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WIKI ANALYSIS
| Table of Contents |
| Intro and Overview |
| Introduction |
| Business Overview |
| Trends and Forces |
| Key Trends and Forces |
| Competition |
The Gap, Inc. is a clothing retailer based in the United States, operating 3,149 retail stores[1] under three distinct apparel brand names – "Gap", "Old Navy", and "Banana Republic." More than 2,800 of these stores are in the U.S., and Gap also has over 300 store locations overseas in the UK, Canada, France, and Japan.[2] In fiscal 2008 Gap's net sales fell 7.85% to $14.5 billion[1] as same store sales decreased 12% on the year.[1] Gap's sales peaked at $16.6 billion in 2004 and have been decreasing annually since then.[1]
The retail industry has exhibited mixed results in the face of a major downturn in the U.S. economy spurred by the subprime lending crisis in the summer of 2007 and record high oil prices. Overall consumer spending has declined, particularly on non-necessity fashionable apparel and accessories, which are the types of goods Gap's stores sell. As a result of the poor outlook for the U.S. economy the company increased its plans for store closings from 100 to 115, to match its planned store openings of 115, yielding a net change of zero locations for the year.[3] In addition, the company has decreased compensation for its executive board and pared down the board's size. The company's ethos of providing stylish clothes at affordable prices has been made more difficult due to the proliferation of fast fashion brands such as Zara, which specialize in trendier, more fashion-forward clothing which is more attractive to young consumers than Gap's affordable basics.
Business Overview
Business Financials
Gap Inc. is one of the largest companies in the apparel retail market with 3,149 store locations[1] and over $14 billion in annual sales.[1] Despite its size and position as one of the largest apparel retailers in the U.S., Gap has been struggling since 2004, reporting negative same store sales growth in 2005-2008 (of -5%, -7%, -4% and -12% in each consecutive year respectively) as net sales have fallen every year since they peaked at $16.2 billion in 2004 to $14.5 billion in 2008.[1] Despite falling sales, Gap has been able to maintain relatively healthy gross and operating margin figures, 36.1% and 8.3% in 2008, by managing inventory levels and staying away from merchandise markdowns and promotional selling activities that inflate operating expenses.
Net sales in the first quarter of fiscal 2009 (ended 5/2/09) were $3.1 billion, down from 2008's $3.4 billion. In addition, online sales increased by 13% and comparable store sales decreased by 8%.[4] Despite the sales decreases in its first quarter, the company expects earnings per share for its second quarter to be $0.30 to $0.32 per share greater than analyst estimates of $0.28 per share.[5]
Net sales for the 2nd quarter of fiscal 2009 (ended 08/25/09) were $3.25 billion, down from 2008's $3.5 billion.[6] Same store sales decreased 8% from Q1 and online sales increased 17% from Q2 2008.[6] Net earnings for the quarter were $0.33/share ($228 million total), which beat company estimates from Q1 2009.[6]
Gap showed better performance in Q3 fiscal 2009 (ended 10/31/09). The firm reported a 25% increase in quarterly net earnings to $307 million, compared to $246 million in Q3 fiscal 2008.[7] In addition, GPS posted a quarterly operating margin of 13.9 -- it's highest quarterly operating margin in the past decade.[7] The firm is hoping their strength will continue through the Holiday season (Q4 fiscal 2009), but it is expecting increased marketing and bonus expenses.[7]
The Gap Brands
Gap has three distinct brands, each with its own target market and unique challenges. Banana Republic offers higher-priced clothing, Old Navy offers lower-priced clothing, and Gap falls in between. In 2008, Old Navy accounted for 39% of sales, with Gap responsible for 44% and Banana Republic accounting for about 18%.[8] The company is divided into two segments: the retail segment (93% of FY08 Revenues) concerns all brick-and-mortar stores throughout the world. The direct segment (7% of FY08 Revenues) covers the company website and consolidates all sales of Old Navy, Gap, Banana Republic, Athleta and Piperlime sales conducted online.
Gap Stores
The Gap brand's main focus is casual attire targeted at consumers between the ages of 18 and 25. Additionally, The Gap has stores utilizing the Gap brand which target narrower segments of the retail apparel industry, including GapKids, babyGap, and gapbody.
The Gap has the largest footprint of the three brands both in the US and internationally, operating 1,193[9] stores in North America and 286 stores internationally as of January 2009.[9] Net sales for the Gap brand decreased by 5% during 2008 and same store sales at the Gap decreased 8% in 2008.[8]
Old Navy
Targeting a value-conscious consumer, Old Navy offers lower-priced basics. Its primary consumer is either a “trade-up” customer who normally shops at a similarly priced apparel retailer like Wal-Mart, Target, or Kohl’s, or a “trade-down” customer looking for value basics and fashion. Like The Gap, Old Navy stores sell children's and infant clothing in addition to adult-sized clothing.
The Old Navy brand operated 1,065 stores in North America as of January 2009.[9] Old Navy's net sales fell 2.4% in 2008[8] while the brand's same store sales fell 4.[8] Old Navy faltered in the last few years because management attempted to sophisticate the merchandise at Old Navy, which hurt profitability and strayed from the target customer's demands. The brand is now re-focusing on delivering apparel and accessories for the whole family at compelling values.
Banana Republic
Deemed The Gap Inc.’s "affordable luxury" brand, Banana Republic was acquired in 1983. Its target market is the 25-35 age group. Banana Republic specializes in higher-end clothing and basics, carrying suits, personal care, and intimates.
Of Gap's three store-based brands, Banana Republic is the smallest in terms of number of locations, with only 603 total stores, 573 in North America, 27 in Asia and 3 in Europe.[9] Although sales decreased by only 3% in 2008[8] (the lowest out of all Gap brands), Banana Republic's same store sales decreased by 10%[8], second only to Old Navy.
Other Brands
Piperlime, a growing concept launched in late 2006, is Gap's attempt to use its experiences with the online retail operations of its three brands in order to enter a business that none of its three stores focus on: footwear. Piperlime is an online-only operation that sells designer shoes. Piperlime is largely separate from the rest of Gap, with its own team and deadlines. A key challenge for the company will be developing this venture in a profitable way--a particularly challenging goal in the super-competitive market for designer shoes. Piperlime has seen positive growth in 2008, helping to fuel 14% growth in Gap's online sales during the year.[8]. In 2008, the company acquired Athleta, a line of athletic gear. The line has been integrated into the company website, where all five brands (Gap, Old Navy, Banana Republic, Piperlime and Athleta) can be accessed at once.
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 GPS 2008 Annual Report pg. 16
- ↑ | Gap (GPS) Press Release, First Quarter Earnings Release 2008
- ↑ | Gap (GPS) Press Release, First Quarter Earnings Release 2008
- ↑ GPS Q1F09 Report
- ↑ The Gap, Inc. Issues Q2 2009 EPS Guidance Above Analysts' Estimates
- ↑ 6.0 6.1 6.2 Trading Markets, "Gap Reports 2Q Earnings," 08/24/09
- ↑ 7.0 7.1 7.2 Bloomberg, "Gap Inc. Reports Third Quarter Net Earnings Increased 25 Percent," 11/19/09
- ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 GPS 2008 Annual Report pg. 20
- ↑ 9.0 9.1 9.2 9.3 GPS 2008 Annual Report pg. 21
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