Free Essay

Analysis of Gap Inc. Multichannel Strategy

In: Business and Management

Submitted By roccambak
Words 3873
Pages 16
Table of Contents:
1.0.

Company Overview: ........................................................................................................ 3

2.0.

Industry Overview: .......................................................................................................... 3

3.0.

Gap’s current channels strategy’ analysis: ....................................................................... 4

3.1.

Gap’s market segmentation: ........................................................................................ 5

3.2.

Gap’s Current Channel Chains:................................................................................... 6

3.3.

Gap’s Directional Policy Matrix: ................................................................................ 7

4.0.

Gap’s future channel chain: ............................................................................................ 9

5.0.

Recommendations: .......................................................................................................... 9

6.0.

Limitations: ................................................................................................................... 11

7.0.

References: .................................................................................................................... 12

8.0.

Appendix:...................................................................................................................... 14

Page 1

Table of Figures:
Figure 1: Childrenswear Sales and Growth vs Apparel and Footwear 2009-2014 .................. 3
Figure 2: Gap’s Market Segmentation ...................................................................................... 5
Figure 3: Gap's Current Channel Chains Diagram .................................................................. 6
Figure 4: Gap's Directional Policy Matrix ............................................................................... 7
Figure 5: Gap's Suggested Channel Chains Diagram .............................................................. 9
Figure 6: Order and Distribution Archetypes ......................................................................... 10

Page 2

1.0. Company Overview:
Founded in 1969, Gap is an American apparel retailer which has been an icon of the ‘90s fashion in the U.S. With more than 1700 stores across 50 markets the brand is the flagship of the Gap Inc. which includes three other labels; Banana Republic, Old Navy and Athleta (Gap
Inc., 2015a). The company’s offering varies from denim to classics white shirts and khakis; it also includes collections for kids and tods. Whilst between 1990 and 1999 Gap’s sales impressively rose from $1.9 billion to $11.6 billion, the company is nowadays facing major losses with net sales decreased by 4% during the first half of 2015 (Euromonitor, 2015a).
Whilst the expansion of fast-fashion players such as H&M and Zara is increasing low cost competition in the apparel market, Gap’s poor performance is largely related to its failure to provide consumers with high quality products and meaningful shopping experiences
(Rosenblum, 2015). In the attempt to regain market share, the brand is currently introducing a new strategy with two main objectives; geographical relocation toward China and India (by closing 175 stores in North America), and improved customers’ experience achieved through better cross-channels integration (Euromonitor, 2015a).

2.0. Industry Overview:
The apparel and footwear market, valued at 1.749.5$ in 2014, maintained a considerable growth of 4.5% during the last year. Whilst showing the lowest increase of the last ten years,
China is still predicted to become the biggest apparel and footwear market in 2015. On the other hand, Europe is forecasted to record negligible growth through 2019, with various key countries including Spain, Italy and France witnessing continuous sales’ drop. However, this region remains a main tourist destination and fashion hub, thus its strategic importance cannot be overlooked. (Euromonitor, 2015b).
Figure 1: Childrenswear Sales and Growth vs Apparel and Footwear 2009-2014

Regarding consumers’ behaviour, the postrecession rebound is resulting in shoppers trading up from unbranded to more premium products. Whilst womenswear still conserves the higher market share with sales reaching
US$662.1 billion in 2014, menswear is growing faster due to both greater focus on personal appearance and large disposable incomes. Male consumers are turning to the internet for fashion advices through fashion blogs and forums. They are using these tools as starting point to enhance their knowledges in fashion. Lastly, another category well performing is childrenswear which, as figure 1 shows, exceeded the overall apparel and footwear growth. This niche is moving from a comfort dressing approach to a more fashion forward proposition driven by social media and children swear-focused fashion blogs
(Euromonitor, 2015b).

Page 3

3.0. Gap’s current channels strategy’ analysis:
The majority of retailers is nowadays operating through a combination of brick-and-mortar and on-line stores. This approach is defined as multichannel retailing and it implies the adoption of two or more integrated channels to serve the final customer (Pentina & Hasty,
2009). Whilst this strategy aims to meet consumers’ needs by offering different options for channel choice during the decision-making process, it poses the challenge for companies to deliver a seamless experience at any touch point (Lee and Kim, 2010). Therefore, this report will aim to investigate to which extent Gap’s strategy has been able to successfully integrate its channels thus allowing identifying possible issues and suggesting corrective solutions.
Whilst Gap’s world-wide strategy is focusing on “delivering exciting and seamless shopping experiences across all channels” (Gap Inc., 2014), the company adopts a different approach between US and Europe. This difference is evident when analysing both the range and the level of integration between the channels used.
In Europe Gap is adopting an asymmetrical channel strategy in which one channel (website) carries all the items of the other channel (store) as well as additional products, such as maternity clothes (available only for on-line purchase). Moreover, differently from the US, the company has not introduced a mobile shopping app and the range of order and distribution methods available is more limited; not allowing for example “buy online-pick up in store” options. Considering the relevance of the European market for Gap, which accounted for the 20% of the company revenue in 2014 (Gap Inc., 2014), it is important to determine if this strategy is well accommodating both the company and its customers’ needs.
According to Vanheems and Kelly (2009) a firm’s decision over its channel strategies has to be based on the analysis of its customers’ flows. This allows understanding whether it is better aiming to enhance customers’ loyalty to current channels or introducing new ones.
However, customers differ in term of needs and channels’ preference thus following different buying journeys (Verhoef et al., 2015). Therefore, a vital process to undertake in order to develop an accurate channels’ analysis consists in segmenting Gap’s market through a needbased segmentation (Wilson et al., 2008).

Page 4

3.1.

Gap’s market segmentation:

From the questionnaire conducted with 90 Gap’s customers in the UK, two main needs driving their shopping behaviours emerged; time efficiency and need for assistance. On one hand, nearly the 50% of respondents (n = 40) ranked “quick and efficient services” as their main need when buying clothes. On the other hand, a relevant number of respondents (n =
55) expressed their likelihood to require assistance and support while shopping. Therefore,
“need for assistance” and “time willing to invest” have been chosen as the two variables for this study’s segmentation.
The four segment emerged are represented in Figure 2. The largest segment has been labelled the “Urban Trendier”. People in this cluster dedicate high amount of time searching and buying new clothes in order to accomplish their desire for a fashionable look. Their experience and knowledge in fashion means that they generally do not require a lot of assistance while shopping. Need for assistance’s level is even lower for the “Hit & Run” who are generally time constrained consumers. This segment is dominated by mothers with busy lifestyle who are looking for a one-stop apparel retailer where to find clothes for the whole family. The “Essential shoppers” instead are functional shoppers who mostly buy clothes when needed whilst at the same time preferring quality outfits. Their main need relates to receive simple advices by sales assistant when in store. The “Unexperienced” are a small emerging segment mostly including men who are starting embracing fashionable lifestyles.
They have a strong need for guidance and high willingness to devote time looking for new clothes to buy.
Figure 2: Gap’s Market Segmentation

Page 5

3.2.

Gap’s Current Channel Chains:

Now that four different segments have been identified, it is necessary to investigate if and how they differ regarding the channel used during their buying journeys. In order to do this a channel chain diagram (Wilson et al., 2008) has been used (Figure 3).
Figure 3: Gap's Current Channel Chains Diagram

The “Urban Trendier’s” passion for shopping makes “product availability” a priority, meaning that they are incline to switch to competitors if this need is not met. Whilst occasionally buying online, the 70 % of respondents in this segment stated to complete their purchase in-store. Regarding on-line shopping, Gap’s channels serve them well, by offering a wide range of delivery options (standard, expedited, free over 50£) and good return conditions (printed stickers included and return by mail available on all items). On the other hand, the off-line channel does not fully meet the “Urban Trendier” needs. This is due to the impossibility for Gap to offer effective solutions in case a specific product is not available instore. Similarly, when using the website as information source, their perceived risk of not finding in-store the same items listed on the website reduces their likelihood to visit Gap’s shops. The “Hit & Run” is the segment with the lowest amount of time to dedicate to shopping, thus requiring fast and efficient purchases. Therefore, even though the needs of the two segments are initially different, the current channel chain reflects the same issues crosschecked with the
“Urban Trendier”. In fact, whilst Gap’s website fully meets their on-line shopping requirements, the lack of certainty over in-store products’ availability decreases their likelihood to buy from the company.

Page 6

Whilst generally purchasing in-store, the Internet is the main tool through which the
“Unexperienced” get to know Gap. Pinterest and fashion forums have been listed as their main sources of information. Within online fashion communities Gap is often criticised for its
“outdated collections, not fitting well” (Dua, 2014) thus increasing the risk for the brand to lose attractiveness to this segment. However, customised services offered by the company’s website, such as the possibility to book one hour time slot with a personal stylist (Gap, 2015), well match their needs thus driving foot-traffic to the stores. Overall, whilst indirect channels
(not directly controlled by Gap) have to be considered as limiting the brand opportunity in this segment, the Gap’s combination of on- and off-line channels well serve this segment.
Lastly, the “Essential Shoppers” do not conduct extensive research before shopping. They choose Gap because they know and appreciate the range of products the company offers.
They generally use online channels to gather information related to available discounts and complete their purchases in-store. Overall they are well served by Gap’s current channel strategy. 3.3.

Gap’s Directional Policy Matrix:

Gap’s current channel chain diagram highlighted issues related to three specific segments;
“Hit & Run”, “Urban Trendier” and “Unexperienced”. Considering the aim of cross-channel strategies to create win-win situations for both companies and customers (Wilson et al.,
2008), it is necessary to understand which segments are more attractive for Gap, thus allowing strategically allocating future resources. In order to do this, a Directional Policy
Matrix has been developed (Figure 4).
Figure 4: Gap's Directional Policy Matrix

Page 7

For the “Essential Shoppers”, Gap’s business strengths are reasonably high due to the offer itself but also to the use of appropriate channel chains. Moreover, this segment is not among the most profitable (low market attractiveness). These two factors suggest that the Essential
Shoppers should not be considered as an investment priority by Gap.
The “Unexperienced” shows low market attractiveness due to the small size of the segment and the high cost required to serve them. However, this is an emerging segment and it is forecasted to steadily grow over the next few years (Euromonitor, 2015b). Thus it is suggested to maintain the current strategy based on offering the possibility to book personal stylists in store.
The “Hit & Run” are the segment which is overall growing faster, pushed by the increase in childrenwear sales; +6% in 2014 (Euromonitor, 2015b). Gap’s strengths regarding this segment are overall low, mainly due to low products’ accessibility (lack of order and distributions methods, impossibility to know product’s availability in-store) and relatively high prices. However, the company’s characteristics to offer a wide array of products, including baby clothes (0-24 months), toddler (1-5 years) and boys (5 years +), has to be considered as resource to build on.
The “Urban Trendier”, due to their size and high buying frequency is the most attractive segment. However, Gap’s strengths are low due to perceived outdated collections, high prices and low products accessibility (absence of mobile app and lack of specific information on the website). To allow developing relevant improvements on Gap’s channels, thus improving the company’s business strengths on this segment, it is first necessary to understand consumers’ purchasing habits and preferences. According to Berg et al. (2015), despite the growing popularity of online channels as tool for virtually visiting apparel retailers, when it comes to actual purchase the 70% of consumers still prefer off-line options. This underlines the importance for Gap’s to develop a new strategy able to better integrate its on-line and off-line channels thus increasing its attractiveness to this segment.

Page 8

4.0. Gap’s future channel chain:
Deriving from the DPM’s analysis conducted in the above section, figure 5 shows the future channel chains suggested for the “Urban Trendier” and “Hit&Run”. It is suggested to Gap to dedicate its resources to implement stronger integration between its current channels, rather than aiming to expand its offering through new channels’ introduction. This is because increasing on-line/off-line channels synergy reduces costumers’ perceived threats with patronisation decisions by moderating the risk that a specific channel may fail to fulfil their needs (Bendoly et al., 2005). Moreover, implementing cross-channel integration is considered as a low risk strategy as it avoids issues related to channels cannibalisation (new channels stealing market share to existing one) and loss of synergy (Herhausena et al., 2015).
Figure 5: Gap's Suggested Channel Chains Diagram

5.0. Recommendations:
In order to better serve the “Urban Trendier” and the “Hit&Run”, the introduction of two additional order and distribution methods is recommended to Gap; namely: “find-in-store” and “order in-store”.
“Find in-store” is an added functionality on Gap’s website which allows customers to have access to stock’s availability of nearby shops and reserve up to 5 items for 24 hours. In addition customers will have the possibility to directly buy the items on-line and pick them up in-store. This new feature, already tested by Gap in the US, will allow the company to deliver a more holistic experience across its channels and to better serve its customers’ needs.
On one hand it will reduce “Hit&Run” perceived risk to visit a store without finding what

Page 9

needed. On the other hand, it will better meet “Urban Trendier” requirement for extensive information as they will be able to check products’ availability before deciding to visit a specific shop. Moreover, by bridging the gap between on-line and off-line information’s availability, Gap will achieve higher consumers’ conversion rate; costumers will consider easier to select the right product when in-store, thus reducing the perceived risk and increasing the purchasing probability (Cao & Li, 2015). This also provides opportunity for cross-selling; costumers having less service demand when in store thus being more easily exposed to cross-selling (Neslin et al., 2006).
“Order-in-store” will enable customers to buy items that are not available at the moment of their visit and have them home-delivered by post. It will for example allow customers looking for an article of clothing in a different colour or size from the one available, to buy it online through a shop assistant and have it delivered at their home. This feature will be suitable for the “Urban Trendiers” who are particularly exigent when choosing their outfit and usually want to purchase the specific product they like. However, according to Emrich et al. (2015) one of the main reasons leading shoppers to purchase from competitors relates to their belief that specific items will take longer to acquire due to their non-immediate availability. “Order-in-store” will reduce such perception by transmitting to customers the idea of being able to immediately purchase the desired item also if not available in-store thus increasing both Gap’s conversion rate and customer’s loyalty.
Lastly, the suggestion to introduce “Find-in-Store” and “Order-in-store” in Gap’s European shops can be further understood by analysing the trends in merchandise order and claim.
Figure 6 shows how “buy and pick in store” and “order-in-store, ship to customer” are increasingly growing in popularity. However according to Berg et al. (2015), only the 23% of apparel retailers has in practice procedure through which staff member check availability of items in the website and allows customers to buy them on-line while in the shop. This underlines the opportunity for Gap to differentiate from its competitors by delivering a more comprehensive shopping experience to its customers.
Figure 6: Order and Distribution Archetypes

Page
10

6.0. Limitations:
In relation to Gap’s suggested channel chains, a limitation can be noted in relation to the
“Hit&Run”. Considering the time constraints characterising this segment, “order-in-store” is not considered as suitable for this group. Therefore, in order to understand how to better serve them through the off-line channel it will be necessary to develop a further analysis of
Gap’s supply chain strategies.
Lastly, the implementation of these two tools will result in additional fixed and variable costs for Gap such an increase in coordination expenditure for the management of interdependencies between activities. This research has not estimated such costs. However, considering that both “find-in-store” and “order-in-store” have already been implemented in the U.S., Gap should be able to use existing cost’s analysis.

Page
11

7.0. References:

























Bendoly, E. & Blocher, J. D. & Bretthauer, K. M. & Krishnan, S. & Venkataramanan,
M. A. (2005) “Online/In-Store Integration and Customer Retention”. Journal of
Service Research, Vol. 7 (4), pp. 313-327.
Berg, A. & Brantberg, L. & Herring, L. & Silén, P. (2015). Mind the gap: What really matters for apparel retailers in omnichannel. Available at: http://www.mckinsey.com/~/media/McKinsey/dotcom/client_service/Retail/PDFs/Mi nd%20the%20gap%20What%20really%20matters%20for%20apparel%20retailers%2
0in%20omnichannel_final.ashx. Accessed on: (13th February 2016).
Cao, L. and Li, L. (2015) “The Impact of Cross-Channel Integration on Retailers’
Sales Growth”. Journal of Retailing. Vol. 91 (2), pp. 198-216.
Dua, T. (2014). Did Gap More Harm Than Good with #dressnormal? Available at: http://digiday.com/brands/inside-gaps-fall-2014-campaign-dressnormal/ . Accessed on: (15 February 2016).
Emrich, O. & Paulb, M. & Rudolphc, T. (2015) “Shopping Benefits of Multichannel
Assortment Integration and the Moderating Role of Retailer Type”. Journal of
Retailing, Vol. 91 (2), pp. 326–342.
Euromonitor (2015) Apparel and Footwear in 2015: Trends, Developments and
Prospects. Available at: http://www.portal.euromonitor.com/portal/analysis/tab .
Accessed on: (12th February 2016).
Euromonitor (2015) Gap Inc., the in Apparel and Footwear (World). Available at: http://www.portal.euromonitor.com/portal/analysis/tab . Accessed on: (15th February
2016).
Gap Inc. (2015) Gap Inc.'s Global Footprint. Available at: http://www.gapinc.com/content/attachments/gapinc/GPSEarnings/Global%20Footprin t.pdf. Accessed on: (18th February 2016).
Gap Inc. (2014) 2014 Annual Report. Available at: http://www.gapinc.com/content/attachments/gapinc/GPS%202014%20Annual%20Re port.pdf. Accessed on: (10th February 2016).
Herhausena, D. & Binderb, J. & Schoegela, M. & Herrmannc, A. (2015). “Integrating
Bricks with Clicks: Retailer-Level and Channel-Level Outcomes of Online–Offline
Channel Integration”. Journal of Retailing. Vol. 91 (2), pp. 309-325.
Lee, H. and Kim, J. (2010). “Investigating Dimensionality of Multichannel Retailer’s
Cross-Channel Integration Practices and Effectiveness: Shopping Orientation and
Loyalty Intention”. Journal of Marketing Channels, Vol. 17 (1), pp. 281–312.
Neslin, S. A. & Grewal, D. & Leghorn, R. & Shankar, V. & Teerling, M. L. &
Thomas, J. S. & Verhoef, P. C. (2006) “Challenges and Opportunities in Multichannel
Customer Management”. Journal of Service Research. Vol. 9 (2), pp. 95-112.
Pentina, I., & Hasty, R. W. (2009). “Effects of multichannel coordination and ecommerce outsourcing on online retail performance”. Journal of Marketing Channels,
Vol. 16 (4), pp. 359–374.

Page
12









Rosenblum, P. (2015) Closing More Stores Doesn't Fix Gap's Biggest Problems.
Available at: http://www.forbes.com/sites/paularosenblum/2015/06/15/gap-continuesdownsizing-closing-an-additional-175-stores/2/#7ac929ca666e . Accessed on: (18th
February 2016).
Vanheems, R. and Kelly, J. S. (2009) “Understanding Customer Purchase Switching
Behaviour When Retailers Use Multiple Channels”. International Journal of
Integrated Marketing Communications, Vol. 1 (2), pp. 44-56.
Verhoefa, P. C. & Kannanb, P. K. & Jeffrey, J. (2015). “From Multi-Channel
Retailing to Omni-Channel Retailing: Introduction to the Special Issue on MultiChannel Retailing”. Journal of Retailing, Vol. 91 (2), pp. 174–181
Wilson, H. & Bruce, L. & Street, R. (2008.) The multichannel challenge: integrating customer experiences for profit. London: Elsevier.

Page
13

8.0. Appendix:
Market attractiveness
MAFs

Apparel Industry

Weighting
Essential S.

Unexperienced
2
0.5
6
1.2
3
0.6
7
1.4
2
0.3

6
Size

25

1.5
6

Growth

20

1.2
5

Frequency

20

1
4

Expenditure

20

0.8
4

Cost to serve
Total

CSFs

15

0.6

100

5.2

4

Gap

Abercrombie

25
20

1

6.7

1.2
0.8
7

1.2

0.6
6

0.75

6.2

1.6
3

1.2
5

1.4
8

4

1.4

100

1.2

1
6

1.25
7

6

1.2

15

1

0.6

8

H&M

6

5

20

Total

1.6
7

5

1.75

1

20

Delivery

1
8

TJMaxx

3

7
Assistance

1.8
5

4

1.75

6
Availability

1.25
9

7.2

7

5
Price

Hit & Run
5

Essential Shoppers

Weighting
7

Brand

Urban Trendier
8
2
6
1.2
9
1.8
6
1.2
6
0.9

1

4.3

0.9

5.3

5.75

Relative Business Strength: + 0.8
CSFs

Hit & Run

Weighting
Gap
8

Functionality

25

2
5

Price

20

1
6

Range

20

1.2
5

Accessibility

20

1
7

Delivery

15

Total

100

1

Adams Children
7
1.75
8
1.6
7
1.4
6
1.2
5
0.75

6.2

6.7

Relative Business Strength: - 0.5
Page
14

Next Directory
7
1.75
7
1.4
6
1.2
7
1.4
7
1
6.75

Brantano
6
1.5
6
1.2
8
1.6
3
0.6
6
0.9
5.8

CSFs

Unexperienced

Weighting
Gap

John Lewis

9
Assistance

5

25

2.25
5

Brand
Accessibility
Range
Price
Total

100

1.2
3

0.4

1.4
6

0.7

6.2

1.6
7

1.6
5

10

1.2
6

1.2
4

1.5
8

1.4
8

20

2
6

1
6

1.75
6

1.25
7

20

1.5
8

1.25
5

TopShop
7

1.25
5

25

Abercrombie
6

0.3

6.2

0.7

6.2

7

Relative Business Strength: -0.8

CSFs

Urban Trendier

Weighting
Gap

Forever21

5
Fashion

30
25

Range
Price
Total

100

0.9
3

0.5
6.9

Relative Business Strength: -1.3

Page
15

1
7

0.7

5.6

1
7

1
7

10

1.4
6

0.9
5

1.75
5

1
7

15

1.5
7

1.4
6

1.8
7

1.75
5

20

2.4
6

1.25

H&M
6

2.4
7

7
Quality

7

1.5
6

Accessibility

Abercrombie

8

0.3
6.5

0.7
6.25

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