External Case Analysis:

The GAP Inc.

Industry: Family Clothing

Wei Shiuan Chen (500597934)

Raymond Fan (500451737)
Shalini Krishnarajah (500268811)
Anderson Lau (500450946)
Cherie Wong (500453725)

PESTEL
Political Factors
The Multi-Fiber Arrangement created a quota limiting the amount of textiles and apparel
that could be exported from developing countries to developed ones
Agreement ended in 2005 with restrictions through 2008 for United States and China
Economic Conditions
Constant fluctuations of currency often affects the purchases of clothing offshore
Chinas minimum wage increased causing GAP to source from other countries
Sociocultural Factors
Plus-sized clothing sector increased dramatically in the U.S
18 percent of adolescents between ages 12 to 19 are obese leading to increased demands
Technological Advancements
Gap redesigned their e-commerce platform providing greater functionality
Contracted with IBM to operate the information technology infrastructure
New order processing system allows for faster ordering process with greater accuracy
Legal Conditions
In 2009, industry wage was 0.8 percent of U.S. clothing stores industry sales
Some companies choose to maintain low labour costs while others have higher labour
cost with more employees in the stores to elevate customer service
Environmental Factors
Heavy focus on corporate citizenship activities such as improving factory conditions and
standards, investing in numerous communities, and developing diversity and enrichment
programs for its employees
In summary, GAP has brought in a new CEO which has given the company a fresh look on what
strategy they need to implement and steer the company in the right direction. They focused on ecommerce and have emerged in the online retail strategy from the beginning. By reducing the
company debt, the company can slowly increase sales and continue to grow as a company.
Dominant Economic Features
The family clothing industry is the largest industry in the clothing store sector accounting
for over 50% of the sectors yearly sales
The industry itself has sales of over $80 billion but is saturated and has a low growth rate
The family apparel industry has reached maturity and has a high number of consumers
No company has high market control due to difficulty to obtain competitive advantage
The 4 companies (TJX, Gap, Ross Stores, Abercrombie & Fitch) take majority of the
market share
Low levels of product differentiation, products share similar styles and function
Companies must tailor their products to changing tastes, reduce costs and improve
company logistics to deliver products in a timely manner

 Loyalty programs and advertisements in order to satisfy needs and differentiate

A large amount of production is outsourced to foreign countries for cost savings
Profit margin of products falling due to an increasing supply of products in the industry
Growth of the industry in North America has slowed down quite a bit. Those within the industry
with strong annual growths have taken the initiative to expand online and into foreign markets.
In order to deliver products that are in style in a timely manner into the consumers hands,
companies must manage their supply chain as efficiently as possible.
Porters 5 Forces
Threat of New Entrants
Strong brand loyalty detracts new entrants from entering the market
Relatively inexpensive to enter the industry, especially with e-commerce
Products provide similar functions and they are relatively hard to differentiate
Overall the threat of new entrants is a weak (to Moderate) competitive force towards GAPs
success. Even though it is relatively inexpensive to enter the market brand loyalty is vital. New
entrants face difficulty building brand loyalty due to the expertise of the industry's major players.
Threat of Substitute products or services
The products in the Clothing and Apparel Sector are in-differentiable
The threat of substitute products is a weak competitive force towards GAPs success. Players in
the family apparel industry share functionally the same products with the entire clothing sector,
so there are no substitutes. As a result competition in the sector is extremely intense.
Bargaining Power of Buyers
Consumer demand for products are declining (Supply > Demand)
Low switching costs for consumers due to the lack of product differentiation
Extremely competitive industry
Brand loyalty comes second to price points
Overall the bargaining power of buyers is considered a strong competitive force against GAPs
success. Even though individual buyers are small, and have little say in the prices of the product,
they make the final decision on whether or not to purchase the product.
Bargaining Power of Suppliers
68.9% of clothing is manufactured off shore
The Multi-Fiber Agreement (MFA) limited the amount of textiles and apparel that could
be exported from developing countries to developed ones
Low-cost foreign clothing manufacturers have high bargaining power when negotiating
with U.S. clothing stores - retailers reduce risk by using a portfolio approach
Overall, this is a weak force because companies always have some kind of way to reduce their
costs whether it be off-shoring to reduce costs, or spreading out their production in countries to
minimize risk and restrictions.
Rivalry of Competitors

Industry made up of thousands of small, local retailers that possesses fragments of market
shares
The top four family clothing retailers in the U.S are TJX Companies Inc. (13.4%), GAP
Inc. (15%), Ross Stores Inc. (6.9), and Abercrombie & Fitch (4.1%)
Each of these retailers offered different styles of clothing and had different pricing
strategies.
All the evidence above leads us to believe that rivalries and competitors is a strong competitive
force. GAP is constantly competing with its rivals to take the top spot in the family clothing
industry.
In summary, there are a lot of forces that is a threat to GAP however, in order for GAP to stay
competitive; they will need to study the consumer behaviours as well as current fashion trends to
create unique pieces of clothing that consumers will want to purchase. As such, GAP will need to
create a customer database and make every effort to build customer loyalty.
Driving Forces Analysis
Industry Information
GAP has placed as one of the top four retailers for family orientated clothing in 2009
GAP has visited some success, they are experiencing a decline in product quality, longterm debt of nearly $3 billion, product and brand popularity decline
Demographics
The U.S. segments can be broken down into gender, age, size, and price valuation
Womens wear occupy 50% while men and children represent 37% and 13%
The plus-sized segment is increasing due to increased obesity rates in the U.S.
Gross Domestic Product
Price-sensitive consumers emerged as a result of the 2008 recession
Value-price clothing represented 65% of industry sales
Products and Manufacturing
The ability to develop new product lines on trend is an important factor
Overseas retailers have efficiency in manufacturing and the ability to respond to fashion
trends in short, two week cycles
Emphasize on catering to your consumers with a desirable price point that will allow them to
make continuous purchases. Constructing a reliable value chain that will allow you to quickly
respond to trends and creating a resonated response from your consumers.
Strategic Group Map

TJX Companies: Leading off-price retailer that carries various range of products for less

Ross Stores: Second largest

off-pricing model, sells
brand-names for less
Abercrombie & Fitch:
Specialty retailer, selling
upscale premium-priced
casual clothing
American Eagle Outfitters:
carries their own line of
affordable fashionable
clothing
The GAP Inc.: low,
moderate, and high pricing
strategies across subsidiary

companies
It is important to consider all factors to ensure an accurate analysis of the strategic group map.
Most times, the average price of product and product breadth present an accurate representation
of the market in which these products compete.
Framework for Competitor Analysis (Shalini)
Current Strategy
TJX & Ross Stores - off-pricing business model
Abercrombie & Fitch, American Eagle: moderately-high price, trendy clothing, online
GAP - growing brand through continued celebrity endorsements
Capabilities
TJX and Ross Stores: There is a broad range of products and brands however, there is no
e-commerce platform
Abercrombie & Fitch and American Eagle: They offer products online as well as keeping
up with current trends
Gap Inc.: Offers variety of products online and increasing dividends through debt
elimination however, the clothing are not on trend due to cutting costs and the lack of
product creativity
Objectives
GAPs turnaround strategy included cutting cost, improved merchandise and leadership
Change the targeted age demographic of GAP from 18 to 24, to 25 to 35 years old
Assumptions
GAP future expansions into more foreign markets to boost overall sales
Competitors are likely to all sell products online
Expand into larger markets due to globalization
Diversify their product lines to carry a broader range of clothing brands, sizes, and goods

Strategic Moves and Outcomes

GAP acquired Athleta in 2008 to diversify its product scope
Redefine brand image of GAP through the allocation of more resources toward style and
quality
It is important to note that although the companies presented in the analysis all operate in the
same market, yet greatly differ in strategies. Companies must implement strategies that will
differentiate themselves from their competitors to continue their success.
Industry Key Success Factors
1. Superior ability to create new products that align with fashion trends quickly
trends are the basis on which buyers in the industry choose between competing brands
brands who are able to produce products on trend quickly have an advantage
2. Building brand loyalty relationships
consumers are more likely to extend their range of distance if they have strong brand
loyalty
3. Strong network of retail stores in prime locations
Consumer purchasing decisions are affected by stores in the immediate shopping
environment
Consumers have a broad assortment and choice of stores to shop at
4. Excellent financial management and inventory management skills
Proper inventory management ensures new products are delivered in a timely manner
Poor financial management leads to increased costs passed on to the end consumer
In order to remain competitive in this industry, companies should do more than achieve the
KSFs. They must strive to go above and beyond in order to have an advantage over rivals in the
industry.
Conclusion
Gap has the ability to be successful in the market contingent on maintaining their market
share
The 4 key success factors will be the key to maintaining competitive in the family
clothing industry
GAP must strive to create points of differentiation in order to increase brand loyalty and
separate themselves from their competition
Growing e-commerce trends must be paid close attention as this sector is growing rapidly
Overall, GAP has potential to be very successful in this market if they are able to retain their
market share. In a highly saturated market, GAP will need to continue to understand the current
trends and their consumer behaviours in order to stay competitive. In addition, GAP will need to
have the ability to react rapidly to changing market trends. In particular, they must focus on the
four industry key success factors including the ability to adapt to trends, building brand loyalty
relationships, creating a strong network of retail stores in prime locations as well as having
excellent financial management and inventory management skills. These are only the basis on
which retailers in this industry must abide to in order to keep up with the competition. Gap must

work closely with these key success factors as well as further develop differentiation strategies to
create a competitive advantage over their competitors. With the emerging e-commerce trends
growing rapidly in the North American society, companies need to create an e-commerce
platform in order to create a convenient shopping experience for the consumers.