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Nowadays, Gap Inc. is among the most recognized retail chains, both in the USA, where it originated and in the world, in general. The multinational corporation has five major brands that target different groups of consumers and enjoys a significant market share in the industry. The company has suffered a decline in revenues due to the economic crisis and recession, as well as being criticized for some collections. Therefore, it may be beneficial to analyze its past business and marketing strategies with an aim to adjust them to the existing market circumstances. Besides, e-commerce becomes a lucrative direction for further development, and Gap Inc. has been known for its superb digital business that has always employed the best practices and gained positive feedback from customers. The current case study is aimed at providing a brief overview of Gap Inc., its international business, marketing strategy, and international e-business strategy analysis.
Company Background, Industry, and Competitors
Gap Inc. was launched in 1969 as a store in San Francisco by a successful real estate developer Don Fisher and his wife Doris (Gap Inc.). The first Gap store was opened on Ocean Avenue due to a rather simple reason: Don could not find a pair of jeans in his size in any store in the city, which made him realize that there was a promising opportunity in the local retail market (Gap Inc.). The Gap store was located near the university and was primarily targeting teenagers and young adults by appealing to their fashion tastes and offering a unique, at the time, shopping experience, thanks to trendy design of the store and music playing inside. The name of the brand is a reference to the gap generation, which was a notion coined and popularized in the USA in the 1960s. The name turned out to be catchy, and even though the first few months were quite bumpy, because of the Fisher’s lack of experience, the store quickly found its target customers and developed a business model that brought revenues. Initial attractions of the store consisted in the availability of all sizes and various models of Levi’s jeans and trendy music playing. Thanks to a novel view of the business, the Fishers revolutionized “the specialty retail industry” (Gap Inc.). During the first few years, Gap stores were opened throughout the USA, while its revenues skyrocketed until Gap went public in 1976 and offered 1.2 million shares of stock (Gap Inc.). At the beginning of its existence, Levi’s was the main brand represented in Gap stores, but its founder soon realized that his company needed its own brand with a unique clothing style with jeans being at the heart of all collections, which gave rise to Gap clothes so popular today. From the time when the company was established, Don Fisher emphasized that Gap was not really about clothes, but rather about lifestyle and people who were at the center of everything they did. Thus, he founded a non-profit charitable arm of the company in 1977 that has since then launched various initiatives aimed at improving lives of communities and individuals in different corners of the world (Gap Inc.). In 1983, Gap Inc. acquired Banana Republic, which is now one of its core brands (Gap Inc.). The first GapKids store was opened in San Mateo in California in 1986; while in 1987, the company went global by opening its first store in London (Gap Inc.). In 1990, the company launched its babyGap brand (Outlet Shoppers). In fact, in 1994, Gap Inc. opened another brand called Old Navy and opened first Old Navy store in Colma (Gap Inc.).
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The company was among the leading retail chains that realized the significance of the digital direction and debuted online shopping in 1997 (Gap Inc.). In the beginning of the new millennium, Gap Inc. was involved in several international scandals related to its suppliers exploiting child labor, but the company denied that they knew about these cases. With a view to preserving its reputation and avoiding similar cases in future, Gap Inc. started issuing annual Corporate Social Responsibility reports in 2004 (Gap Inc.). In 2008, it acquired another core brand called Athleta (Gap Inc.). Although the company has been steadily expanding globally throughout the years, it managed to penetrate the Chinese market only in 2010 (Gap Inc.). In 2013, it acquired another core brand Intermix (Gap Inc.). Moreover, in 2014, the company announced its plan to raise the minimum hourly wage for its US employees, while its international division opened first Old Navy store in China (Gap Inc.). The above chronological description covers only some of the most significant dates in the long history of the company, that is among the fastest growing businesses and the most successful retail multinational corporations thanks to its ability to adapt to changing market circumstances and listen to the public moods, while also responding to shifting fashion trends. Despite some recent economic problems, the company recorded revenue of $15 billion in 2012 with net profits amounting to $1 billion, hence remaining financially sound and profitable and increasing shareholders’ dividends (Success Story).
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Nowadays, the company has about 3,500 stores all over the world and five successful brands that cater virtually to all population segments. The mission of the company is to give “customers the freedom to express their individual sense of style”, while preserving truly American style (Outlet Shoppers). Its philosophy states the following: “to make a positive, lasting impact on the people and in the places where we operate” (Gap Inc.). Moreover, sustainability and charitable initiatives in communities are an integral part of the company’s activities. The corporate culture is centered on the need to “do what’s right” and respect rights of employees, customers, stakeholders, and all people in the world (Gap Inc.).
Currently, Gap Inc. operates five successful brands: Gap, Banana Republic, Old Navy, Athleta, and Intermix. Until the first quarter of 2015, it also operated Piperlime, but a recently appointed CEO Art Peck decided to close the smallest brand of Gap Inc. and instead focus on the above five brands, as well as global and digital growth of the company (Gap Inc.). All brands target different groups of customers. Thus, Gap strives to provide essential clothing for people of all ages, operating under a motto “American optimism is out attitude” (Gap Inc.). Banana Republic targets a more upscale group of customers who appreciate luxury value at a high, but still affordable price. Old Navy is a brand targeting ordinary American families for whom price is important, while value may be a little lower than that of the afore two brands. Athleta’s target customers are women searching for clothes and apparel for doing both professional and amateur sports, attending gyms, studios, and “everything in between” (Gap Inc.). Intermix offers “coveted, sought-after designer style” and sells collections of various famous designers, hence targeting the luxury segment of the market (Gap Inc.). In terms of competition, Gap Inc. today “faces competition from every retail corner”, while some main competitors are J.Crew Group, Abercrombie & Fitch, TJX Companies, and American Eagle Outfitters (Joslin et al.). However, its separate brands’ competitors vary with Gap, facing competition from Abercrombie & Fitch, Gilly Hicks, and Hollister and Old Navy facing competition from Wal-Mart, Ross, and Kohls (Joslin et al.). Athleta’s main competitors are Nike, Gaiam, and Lululemon Athletic, while Banana Republic faces competition from J.Crew, Ann Taylor and Urban Outfitters (Joslin et al.). However, Gap Inc.’s e-commerce business seems to currently enjoy a significant competitive advantage in addition to some other strengths that may allow the company retain and increase its market share in future.
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International Business and Marketing Strategy Overview
In terms of the overall business strategy of the company, it consists in being a global specialty retailer, which offers a wide range of products for women, men, children, and babies through its five core brands. Most of its products are the products that are manufactured by third party vendors and sold through its stores, franchised stores, and online platforms (Ciasullo, Blauvett, and Lambert). According to its 2013 annual report, the company strives to adjust its international business and marketing strategy to shifts in the retail environment and technologies (Gap Inc.). Thus, nowadays “winning means offering our customers an exciting, consistent experience, fully integrated across the physical and digital worlds, whenever they shop. We’re competing hard and playing to win” (Gap Inc.). The overall international business and marketing strategy consists in recognizing the power of social media, celebrating iconic Gap pieces, connecting with bloggers, expanding internationally, offering innovative customer experiences, remaining sustainable and deeply integrated into communities, and expanding its franchise market globally (Gap Inc.). Digital business becomes of utmost priority as, according to the company CEO, “We have embraced technology as an important part of how people shop today. We are leading in bringing together the way they interact with us digitally and in our stores to make their shopping experience consistent and convenient” (Gap Inc.). Moreover, Gap Inc. is oriented at expansion in Asia, increasing online sales volumes, and reducing its brick and mortars. For instance, Gap closes 21 of its stores in the USA in 2011, as well as a limited number of its European stores (Hendricks). Fleet optimization is also an essential part of Gap’s strategy. Besides, overall marketing strategy of Gap Inc. was expressed by Chief Marketing Officer Seth Farbman in an interview as follows: “We look at our marketing not just as a way of selling pants but as a way to sell the idea that optimism will overcome” (Drell).
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Gap Inc. still considers North America as a highly important market and has developed respective marketing and strategy plans for the region. One of the plans announced by the new CEO concerns North America and, in particular, optimization of the store fleet and streamlining of the headquarter workforce (Gap Inc.). Thus, the company will close approximately 175 specialty stores in North America in the coming years with 140 being closed within the current fiscal year (Gap Inc.). It is to be done with an aim to improve and open specialty stores in the most successful locations. No significant changes are expected for Gap Factory Stores and Gap Outlet. This way, there will remain 800 Gap stores in North America, in addition to various online channels, “better reflecting the way today’s customers shop across specialty, outlet and online” (Gap Inc.). With respect to strategic plans relating to the workforce in North American, the headquarter workforce will be reduced by 250 roles during 2015 (Gap Inc.). Digital aspect of the business will remain essential in North America and will be improved further. Marketing campaigns will be run through all channels, including online, social media, TV ads, print sources, etc. In Europe, the business and marketing strategy is highly likely to remain almost unchanged in 2015, as only a limited number of stores are to be closed (Gap Inc.). This market seems to be not of primary concern for Gap Inc. in terms of expansion, as its brands are already well-represented here and the environment is highly competitive. Quick fashion stores like Zara and H&M seem to be more popular than Gap brands with European fashion-oriented consumers, but Gap Inc. still considers Europe to be an important part of their business. Besides, franchise segment of Gap Inc. is prominent in Europe, where franchise stores are opened in many countries. In terms of online shopping, the delivery of Gap products is now available for all European countries and is expected to be improved.
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Currently, Asia seems to be the top priority market for Gap Inc.’s global expansion. In particular, China is among the most thriving markets for the company, even though competition among retailers is fierce. Hence, Gap Inc. strives to adapt its business and marketing strategies to local demands (Burkitt). In 2014, it planned to open twenty-five Gap stores and ten Gap outlet stores across China in addition to already existing eighty stores (Burkitt). In early 2014, Old Navy opened the first store in Shanghai. Jeff Kirwan has been responsible for expansion into the Asian market for the past four years and believes that there is plenty of “room for brand expansion – with physical stores and online” (Burkitt). The company entered the market with a locally adjusted marketing strategy called “Let’s Gap Together” that featured Chinese and American famous personalities together in advertisements (Doland). The strategy managed to increase brand awareness from 30% to 60% during six months (Doland). American roots of Gap Inc. have been emphasized in China, but local peculiarities have been taken into account as well, that has allowed the company to become successful in the local market and expect growth in the near future. Besides, promotions are a significant feature of Gap Inc.’s functioning in China as Chinese customers seek active engagement and look forward to them (Doland). Withal, the Asian market, including China, is a priority segment for Gap Inc. in terms of its global expansion.
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International E-Business Strategy Analysis
In the recent years, Gap Inc. has been under heavy criticism under several accounts, including its declining sales, closure of stores, lack of creativity in collections, falling revenues, etc. However, there is one aspect of its functioning that has never been questioned and it concerns its e-business. Gap Inc. has been among the first retail chains to realize significance of the digital aspect of the business that is proved by an early launch of online platforms for the flagman brand in 1997 and subsequent launch of online platforms for other brands in early 2000s. Besides, e-commerce is a priority direction for the company’s future development and global expansion with sales coming from online shopping, predicting to grow significantly in the following few years. As of 2014, e-commerce amounted to more than $2 billion in revenues and most company growth was coming from this segment (Sacks).
Thus, according to e-commerce analysts, “They’ve always been ahead of the curve” (Sacks). Gap Inc. has developed almost all of its appraised technologies without the involvement of outside contracts and has pursued a rather aggressive strategy aimed at the integration of physical and digital services of the company (Sacks). E-commerce strategies are a primary responsibility of the Gap Inc.’s division called GID, which stands for Growth, Innovation, and Digital (Gap Inc.). This division functions as a separate business unit and oversees management of all core brands’ websites across the world, as well as being responsible for suggestion and implementation of innovative products that can boost customers’ experience and generate growth. Importance of e-commerce for the company is proved by the fact that current CEO Peck has been chosen for this position mainly thanks to his achievements as a head of the GID team. His professional motto on the previous position was as follows: “we grabbed it, wrested it, and we are killing it” and his two years in GID were called “the wonderfully messy, ugly, disruptive time” (Sachs). His ability to challenge conventional ideas about how e-commerce and digital experience, in general, should look and feel like has been the key reason why the board of directions decided to appoint him as the CEO in the contemporary highly digitalized world. According to his several statements, Gap Inc. will take into consideration that “customers are rapidly changing how they shop today, and these moves will help get Gap back to where we know it deserves to be in the eyes of consumers” (Gap Inc.).
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One of the key e-business strategies of the company is to integrate the physical and digital experience of customers and make brick and mortar and online aspects of the business tightly interconnected. In fact, Gap Inc. has already been largely successful in this respect. Contrary to many of its competitors expanding globally, Gap Inc. does not open its stores in foreign markets without launching online platforms at the same time. For instance, when entering the Chinese market, digital business preceded opening of brick and mortar stores, which allowed enhancing brand awareness and catering to expectation of digitalized Chinese consumers who today represent the largest group of the world population in online shopping (Burkitt). Polls of Chinese customers have proved that this strategy is wise and effective, which has set the ground for further global expansion moves.
Currently, Gap Inc.’s customers already can enjoy a blend of digital and physical shopping experience, as they reserve online items in any store, so that they have a chance to come to that store and try on the item before actually purchasing it. Besides, they can check the stock at any store, as well as customize their shopping experience and preferences. E-mails and social media subscriptions are an integral part of the marketing strategy. According to the CEO, the company plans to improve its marketing strategy for e-business in future. One of the ways to do that consists in the provision of personalized recommendations to shoppers on the basis of their shopping histories and browsing. However, this plan is at an early stage and such improvement has to be perceived by customers as “cool, not creepy”, even though consumers are predicted to accept such personalization of online shopping experience favorably (Rueter). Withal, the CEO Peck has declared that his company’s brands “are leaders in bridging our physical stores with innovative digital technology to make our customers’ shopping experience convenient” (Rueter). E-business of Gap Inc. is so successful and efficient thanks to the fact that its technologies are the company’s developments, which brings forth flexibility, speed, and scalability across all channels. In terms of key software products, the company decided to migrate to the Red Hat Enterprise Linux and implement PBIS in early 2000s, which has proved to be the right solution since then (Beyond Trust).
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