In 2020, the sales of Old Navy and Athleta sank by 16% to $ 16.4 billion, which is a tremendous fall. Although the company switched to online operations to keep the flow of business, they fall detrimentally in sales. At the same time, the closing of 220 Gap namesake stores is a major point to think about from the perspective of the changing customer perception. In the upcoming three years, the company has claimed that they are planning to close 130 of its Banana Republic stores in North America. In the year 2021, the net sales of $ 3.9 billion have been accounted for, which is quite flat as compared to the sales accumulated in 2020. It is seen most commonly that the demands of the shoppers are not met. This scenario of customer dissatisfaction has led to the closing of their factories to a great extent. An increase of $100 million in airfreight costs is also one of the common results of it. At the same time, both transportation problems and production delays are the main cause of the failure of customer demand.
Online market giants such as Boohoo and Asos can create issues for the business of Gap as they have currently focused on online spheres. On the other hand, rising cost is an issue for the fashion and retail companies and this is a problem for Gap as well. Rising cost is an issue that will be uncertain in the future as well. On the other hand, failure in matching with the right partner or a bad partnership effort can distaste the customer. The fashion trend which is present in the hoodies for example may turn flat if bad partnership efforts will be taken on. For example, the customer interest may fall if the right influencer is not chosen for the marketing of Gap clothes. For instance, Barbara Kristofferson, a Danish influencer has posted a picture wearing a hoodie from Gap and due to the large follower base, customers have been drawn to those hoodies. Hence, consumer preferences and tastes are very uncertain and fragile and this can be a great impact in both a positive and negative sense. On the other hand, due to the risk of uncertain consumer preference changes, the CEO has planned a three-year turnaround plan which involves designing changes, closing stores, cost-cutting, and so on. However, this plan is initiated to increase productivity to the main company business. The reputation of the company from a responsibility perspective will turn down as many jobs will get closed due to the effect of the shop closing plan. Therefore, the turnaround plan, they have planned to move out of malls and shift their business to a franchise business. This prospect can create business risk related to how they will deal with changing consumer preferences.
Since they produce a lot of materials for the community ranging from kids’ wear to women and men, they do not have a clear identity. They miss the business model that leads one organization to a sustainable end. The clothing brand always needs a perfect identity in the way reaching a certain standard of success in the future. Attracting only the millennial and gen Z customers and avoiding all the ranges of customers from their respective economic standards is missing in the company. In this way, a customer base and customer preference can shift negatively for Gap. On the other hand, reputational risk can create effects as a way of their tagline “Modern American Optimism”. These statements according to the experts are false hope as they do not cost-effectively benefit the customer and thus it can create a dishonest approach for the company. The brand value of a company will reach out to the customers when they value the customers and maintain transparency. In this scenario, the brand has failed to remain transparent as they are not even rendering any offer with such a tagline.
Business model shifts
Moving the other brands away from the main business of Gap has been recently chosen as a key strategic stance for the company. For example, the main business of Gap has decided to spin off its Old Navy brand as a separate company. This shift or exterminating the business brand from the original brand can cause a major shift in customer preference. They have also planned to Shed off and sell other brands such as Janie and Jack and Intermix chains. The collaboration with the Yeezy Gap is a great approach but how it will turn out to be in the future from a growth perspective is still an uncertain proposition. The situation of working from home facilities has created a sales declination of $13.8 billion. Hence, the business model which they are trying to achieve is quite unknown.
They are shifting to new models repeatedly and making business collaborations and this seems very much unclear about where they are going exactly. Whether the business shift is consumer-oriented or not is still not clear. Old Navy, the biggest brand of Gap Inc has annual sales of $ 8 billion which is a great sign for future growth. In the next three years, we will be able to see 30 to 40 new stores of Old Navy. The size equality initiatives are also integrated in the business model of Old Navy product line.
On the other hand, Athleta has also a great reputation as an activewear brand and it has 200 stores in the US. Furthermore, Athleta, which recently struck a major partnership with the gymnast Simone Biles, just passed $1 billion in annual sales, and Gap said that could double by 2024. The gap is planning for a collaboration with Kanye West for a new clothing line called Yeezy Gap. At the same time, 00 to 30 bode quality dresses activewear collections are present in Old Navy clothing line as well. The changes with regards to online shopping will be focused more significantly in the upcoming years. 32 locations both in Italy and France will be shed as well as per the directions of the management.
Within a short time, the shares dropped about 17% and it has a huge risk in the supply chain and the transportation cost down due to inaccurate on-time pick up and delivery performance. This economic risk also affects the workplace and manage dual economic and health crisis, that result in the driving of the new employee and customer engagement protocols, and due to the implementation of various options online the customer’s loyalty and engagement have been affected, and with the invention of long — term risk.
On the other hand, Gap Inc has used 1029 different technology from 10 different vendors it has been observed that all this technology that Gap Inc utilized for the manufacturing of jeans has been observed to deploy the AI solutions and robotic technologies. The employees in the departments of digital and technology have invented innovative retailers and e-commerce to create amazing experiences for the customers and develop communities. In this digital and technological world, Gap aims to improve the fit experiences for the customers by accelerating, and in this situation the company facing issues in fitting the advanced 3D technology on clothing, and the failure of fitting the technology impact risk on potential and disrupt the business of information security incidents of service outages. As Gap Inc is one of the famous retailer companies the risks occurring are cyberattacks, and password thefts with the anticipate potential problems. Gap Inc has developed its growth online that developed into the company-operated franchise retail locations globally and this creates a major risk within the working environment.
There is a risk related to investor preferences and this preference is falling backward for Gap Inc and it will fall if any initiatives are not taken. The foreign exchange rate will also get disintegrated as a result of the fewer preferences. Therefore, it can be stated that the marketing trends have not been well encapsulated with the business model of Gap Inc. Thus if the foreign exchange business would not go higher for the company, then the company business soon will run backward. Therefore, the consumer in the overseas market will spend very less on clothing. Since the athleisure clothing and the market of sportswear are growing, the business value and design of old one-sided color dresses must be avoided to gain the profit again. The ultra-cheap fast fashion trends can be adhered to a great extent by Primark and all the other companies to build the market share. This shift can make their preferences good in front of the eyes of the investors. Hence, by this acquisition, the investors might like the products of other competitors more than the products of Gap Inc.
Learning from the mistakes as a strategic response
There are issues in the business model in a way that the company is facing issues related to lacklustre assortments. On the other hand, the quality misfires are one of the areas where the company lags as compared to other chains. Similarly, product acceptance issues are one of the major points of consideration when it comes to matching up with the trends. Therefore, fitting and quality are major points where the company is falling backward. It is also seen that the company seems to put a lot of effort into one singular area when designing the clothes and undermine the other areas that are in trend. For example, prints can be used in the designing of shirts for the men’s section since they focus a lot on basic, solid colors to a great degree. The overreliance on neutral colors is one of the significant aspects of Gap’s business which can be tackled with care and concern. The inability to change the fashion from a designing perspective and a steady business model perspective is currently necessary for Gap. Hence, the business model must be risk-taking but strategic so that by the end of the formulation a sign of growth can adhere.
Trend-focused marketing as a model
The designing aspect is one of the areas where the company should work and the new trends that are in the market must adhere to. The new trends are the kind of areas where all the company is shifting their focus on. For example, the market of floral prints, casual wear, and streetwear styles is accepted to a great extent by H & M customers. They are preferring more casual wear, and streetwear and avoid business wear and formal clothing elements. Hence, this strategy must be adhered to create a generalized impact on the business. However, by doing it the company may run into facets of reality related to competition. Hence, the business model or structure must provide something unique from the standpoint of customers.
On the other hand, it is quite a great measure of thought that the company must bring new and fresh designs into the shelves. The ideas on how the company can raise the new debt for their transformational initiatives can be a great option for growth. After the company’s shift from the billion-dollar brands can not only shift the customer base but will also create important decisions making difficulties. Market positioning, and targeting designing new clothes would be great pressure for the company. A strategic analysis of all these from the standpoint of a business analyst can be made to resolve these factors.
A clear goal from a strategic point of view is needed
A clear goal from a strategic point of view is necessary as the company has no clear and perfect business model or brand identity. They first need to identify the distinctions between higher-end fine apparel brands and low-end fast-fashion retailers. The recent transformation strategy that the company has integrated created a shower pace of growth and this is an indication that they need to revive the business at a faster pace. Shifting the brand to the international market can be a great option and this can in many ways prove effective. However, in doing so the companies which have got revenue growth and suppliers and supplier market to a great degree can be adhered by them. Since the consumer response is very much sluggish for Gap in the US market, it can strengthen its performance in India, China, and more fashion-integrated countries. Since, they have already made partnerships with Indian big chains such as Reliance Retail, Aditya Birla’s Madura Garments, Arvind Ltd, and K Raheja Corp, they can further increase growth with them. The quality of management is taken seriously by Gap while doing business in a new market . This strategy must be avoided but all means since it will take a longer time for them to grow. High street location as a market positioning is present in both China and India and this opportunity can be taken seriously by the company . Market share is important but positioning a company in the right market requires choosing a geographically profitable area. In such a sense, both these markets are great and under these markets, growth strategies can be implemented. Therefore, from these markets, there is a great possibility of return as compared to the US and all the other European markets.
Improvement of the different risks
To improve the economic, technology, and operational risk the company has to utilize various forms of strategies and techniques to increase the company’s economic and operational position in the global market. However, the company has to identify the situation and places from which the risk have high chances and then develop a strategy as per the situation and expand the market in different countries with the high-quality and standard economic position. The managers and HRM department have to build up an operations team that inputs the weight and identifies the external risk provides the best recommendations for the company and develops the market values and economic position after the pandemic situation. On the other hand, to develop the supply chain management Gap implements an automatic purchasing of the ERP system that features the system and increased inventory levels that free up the employees that concentrate on various manufacturing with different raw materials.
In terms of developments of the technology, risks create a secure online presence to have better management within the production. It demonstrates the value of the technology to the end-user with the strategic goals and objectives and develops the risk appetite and enables value for the major development with large property claim and distribution centers to develop diversity within the company and form a better performance in the future. It has been observed that the management system and HRM practices improve all the risks through having a proper observation and accurate decision-making based on the conditions. The company also benefited from reduced costs and increases competitiveness for fast-moving marketing and digital development.