Gap Swot Analysis

Gap Swot analysis:

Strengths

* Positioning of Old Navy as a value priced family apparel retailer will enable Gap to capture increased revenues

Gap has positioned Old Navy as a value priced family apparel retailer, which is facilitating higher

revenues even as the consumer spending is tightened. Old Navy offers broad selections of apparel,

shoes, and accessories for adults, children, and infants, as well as other items, including a maternity

line, consumables, and personal care products. The company with this brand, has been able to effectively target the family customers. Across every department, Old Navy ensured that merchandise

decisions were made with target family audience. As a result, Old Navy was able to deliver fashion

at value prices for the entire family. Family customers facilitate spending at multiple points and the

value positioning is aiding the sales growth in tough economic times. By the end of FY2009, Old

Navy accounted for 38% of the revenues. Old navy is the only brand that registered positive

comparable store sales in a tough economic environment, recording a 3% growth rate. Old Navy's

positioning as a family brand will enable Gap to capture higher consumer spending and has proven

to be a resilient brand against a difficult economic backdrop.

* Value focused outlet stores will help effective catering to the growing price sensitive customer base

Gap operates Banana Republic Factory stores and Gap Outlet stores to cater to price sensitive

customer base. These outlet stores carry similar categories of merchandise as the normal stores at

lower price points. The recession and constrained customer spending patterns has placed several

customers in the price sensitive bucket. The outlet stores convey a strong value message which

was further enhanced by increased local radio advertising. The company also expanded the outlet

business globally to capture similar phenomenon across the globe.Value offering has been gaining

prominence in the recent times and will prove to be a competitive advantage as Gap will be able to

effectively cater to the increasing base of price sensitive customers. Additionally, it will enable Gap

to effectively sustain the competition from discounters and mass merchandise stores that offer similar

merchandise at low prices.

* Global presence catalyzed by franchise model will enable benefits of scale and provides access to large and diversified revenue stream

Gap has over the years built a large global portfolio aided by the strong brand equity which enabled

quick penetration. In addition to the US, the company operates in Canada, the UK, France, Ireland,

and Japan. Franchise model adopted by the company also enabled quick penetration into global

markets. Under these agreements, third parties operate stores that sell apparel purchased from Gap

under the company's brand names. While this is still a small part of the business this plays an

important role in aiding the company's efforts to expand internationally. Gap has opened its first

store in several countries through the franchise model, latest being in Australia. Overall, in 2009,

Gap added about 20 new Franchise stores were opened bringing the total to more than 130 Gap

and Banana Republic locations in 19 countries. Through this approach, the company was able to

penetrate the global markets increasing the scale. Gap captures a large customer base and also is

exposed to diversified revenue stream, which also reduces the business risk.

* Strong margins compared to peers

Gap has resorted to several cost control measures and has maintained strong margins. At 12.8%,

the company's operating margins were well above the average of 7.5%. For FY2009, the operating

margins of Ann Taylor, Bebe and American Eagle Outfitters were 1.5%, 1.6% and 10.6% respectively.

Gap has taken actions under their control to enhance the profitability. During the most challenging

economic times, the company has successfully grown margins every year since 2006 with stringent

inventory and cost control, streamlining the supply chain, successfully repositioning Old Navy and launching new product categories, such as denim, to spur demand. High levels of profitability provide

a cushion to sustain low revenues. Additionally, higher profits compared to the peers will enable

Gap to weather price competition effectively as well.

Weaknesses

* Low productivity

Gap has been witnessing low sales per gross square foot indicating lower productivity.The company

has recorded lower sales per square footage from 2005. From $412 in 2005 the sales per square

footage fell to $339 in 2009 which further declined to $329 in FY2010. The company remains below

the 2009 competitor average of $433 sales per square foot and well off its peak. Real estate in one

of the important assets for the company and low yields indicates that the real estate for Gap has

low revenue generation capabilities. Low productivity in the long run will impact the profitability

negatively.

* The risk of increased