Case #4 Bridging the Gap

Its a retailing puzzle Gap has been struggling to solve for almost a decade. The once-trendy brand is stuck in American retails hollowed-out midsection, which consumers have been abandoning for years as they split their dollars between cheap basics and must-have luxury items. CEO Glenn Murphy, who has long preached the importance of speed to his executives, pushed to minimize the corporate bureaucratic processes and get clothes to stores faster, especially since foreign retailers like H&M and Zara already do this and do it well. As Gap struggles, competitors are stealing customers with cheaper and fresher fashion. So what is Murphy facing as he attempts to turn around the company?

One problem facing Gap (but also other apparel retailers) is rising raw materials costs. Gap said that costs per item would increase 20 percentan increase it wouldnt be able to pass on to customers. These costs, including increasing price for cotton and rising labor costs in manufacturing centers such as China, were going up faster than expected, putting strong pressure on profits. Although rising materials costs are serious for any business, the biggest problem Gap has struggled with is its clothing designs. After being the must-have brand during the 1980s and 1990s, Gaps fashions have stumbled. During the early years of the 21st century, Gap faltered when it completely misjudged fashion trends. As discount retailers like Target and Wal-Mart began to compete with Gap on its basic fashions, Gap began offering hip-huggers, sparkly t-shirts, and other pop fashions that failed to attract the Britney Spears look-a-likes and drove away Gaps core target customers. Those customerswho always counted on Gap for fashion basics such as khaki pants, denim, t-shirts, polos, and other casual wearfled to other competitors, and the company has suffered years of disappointing sales and earnings. How bad have things gotten at Gap? One crucial measure used by retailerssales at stores open at least a yearshowed that starting in 2005, Gaps North American stores have had annual decreases in sales; not the results that company executives want to see. And then theres Gaps marketing efforts. Gaps ad campaigns were once the talk of the fashion world. They were fun, quirky, and effective. However, as a leading ad agency executive said, Gap has sort of lost its story and lost its focus on what made it different and special. Yet, the right marketing moves wont work without the right merchandise in Gap stores. As you can see, CEO Murphy and his executive team have their work cut out for them in tailoring a turnaround.

Discussion Questions

1. Using Figure 2.3, describe the context facing Gap. Focus especially on describing the driving forces that affect the fashion industry and the implications of these driving forces.

2. Again, using Figure 2.3, does Gap have what it takes to succeed in light of this context? Explain.

3. As the case stated, CEO Murphy has long preached the importance of speed to his executives. What does this mean as far as attempts to minimize the corporate bureaucratic processes and get clothes to stores faster? What would being fast or speedy involve? Be as specific as possible.

4. How would proponents of the I/O view analyze this case? How about proponents of the RBV? How about proponents of the guerrilla view?