Global presence brought about by franchise and

company-owned stores and an online presence

  • As of 1/29/2011, 11.5% of company-owned stores exist internationally; in comparison, Abercrombie & Fitch Co. operates only 3.5% of total stores outside North America and American Eagle Outfitters, Inc. stores are only located in North America
  • Total company-owned stores of 3,068 as of same date is almost triple that of Abercrombie and American Eagle
  • International shipping via online outlets is available through Gap to 90 countries; American Eagle reaches consumers in 75 countries via e-commerce; Abercrombie has worldwide brand recognition with nearly 10% of net sales from online sales, but online sales have less global reach than Gap’s international global network

Well-balanced product portfolio

  • Balanced portfolio of brands that target shoppers looking for value (Old Navy), upscale brands (Banana Republic), or both (Gap) with an extensive range of clothing styles.  Abercrombie has a good portfolio of established brands, but lacks the value/outlet retailing of Gap.  American Eagle also has strong brand image, but their target customer base is limited to the youth target market, relying heavily on teens.  American Eagle has neither offerings for value conscious shoppers nor upscale brand offerings

Strong margins compared to competitors

  • High operating and net profit margins of 13.4% and 8.2%, respectively, as of year ending 1/29/11; highest among competitors
  • Increase in operating and net profit margins of 4.9% and 5.8%, respectively, compared to prior year

Product supply dependent on outside merchandise vendors

  • Gap relies heavily on its 1,020 vendors for merchandise
  • Independent third-party manufacturers face increasing prices in commodities, such as cotton, that will increase Gap’s costs
  • More dependent on vendors than its competitors Abercrombie, which purchases merchandise from approximately 191 vendors, and American Eagle, which purchases merchandise from foreign suppliers through a single buying agent and does not maintain exclusive agreements to purchase from any particular vendor

Low store productivity

  • Net decrease in total company-owned stores from 2009 to 2010 years end (decrease of 27 stores from 52 in North America and increase of 25 stores abroad)
  • Lower store productivity than American Eagle, which has focused on franchise agreements to open more international stores

Information technology support and operations reliant upon IBM agreement

  • Gap continues to implement upgrades to IT systems; upgrades have associated inherent risks
  • Gap is unable to guarantee the security and integrity of company data due to its agreement with IBM to operate significant aspects of the IT infrastructure, which requires IBM to access internal company information
  • Competitor American Eagle has a strong digital strategy and e-commerce operation; initiatives have erased boundaries between the company and its customers

Slow to keep pace with fashion trends and changing consumer preferences

  • Gap’s lead times for purchases are long; however, success in the industry depends on a company’s ability to keep up with the fashion tastes of consumers
  • Gap has been unable to ensure that fashion items are consistent with current consumer preferences
  • Abercrombie keeps up with the quickly changing trends of a younger target market, while American Eagle has established itself as a fast fashion retailer and is considered one of the most valuable retail brands in the US



Expanding presence in key growth markets

  • The Gap is the market leader, consisting of 13.3% of the collective 40% of top 4 domestic family-clothing stores; Abercrombie accounts for about 4% of total domestic industry revenue; American Eagle accounts for about 1% of total domestic industry revenue.
  • In 2011, Gap opened its first four wholly owned stores in China where retail sales are growing at a fast pace due to economic development.  Just announced its 15th store in China in 15 months.

Growing market in the US and UK for plus size apparel

  • The plus size apparel market in the US accounted for 54% of the total US clothing market in 2009; the growing number of customers that fall in the plus size category will further drive sales higher
  • Gap can seize the opportunity to serve the growing plus size market by expanding the plus size selections of its brands; Abercrombie’s women’s clothing line only ranges from sizes extra small (XS) to large (L); American Eagle has limited selections of women’s clothing in size double-extra large (XXL)

Positive trends experienced by online channel

  • E-commerce, which helps retailers keep costs low, has been on the rise globally and is becoming the most customer-preferred channel for purchases
  • Gap operates an online store and offers international shipping to 90 countries; Gap also offers the convenience of shopping for all brands on one website, with flat-rate shipping
  • Positive trends in online retail will help Gap continue to expand its online presence to remain competitive (American Eagle reaches consumers in 75 countries through its online channels and was ranked the second best mobile retailer in 2009, while Abercrombie has been enhancing its online presence in recent years, including its web-based store for the Gilly Hicks brand)

Weak consumer spending in Europe and the United States

  • High unemployment rates in both the US and Europe, where the Gap derived 84.3% of its revenue in fiscal year 2010, could negatively impact the upscale brands of Gap, Banana Republic, and Piperlime
  • The high unemployment rate and credit crunch also adversely affects competitors Abercrombie and American Eagle especially since their target consumers (teens) have the highest unemployment rate, resulting in less spending on fashion

Margins affected by high input costs

  • Gross profit margin in FY10 decreased by 0.4% from prior year to 40.2%; Abercrombie fares better with a margin of 63.8%
  • High cotton prices are a concern, as Gap could be required to raise prices of merchandise, which would deter price-conscious consumers
  • Since clothing is made of the same inputs, competitors face the same high input costs

Growing market for counterfeit products

  • US economy suffers a minimum loss of $200 billion in revenue and 750,000 jobs annually from the sale of counterfeit goods;  Europe’s market for counterfeit goods is worth about $8.2 billion
  • Gap, Abercrombie, and American Eagle carry branded merchandise that is vulnerable to counterfeiting

High levels of competition in the family-clothing stores industry

  • Number of firms engaged in family clothes retailing has increased at an annual average rate of 3.0% per year over the past five years
  • Expansion of low-priced retailers during recession period has boosted the overall expansion of the family-clothing market over the past 5 years
  • Gap is better positioned to compete against the expansion of low-priced retailers compared to Abercrombie and American Eagle due to its Old Navy stores as well as Gap and Banana Republic Outlet stores

Failure of vendors to adhere to vendor codes of conduct

  • Vendors are required to adhere to vendor codes of conduct, but failure to comply could negatively impact the company
  • Abercrombie and American Eagle face similar threat due to their reliance on third-party vendors