Gap Inc.: Can It Develop a Strategy to Connect with Consumers in 2016?

Case Study:

John D. Varlaro

Johnson & Wales University

John E. Gamble

Texas A&M University-Corpus Christi

"To not be considering Amazon and others would bein my viewdelusional," Art Peck, CEO of Gap Inc. remarked during a conversation with investors in May 2016. Faced with increased competition and a changing demographic amid a shifting shopping landscape, Peck needed to reverse Gap Inc.'s current trajectory and consider alternatives to improve sales and maintain its number two overall ranking.1

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 percentages of retail sales were occurring through e-commerce. Yet, companies such as the Indetix Group, known for its Zara brand, continually increased sales and expanded locations regardless of these environmental factors. Peck pondered how Gap could defend against unfavorable external factors and craft a strategy well-matched to the retail environment of the mid-2010s.

COMPANY HISTORY AND PERFORMANCE

Gap Inc. operated stores in 70 different countries in 2016 and was positioned as casual attire, with an emphasis on blue jeans and khakis. Offering apparel for the whole family, brands also included GapKids, babyGap, and GapMaternity. Banana Republic, in contrast, offered styles from business casual to formal, where attire could be both work and everyday. The Old Navy brand was positioned to compete at a lower price point in the casual, everyday apparelcategory.

The company was founded in 1969 by Doris and Don Fisher. The company first began selling Levi-branded jeans due to Don's experience in trying to find his own pair that fit. Initially meant to target a younger demographic, the name was derived from the phrase "generation gap." Gap started offering its own Gap-branded jeans in 1972, and went public in 1973. Gap acquired Banana Republic in the early 1980s, and launched the Old Navy brand in the 1990s. The company acquired the Athleta athletic apparel brand and launched its online fashion marketplace Piperlime in 2008 and acquired boutique retail chain Intermix in 2013. The company closed the Piperlime website and one retail location in 2015.

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 1999.2Its net sales by the end of the decade were almost double the $6.6 billion in 1997.

Copyright 2017 by John D. Varlaro and John E. Gamble. All rights reserved.

page C-121The 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.Exhibit 1presents a financial and operating summary for Gap, Inc. for 2011 through 2016.