced financial decline.

Evidence: the flagship division, Gap North America, continued to lose although other divisions reported gains in sales.

External Analysis

Industry Overview

The family clothing store industry was one of six industries that made up the broader U.S. clothing store. As the largest industry within the sector, this industry accounted for sales of $84.4 billion in 2009, representing more than 54% of clothing store sector sales during the year. Sales in all industry segments (could be segmented by gender, age, size and price consideration) of the clothing store sector were highly seasonal, with the 13 weeks during the back-to-school and holiday periods accounting for a substantial proportion of most