This is a detailed PESTLE analysis of Gap Inc, which examines six external factors that can impact the company’s sales and potential for future growth.
Company Background and Introduction
Gap Inc is an American multinational retailer that sells clothing, accessories, and personal care products. It was founded on August 21, 1969, by Donald Fisher and Doris F. Fisher in San Francisco, California. The company operates several brands, including Gap, Banana Republic, Old Navy, Athleta, and Intermix.
Gap Inc started as a single store in San Francisco, but it quickly expanded and became a popular brand in the United States during the 1980s and 1990s. It was known for its casual and comfortable clothing, especially its denim products. The company also introduced several iconic ad campaigns during this time, such as “Khakis Swing” and “Mellow Yellow.”
However, the company has faced several challenges in recent years, including increased competition from fast-fashion brands and the rise of e-commerce. In response, Gap Inc has undergone several strategic changes, such as closing underperforming stores, expanding its online presence, and investing in new brands like Athleta, which focuses on women’s activewear.
Despite these challenges, Gap Inc remains a major player in the retail industry, with a strong brand reputation and a diverse portfolio of products and brands.
Gap Inc Company Information
| Name | Gap Inc |
|---|---|
| Industry | Retail |
| Founded | August 21, 1969 |
| Founders | Donald Fisher and Doris F. Fisher |
| Headquarters | San Francisco, California, United States |
| Brands | Gap, Banana Republic, Old Navy, Athleta, Intermix |
| Products | Clothing, accessories, and personal care products |
| Revenue (2021) | $16.4 billion |
| Net income (2021) | $1.1 billion |
| Employees (2021) | 129,000 |
| Website | https://www.gapinc.com/ |
| Ticker symbol | GPS |
| NYSE listing date | March 15, 1976 |
| S&P 500 Component | Yes |
Political Factors
Political stability is essential for organizations to survive and thrive in a country. Absence of political strength makes it difficult for the companies to carry on their supply chain operations. Russia and Ukraine war had not only disrupted the geo-political stability but was also deemed as an oppressive move.
Keeping this into consideration, the retail companies such as Gap have decided to stop the supply of its clothing in Russia (Cavale et al., 2022). In addition, the US and European Union have imposed sanctions on Russia owing to its role in the initiation of the conflict. The sanctions have made it difficult for the firms to continue with the trading operations.
Taxation and tariff rules developed by the government also contribute to the political environment of the industry. The companies in the sector have to follow the sales tax protocols. The strained relationship between US and China created a threat for clothing retailer as the trading restrictions and higher tariffs meant the cost of items would be inevitably affected.
Economic Factors
The negative changes such as economic slowdown and inflation effects the sales and profitability of the clothing retail companies. As seen in the case of Gap Inc., the company had to deal with declining sales as the buyers were facing the impact of price hike due to inflation. In addition, the management has to deal with higher operational expense due to price increase (Gap Inc, 2021).
Unemployment negatively influences the ability of the people to spend on their needs. In case of the clothing segment, buying behavior is significantly affected by the changing economic position of a household. Higher price of fuel and increasing cost incurred in managing the freight process has also influenced the company’s profit margins.
The price changes effect the cost of raw material, production expenses and also the labor cost which is effected by the inflationary pressures. The company has to revise its price structure which may lead to the customers seeking lower cost alternatives as the lower disposable income makes it difficult to spend on costly products.
Social Factors
The type of clothing items that are in demand and preferred by the customers are the main features that determine the clothing range available in the market. When companies are not able to identify the ongoing trends and preference, the sale of the stock and meeting sales targets seems to be challenging.
Gap Inc. has not been able to understand the demand of the customers and their preference for its Old Navy segment. As a result of the lack of clear understanding about the buyer’s needs, the management had to deal with low sales and profitability. Moreover, the company was not able to identify the demand for its plus sized clothing accurately which led to excess stock (Zimmerman, 2022).
During the pandemic, the company sales have declined and some of the stores have been significantly underperforming. The management has conducted an analysis of the performance of its stores and has decided to proceed with the closure of its 30% retail outlets in North America. In the closure of stores those outlets have been targeted that were having low sales.
Technological Factors
Technological advancements have helped the clothing retail sector to progress and increase efficiency. In addition, Artificial Intelligence has further enhanced the way retail shopping is done by the customers. Gap Inc. has been able to utilize the advanced technology such as AI to manage its different segments effectively.
One example of the way technology has helped the company is the acquisition of CB4, which helps in creating improved customer experience. The company has been able to become a part of the trend of virtual fitting rooms through the acquisition of Drapr Inc. These virtual rooms have been particularly useful in addressing the social interaction limitations imposed by the pandemic (Gap Inc, 2021).
Furthermore, data science has enabled the management to understand the demand patterns in a better manner. The manufacturing and designing of the products is carried out on the basis of the insights gained through machine learning and data analysis. The company has also been able to create online presence through its e-commerce platform and social media.
Legal Factors
The labor laws are applicable on the clothing retailer such as Gap Inc. Overlooking labor laws and the use of child labor by its vendors in South Asia has created legal issues for the company. It was reported that the vendors had hired young children as young as 10 years to handle the process of cloth sewing, which is a reflection of exploitation of child labor (Teather, 2004).
Since the emergence of this scandal, the company has refined its stance on vendor’s use of child labor. Moreover, employment laws constitute a part of the legal environment for the company, which outline the work load, salary packages and workplace equity. The management also has to deal with issues pertaining to intellectual property and class action lawsuits.
Environmental Factors
The availability of up to date technology has helped the companies in the clothing retail industry to reduce the waste and manage the sustainability in a more effective manner. The production process has been made more environment friendly through the use of technology. Gap Inc. has also focused on recycling, which has led to 10% of polyester originating from recycled sources.
The company has shifted Athleta outlets in North America to alternate sources of energy, illustrating its commitment to sustainability (Wright, 2021). The management aims to achieve the goal of becoming carbon neutral by the end of 2050, which is supported by reduction of its emissions over the years.
Conclusion
The external environment of Gap Inc. is creating challenges due to the political and economic issues, along with pandemic related decline. However, technological advancements are likely to facilitate the company in improving its business operations by understanding consumer needs and providing them with technology assisted improved shopping experience.
References
- Cavale, S.,Stecklow, S., & Gauthier-Villars, D. (2022). EXCLUSIVE Gap says Russia deliveries stopped in March. But its clothing kept coming. Reuters. Retrieved from https://www.reuters.com/business/retail-consumer/exclusive-gap-says-russia-deliveries-stopped-march-its-clothing-kept-coming-2022-10-31/
- Gap Inc (2021). Annual Report. Retrieved from: https://s24.q4cdn.com/508879282/files/doc_financials/2022/ar/2021-Gap-Inc.pdf
- Teather, D. (2004). Gap admits to child labour violations in outsource factories. The Guardian. Retrieved from: https://www.theguardian.com/business/2004/may/13/7
- Wright, B. (2021). Gap Inc on track with renewable energy targets. Just Style. Retrieved from: https://www.just-style.com/news/gap-inc-on-track-with-renewable-energy-sourcing-targets/
- Zimmerman, S. (2022). Old Navy struggles with demand planning due to supply chain delays. Retail Dive. Retrieved from: https://www.retaildive.com/news/old-navy-supply-chain-demand-planning-womens-fashion/625641/