Benzinga  1 hr ago  Comment 
Gap Inc (NYSE: GPS) impressed investors with a second-quarter earnings beat, but for many the retail sector remains a big question mark. Deutsche Bank's Paul Trussell maintains a Hold rating on Gap's stock with an unchanged $24 price target,...
Reuters  Aug 17  Comment 
Clothing retailer Gap Inc reported better-than-expected second-quarter results and raised its full-year profit forecast, helped by strong demand for Old Navy products, fewer discounts and better managing inventory.
Motley Fool  Jul 14  Comment 
A surprising increase in second-quarter guidance led Target shares higher along with the broader retail sector.
CNNMoney.com  Jul 10  Comment 
Read full story for latest details.
Wall Street Journal  Jun 11  Comment 
Denim makers including Levi Strauss & Co. and Gap Inc.’s Old Navy see signs of a comeback in jeans sales, as they add more flexibility and comfort to win back shoppers from leggings.
Motley Fool  Jun 5  Comment 
Q1 earnings were terrific -- and the clothing retailer isn't getting enough credit for that.
Benzinga  Jun 5  Comment 
Citing a washed out valuation, Oppenheimer equity research analyst Anna Andreeva has upgraded Gap Inc (NYSE: GPS) to Outperform and set a $28 price target. Old Navy Driving Growth Story As Old Navy continues to perform extremely well and with...
MarketWatch  Jun 5  Comment 
Gap Inc. was upgraded to outperform from perform at Oppenheimer on strength at both the Old Navy and Gap brands. The price target was raised to $28 from $24. Analysts highlight the 14.3% decline in Gap shares over the past month despite reporting...


The Gap, Inc. (NYSE: GPS) is a clothing retailer based in the United States, operating 3,085 retail stores under three distinct apparel brand names – "Gap", budget brand "Old Navy", and urban chic brand "Banana Republic". Other brand extensions include GapBody, GapKids, and BabyGap.

The Gap's ethos of providing stylish clothes at affordable prices has been made more difficult due to the hostile retail environment. Five consecutive years of declining sales as well as increasing commodity prices have led to struggles for The Gap. Since CEO Glenn Murphy joined the company in 2007, Gap has reduced its store count, revamped its brands, and begun to expand slowly into Europe and Asia.

Company Overview

Gap Inc. is a leading company in the apparel retail market with 3,085 store locations [1]

Business Segments

  • Retail segment (92% of sales): Gap's brick-and-mortar stores
  • Direct segment (8% of sales): company website and consolidation of all sales of Old Navy, Gap, Banana Republic, Athleta, and Piperlime conducted online.[2]

Brand Segments

Old Navy (42% of sales)

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.[3]

Banana Republic (17% of sales)

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.[4]

Other Brands (2% of sales)

Piperlime 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 GPS will be developing this venture in a profitable way--a particularly challenging goal in the super-competitive market for designer shoes. In 2008, Gap acquired Athleta, a line of women's active wear for $150 million. It opened its first physical 5000 square foot Athleta store in San Francisco in January 2011. [5] 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.

Business Growth[6]

FY 2010 (ended January 29, 2011)

  • Net income increased 9.3% to $1.2 billion.
  • Net sales increased 3% to $14.7 billion, which is the same as analysts’ estimates.[7][8]

Trends and Forces

Fast fashion brand Zara and Others Threaten Gap in the U.S.

Gap benefited in its inception in the 1990's from a number of advantages, including size, brand recognition, and long-standing relationships with landlords and vendors. However, it is now confronted by competition due to low barriers to entry and replicable merchandising techniques. H&M, J. Crew and Zara are some of the brands competing with Gap.

Zara (owned by Inditex), a fast-fashion retailer specializing in bringing the latest runway trends to cost-conscious consumers at low prices. Zara may be stealing customers from traditional U.S. brands like Gap because of their high fashion appeal.[9]

Zara mimics Gap's merchandising strategy of offering differentiated stylish-yet-affordable basic apparel that appeals to the masses. Zara's strong point is in its logistics system, in which a design can go from a sketch on paper to an actual product in stores in less than two weeks. The industry average for the same process is nine months. To compete, Gap keeps its inventories very lean, meaning it avoids profit-damaging promotions and sales. It avoids advertising in order to cut down on costs.

  • Using average euro/dollar exchange rate for that year. [10]

International Growth: Diversifying Sources of Sales

In the long term, Gap plans on expanding their international operations from their current base between Europe and Asia. The Gap's international operations are split between the Gap and Banana Republic - Old Navy does not have stores outside of North America. Gap's merchandise has Western appeal abroad but that appeal will have to be sustained in the face of competition from brands with extensive distribution networks such as Giordano's, Uniqlo, and Inditex. [11][12]

Gap currently has franchise agreements in place for countries on 4 continents. If it continues to penetrate emerging markets, Gap will be able to increase its sales beyond their currently over saturated market of North America. In 2010 Gap plans to open stores its first stores in Australia and China. [13]

Increases in Commodity Prices Will Raise Clothing Retailer Prices

Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.[14] [15] Natural disasters also severely damaged crops in many large cotton producer countries, such as China, India, and Pakistan. This led to decreases in cotton exports from these countries and increases in cotton imports as these countries sought to supplement their supply of cotton. [16][17] With limited cotton supplies and rising prices, retailers will either have to absorb these higher material costs, restructure the composition of their clothing to have less cotton, or pass these higher costs to its consumers. Higher clothing prices or lower quality clothing could discourage consumer spending, resulting in decreased net sales. However, adult or teen clothing retailers may not be too adversely affected as their clothing (which is usually 30-40% cotton based) has more flexibility in their composition and thus, costs. In addition, raising commodity prices in other areas will also raise costs for retailers. While premium price and established brands may be able to pass their higher costs to their consumers, value based companies may not fare as well and may suffer from lower profit margins.[14]


Gap's four major brands target different customers with very differing merchandise mixes. As such, each brand competes with a different set of other retailers:

  • Kohl's (KSS) and Wal-Mart Stores (WMT): Old Navy targets middle-class families who seek basic apparel and accessories at low prices and consequently competes with value-based department stores like KSS and WMT. Old Navy has seen decreasing same store sales growth for the past three years, largely due to merchandising issues. Management believes that in time the brand will recover after re-focusing the merchandising.
  • American Eagle Outfitters (AEO) and Aeropostale (ARO): Gap's middle-of-the-road approach to providing basic pieces of apparel (T-shirts, khakis, blouses, jeans, etc.) at mid-range prices puts it in competition with these stores. Gap also competes with some department stores that provide similar apparel at mid-range prices like J.C. Penney (JCP) .

[18] [19] [20] [21] [22] [23] [24] [25][25] [26]


  • Many retailers are looking to increase prices by 10% to 15% to offset rising cotton prices and other raw materials. With the back-to-school season starting soon Gap faces challenges in how to increase prices without driving customers away. [27]


  1. Gap 2009 Annual Report 10k
  2. Gap 2009 Annual Report 10k
  3. Gap Stores by Country
  4. Gap Stores by Country
  5. http://www.wikinvest.com/wikinvest/api.php?action=viewNews&aid=2228383&page=Gap%20%28GPS%29&comments=0&format=html
  6. GPS 2009 10-K pg. 17  
  7. http://www.businessweek.com/news/2011-02-03/gap-limited-surge-as-monthly-sales-beat-projections.html
  8. http://finance.yahoo.com/news/Gap-Inc-earnings-for-2010-to-apf-1374851102.html?x=0&.v=2
  9. Inditex Group
  10. Exchange Rates
  11. [http://seekingalpha.com/article/206404-can-gap-regain-its-luster Can Gap Regain Its Luster}
  12. Gap Stores by Country
  13. Distribuidora Liverpool to sell Gap merchandise in Mexico
  14. 14.0 14.1 http://seekingalpha.com/article/238731-more-evidence-of-inflation-retailers-report-escalating-commodity-prices
  15. Gap, Wal-Mart Clothing Costs Rise on ‘Terrifying’ Cotton Prices
  16. http://www.thegovmonitor.com/world_news/asia/recession-drought-hail-reduce-cotton-acreage-in-china-12256.html
  17. CNN Money - Cotton Shortage Could Inflate Clothing Prices
  18. Abercrombie and Fitch Annual Report 2009
  19. Urban Outfitter Annual Report 2009
  20. Pacific Sun Annual Report 2009
  21. Aeropostale Annual Report 2009
  22. American Eagle Outfitters Annual Report 2009
  23. Gap Annual Report 2009
  24. [JCG Annual Report 2009 10k]
  25. 25.0 25.1 RL 2009 Annual Report pg. F-53  
  26. Inditex Group Financial Data
  27. [http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201107141512dowjonesdjonline000557&title=retailers-may-push-consumerslimits-this-back-to-school-season
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