Brief Background
During former CEO Paul Pressler’s tenure, Gap, Inc. has consistently lost revenue and market share, mainly due to fashion missteps, as Moore (2007) puts it. Revenues from the Gap brand, which forms part of 40.8 percent of total earnings, decreased by 4.8 percent in fiscal year 2007. Sales reduction from the same product line resulted to a drop of 0.5 percent in overall revenues in fiscal year 2007. During the 2004 to 2007 period, revenues from still the same brand dwindled at a CAGR of four percent. A large part of the loss in revenue and market share can be attributed to the failure of Pressler’s management to both recognize and respond to the changing needs of customers.
SWOT Analysis/External and Internal Analyses
Strengths. The firm has a well-built brand image, being one of the leading branded apparel companies worldwide and carrying four brands under the business: the Gap brand, Old Navy, Banana Republic and Paperlime. They additionally have a huge network of physical stores which cater to all their customers clothing needs. Consumers liked the service of Gap because salespeople are more manageable, and their attention makes shopping faster when time is a concern for most of their loyal clientele (Gomez-Insausti, 2007). The company has also managed to reduce their long-term debt during recent periods which allowed them to focus more on revamping organic initiatives.
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Weaknesses. The weak performance of the Gap brand as demonstrated in revenue figures during recent years is one of the major weaknesses of the organization. Also, an observed excessive dependence on the US market for their sales generation has limited their opportunities for growth. Operating cash flows has also witnessed decreased in recent years, which undermines the firm’s ability to pay pidends to shareholders.
Opportunities. Increase in the occurrence of online retail spending proves to be an opportunity for Gap, Inc. to reach out to more customers and therefore widen their market base. The markets in China and India which have continuously improving economies present another opportunity for Gap to explore its clothing territory upon. Further, the burgeoning footwear market worldwide is a positive outlook for the Paperlime and Old Navy brands, as both brands offer footwear among their product portfolio.
Threats. Branded products offered by Gap is in danger of being overcome by counterfeit products, as the latter sells cheaper (although at a significantly lower quality). A general slowdown in shopper spending is also a threat for the company, as well as the ever-present intense rivalry in the branded apparel industry.
Assessment of Strategic Choices During Pressler’s Tenure
Much of the strategic choices made during Pressler’s tenure has been a series of fashion blunders which otherwise could have been avoided had Gap been more in tune with the changing consumer preferences. The persification into other brands has also left the Gap brand in the mercy of ruthless competitors, which resulted to its poor performance during his period. If there was a balance in focus of all the brands, the Gap line could have sustained its market leadership and should not have contributed to drop in overall revenues.
Recommendations for New CEO Glen Murphy
The situation Gap Inc. faces is a perfect example of a brand that has lost its relevance and has developed from its inability to both identify and respond to changing needs of consumers. Rapid changes in consumer lifestyles, shopping patterns and attitudes towards shopping has contributed to the fast rates of changes (Michman and Mazze, 2001), which the firm under Pressler’s helm has failed to keep up with. In order to develop strategies, it is recommended for the new CEO Glen Murphy to understand the reasons behind fast and slow rates of change. A high level of investment is also suggested in order to sustain the initiated climb towards earnings sustainability. The power of the Internet should likewise be focused upon and maximized, as more and more shoppers prefer to do their shopping online.
WORKS CITED
- Gomez-Insausti, R. (2007). Canada’s Leading Retailers: Latest Trends and Strategies for Their Major Chains. Canadian Journal of Regional Science, 29 (3), 359+.
- Michman, R. & Mazze, E. (2001). Specialty Retailers: Marketing Triumphs and Blunders. Westport, Connecticut: Quorum Books.
- Moore, A. (2007, Jan. 4). Gap Sales Disappoint, May Revamp Brands. MarketWatch. Retrieved May 23, 2008, from http://www.marketwatch.com/