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.
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.
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.
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.  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.
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.
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.
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. 
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. 
Cotton consumption exceeded cotton production for the fifth year in the row, making cotton prices increase by 80.5% from last year.  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.  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.
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: