Gapreport Case

Gap faces little threat of increases in price competition by entry of new firms

into the market. Smaller boutique-style clothing stores may be able to compete on

a local level with the Banana Republic brand, however such firms likely would not

be able to expand, and both Gap and Old Navy enjoy a cost advantage in producing

staple articles of clothing, such as jeans and sweaters. Due to economies of scale in

producing large amounts of clothing, entrants will have an extremely hard time

producing clothing at cheap enough prices to compete with Gap and its

competitors. Entrants would also have difficulty in finding supplier firms who would

produce their clothing at a competitive cost level. Costs drop per unit of clothing

produced, and an entering firm would need to order a large amount of clothing in

order to enjoy the same economies of scale that Gap enjoys.

Brand loyalty is also important in fashion. Because many consumers have

strong preferences for certain brands or styles of clothing, new entrants would find

difficulty in increasing the amount of customers they attract to their stores without

incurring significant advertising expenses. Because of their size advantage and

economies of scale in advertising, Gap has a significant advertising advantage over

all other direct competitors within the specialty apparel market. They can afford to

run well-known nationwide television advertising campaigns while other firms in the

market do little or no TV advertising. A new entrant trying to steal away brand loyal

customers from Gap would need vast advertising resources in order to establish

their brand and be competitive, which is unlikely for an emerging firm.

Other than monetary considerations, the inputs necessary