Gap: A Division of Gap, Inc.

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1 Marketing 300 Section 006 Group 6 Gap: A Division of Gap, Inc. Christopher Cannon Adam Davis Lu Mei Daniel Montgomery Chloe Zhang

2 Bridging the Gap in History Doris and Don Fisher founded the Gap brand by opening up a store in 1969 in San Francisco, which is still the location of their headquarters. While they were originally known for their key product, the perfect fitting jean, they considered anchoring to a commitment to integrity as their primary concern.2 In 1983, the addition of Mickey Drexler as the Chief Executive Officer began to change the course of Gap, Inc. Banana Republic joined the company in the same year and GapKids was created in Gap, Inc. expanded its market internationally by opening up stores in the United Kingdom in In 1990, babygap appeared and in 1991, Gap no longer sold the Levi brand of jeans as it began to only sell its own brand. From 1993 to 1996, Gap opened even more stores internationally in France, Japan and Germany. In the midst of all of this, in 1994, Old Navy emerged as another store within Gap, Inc. Since 1999, there were 1,767 Gap brand stores in the United States1, and at the beginning of 2011, there were 889 stores under the anchoring Gap label alone.6 As of now, Gap, Inc. is considered a specialty retailer that offers items such as clothing, accessories and personal care products for men and women of all ages. Now the Gap brand encompasses not only Gap but also GapKids, babygap and GapBody. There are also outlet stores, which include Gap Outlet and Gap Generation. The Gap team of workers includes more than 134,000 employees around the world and an executive management team focused on executing Gap, Inc. s strategy to engage customers and maximize shareholder returns with Glenn Murphy as the Chairman of the Board and Chief Executive Officer since July Out of the three principle stores of Gap, Inc. (Old Navy, Banana Republic, and Gap), Gap represents the central anchor division with extensive selections of classically-styled, high-quality, casual apparel at moderate price points while Old Navy is considered value-priced family apparel and Banana Republic offers higher-priced clothes that are associated with a sense of luxury.1 Who buys Gap clothing? Meet Tangella Jones. Tangella is a 27 year-old woman who graduated a few years ago from the University of Michigan s Ross Business School and now works for a large firm in downtown Chicago as a personnel consultant in human resources. She lives in a new apartment building that sits beside the gym she joined last year, where she does yoga twice a week with her friend Gabby. Tangella has lots of family in the area, including three siblings, and is kept busy with attending all of her nieces and nephews piano recitals and soccer games. This does not stop her from having an active social life - she is a passionate socialite and does not miss an opportunity to go to happy hours and other social gatherings with friends. Her job allows her some flexibility with her time and she capitalizes on this by filling her afternoons with shopping trips on Michigan Avenue.

3 Segmenting, Targeting, Positioning Gap s target age segment is males and females ranging from years old. In addition to Caucasians, the races Gap attempts to target includes many minorities such as African Americans, Hispanics, and Asians. The income segment is middle to upper-class individuals who reside in urban or suburban areas. Common occupations of Gap customers include entry-level college graduates, and young working, married couples. Gap customers tend to be energetic, work/career oriented and active people who have significant time to shop. In addition, their customers have a sense of style and sophistication in their wardrobe, and are confident individuals who feel they are buying the best product available. 9 The company is "disproportionately" shifting its focus toward new customers in the following two areas. First, Gap plans to target the younger range of its year old demographic. Said by Chief Executive, Mr. Murphy, "Our range we halo slightly down and slightly up is between 25 and 35 years old. At 25 to 30, our share is lower than we're comfortable with. You'll see the marketing shift towards that, whether it's in medium or messaging, to try to get a bigger share of that customer." The second area is to increase the diversity of its U.S. customer base to include African American, Hispanics, and Asians. "We as a business do not have the share we should have with the African American community, with the Hispanic community, and with the Asian community," said Mr. Murphy. 3 Current Business Objective Faced with decreasing sales in North America and an abundance of other problems (such as too many brick-and-mortar stores and not enough people to fill them, and decreasing public interest in the Gap brand), Gap is currently pursuing a two-fold business objective: reduce dependence at home and expand internationally. For the former goal, they have decided to close 21% of their domestic Gap stores, bringing the current number of stores at 889 to 700 by January 31, 2013 (see Fig. 3). They plan to accomplish this by letting leases expire, not by ending contracts with property owners early. As well, Gap plans to open around 50 more outlet stores across the USA. 6 However, their international growth seems promising (Gap has seen 16% growth in the international market in the first half of 2011) (see Fig. 1). To this end, they plan to expand their number of Chinese stores from 6 to 45 by the end of , as well as open a few stores in Italy. In April 2011, Gap, Inc. decided it to combine their international operations into one division that would be run out of London, England. Gap, Inc. is attempting to lesson its hold of the United States market and gain a larger share of the $1.4 trillion global apparel retail market.

4 Marketing Problems Currently, the Gap brand is lacking a distinct identity among other major clothing retailers, and their own CMO, Seth Farbman, has been quoted as saying that Gap s image has lost a bit of relevance. 8 With clothing styles that are known for being both bland and not cheap, they fall between the cracks of their competitors options. One goes to Target or Macy s for cheap, normal clothing, or to H&M for econo-chic styles. If one wants a brand that at least evokes some sense of luxury, why not go to one of Gap, Inc. s other divisions, Banana Republic? Even Old Navy, the fun and family-friendly division of Gap, Inc., pulls a chunk of consumers away. The question is, why would one buy clothes from Gap? Historically, Gap has run promotions in-store, on television, and online. In 2006, they ran the Product RED campaign, which donates 50% of all purchases made on special Product RED merchandise directly to the Global Fund. During the first couple of years, the promotion was wildly successful, as it implicitly persuaded customers that the Gap was an ethical and charitable company. While the campaign is on-going, most Product RED items can no longer be purchased in-store, and the majority of customers are unaware that the campaign is still occurring. Gap spends 2% of its marketing budget on online marketing, which is more than most retailers do. The company has also employed over 300 celebrities in their print and television advertisements in order to draw in more customers. What Patrick Robinson, Gap s creative director, sees the world wearing this year is a simple equation of a pair of pants and a top, but with a softness and pale-tinted color sense that shifts the whole look several degrees away from casual. Gap has come up with a range of softened-blue jeans with a seventies vibe about them, like a flattering high-waisted flare with raised vertical seams in front, and many other dyed denims in pink, dusty coral, and ocher that don t read jeans at all. Specialization in fit and fabric rather than standard generics is the underlying push of Gap in the new decade. 4 More recently, Gap marketed their 1969 Premium Jeans line in summer Hoping to start a conversation about the brand, Gap released a series of commercials with a sort of behind the scenes feel, showing the workshops where new denim styles are designed (see Fig. 4). As well, these commercials strongly evoke Gap s home and heritage of Los Angeles. These both serve their current goal of providing a cheaper alternative to high-end jeans such as True Religion, J Brand, and 7 For All Mankind. 7 However, it is questionable whether this new marketing campaign really addresses Gap s irrelevance, and it s likely that a new approach is needed.

5 Appendix: Figures 1-4 (Sales in millions: Gap: $819, Old Navy: $1105, Banana Republic: $495, Other: negligible) (Sales in millions: Gap: $1,419, Old Navy: $1,383, Banana Republic: $634, Other: $149) Fig. 1: Gap, Inc. s sales by division. Note the Gap brand s relative significance to other Gap, Inc. stores inside and outside of the United States ( United States includes Puerto Rico). Source:

6 Fig. 2: Gap, Inc. s stock troubles since Source: finance.yahoo.com Fig. 3 Gap stores to close by January 31, Source: st_smartbrief

7 Fig. 4: Screenshot from Gap s newest campaign: the 1969 Premium Jeans Line, intended to compete with high-end designer jeans Source:

8 References (1) (2) (3) (4) (5) (6) (7) (8) (9) Inc/408806!

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