Reference no: EM132829729
Read the following case, and in the space provided answer the related questions.
Gap became a household name in the 1990s through its clever advertising and merchandising strategy that made it largely responsible for making the jeans-and-t-shirt style ubiquitous during that decade. The company's strategy led to large and regular increases in net sales, which increased from $1.9 billion in 1990 to $11.6 billion in 1999.1 Its net sales by the end of the decade were almost double the $6.6 billion in 1997.
The company's sales growth declined dramatically in the 2000s as its merchandise became stale. The decline in sales growth had become a decline in total sales by 2015. Gap CEO Glen Murphy was replaced by Art Peck in February 2015 and charged with reversing the company's long- running lackluster performance and recent sales decline. Peck had joined GAP in 2005 and had held various executive positions with the company where he spearheaded the company's franchising initiative, executed its outlet store strategy, and led its digital and e-commerce division.
The sales decline between 2014 and 2015 was reflected in every geographic region except Asia and every brand except Old Navy, which experienced a 1 percent increase in sales in 2015. When compared to 2011, net sales across brands had only increased from $14.5 billion to $15.8 billion in 5 years.
Comparable store sales declined 4 percent for the company between 2014 and 2015, with the greatest decline at 10 percent for Banana Republic. Comparable store sales for Gap stores declined by 6 percent and Old Navy store comparable store sales were unchanged between 2014 and 2015. Driving the decline in comparable store sales was the fall off in the company's sales per square foot, which had fallen from $365 in 2013 to $361 in 2014 to $337 in 2015.
Faced with increased competition and a changing demographic amidst a shifting shopping landscape, Gap CEO Art Peck needed to reverse Gap Inc.'s current trajectory and consider alternatives to improve sales. Complicating the turnaround, however, would be the increase in shopping mall vacancies, as well as the increased competition in retail. While higher-end malls continued to see improvements in foot traffic in 2015, consumers decreased shopping at lower- end malls, where empty storefronts were becoming common. Further, as shoppers became comfortable with online shopping, larger percent ages of retail sales were occurring through e- commerce.
Yet, companies such as the Inditex Group continually increased sales and expanded locations regardless of these environmental factors. The company was able to quickly launch fresh, new apparel lines to meet rapidly evolving consumer preferences through its vertically integrated design and manufacturing strategy. Inditex Group operated over 7,013 locations in 88 countries and 29 online markets in 2016. Its brands include Zara and Zara Home, Massimo Dutti, Bershka, and Stradivarius, among others.
In 2015, Inditex Group opened 330 new locations in 56 countries. In addition, Inditex Group started distributing its Zara brand through an official storefront on Tmall.com. Zara stores totalled to only 2,002 of the company's 7000+ stores, but the brand accounted for 65% and 67% of the company's revenues and earnings before interest tax, respectively. Art Peck and Gap Inc. were faced with stark changes in the retail industry. As the consumer's desire to shop and congregate at the mall decreased, steep declines in foot traffic created ghost malls in some areas. However, online retail sales continued to grow and thrive, with Amazon.com alone accounting for 60 percent of the growth of 2015 online sales.
With this in mind, Peck pondered how Gap could defend against unfavourable external factors and craft a strategy well-matched to the retail environment of the mid-2010s.
Answer the following questions:
1. Evaluate the strategically relevant components of the Retail, Family Clothing Stores industry macro-environment based on the following factors:
a. Market size and growth
b. Segmentation
c. Scope of Rivalry
2. Using Porter's Five Forces, answer the following questions regarding the Retail Family Clothing industry:
a. Which of the five competitive forces is strongest?
b. Which is weakest?
c. What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of new entrants?
3. Compare and contrast three general strengths and weaknesses of Indetix Group and GAP Inc. each (you can use bullet points)
4. Identify and explain at least three key factors that may determine the success of GAP Inc.