The Gap, Inc. is “moo”ving its way to being a Cash Cow. Where does it stand in the global market-?

Boston Consulting Group Matrix Español: Matriz...

Boston Consulting Group Matrix Español: Matriz de Boston Consulting Group (Photo credit: Wikipedia)

A key strategic objective for a company is proper allocation of its resources to specific business units and/or product lines in order to produce the greatest financial results and increase the overall strength of the firm in the marketplace.  The Boston Consulting Group (BCG) Matrix is a chart that was created by Bruce Henderson for the Boston Consulting Group in 1969 to help companies analyze their products and the businesses they operate in order to complete this allocation.  The chart is completed using a scatter graph to rank the business units or products based on their relative market shares (the market percentage accounted for by a specific entity based on units or revenue) and growth rates.  A circle is used to designate each company product or service and the size or area of the circle represents the value of its sales.  The chart or matrix is divided into four sections: cash cows, dogs (or pets), question marks (or problem child), and stars.  Following is a description of each section within the matrix and a visual representation of where The Gap, Inc. falls in both the domestic and global market:

  • Cash cows generate more cash than is needed to maintain the business and they are products or lines with high market share in a slow-growing market.  They require the little investment in a mature market and are favored the highest amongst the other areas.  In the domestic market, Gap could be considered a “cash cow” with the highest market share in the slow growing U.S. economy.  This can also be supported with their large volumes of cash reserves.
  • Dogs, or pets as they are also known, are somewhat the opposite of cash cows.  They are also found in a slow moving industry, but they also have low market share.  These lines or products usually just break even and barely generate enough cash to maintain market share.  Dogs are usually advised to be sold as they decrease an otherwise profitable company’s return on assets ratio.  However, companies who favor themselves on being socially responsible tend to hold onto these units or lines in order to avoid job losses.  They should be reviewed carefully before any divestiture decisions are made as they could also provide assistance or synergies to other areas of the company.  Some may consider Gap as a “dog” in the U.S. industry with a market share close to that of the next highest competitor.
  • Question marks, or what’s also known as problem child, grow quickly but have a small market share.  They require large amounts of cash but do not make a large profit in return and can be equated to a demanding teenager.  Question marks have the ability to become stars and later cash cows, but if it does not become the market leader it will turn into a dog.  A company needs to carefully evaluate question marks and determine if they are worth the investment.  In the international market, Gap, Inc. can be viewed as a “question mark.”  Their market share is low – ranking third among the top competitors – but the industry is growing quickly and at a rate higher than the domestic market.
  • Stars are those products or business lines with a high market share in a speedy industry.  The ideal is for a star to eventually become a cash cow.  It is worthwhile for the company to focus resources on these units in order for it to remain a market leader.  As the market slows, if their leadership role is sustained it will become a cash cow.  Otherwise, it will be in the “dog” house.  Gap has the potential to turn its operations in the international sector into a “star” if it continues to follow the trend of expanding internationally.

Source: IBISWorld Industry Report 44814 Family Clothing Stores in the U.S. December 2011; Datamonitor, Industry Profile, Global Apparel Retail, Publication Date December 2010

The natural cycle is for businesses to start as question marks, become stars, slow down as a cash cow, and retire as a dog. (http://en.wikipedia.org/wiki/Growth-share_matrix)

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A look at The Gap’s store brands…

Image representing YouTube as depicted in Crun...

Image via CrunchBase

I feel like I am becoming quite the technology guru.  (Well, at least I am impressing my IT educated husband).  Although it seems like it’s been a lot of additional work, the social media lessons I have learned in my Strategic Management class have been very helpful and applicable in this day and age.  It is lessons I know I will take with me for the future whether for personal or entrepreneurial reasons.

In addition to the research you have seen in previous posts, one of our blog assignments was to create a Youtube video using pictures we took related to our company.  I’d like to thank my teammate, Jennifer Kolbe (http://www.jenniferkolbe.com/), who photographed, and generously shared, the pictures you will see in the short video I created using Stupeflix.  Check it out: http://youtu.be/DpasTWNh8yQ

Image representing Stupeflix as depicted in Cr...

Image via CrunchBase

Both Jennifer and Talia Lambarki (http://bizebeebuzz.wordpress.com/), our other team member created videos.  See how the same pics can be displayed in different ways:

http://www.youtube.com/watch?v=xP5mGfXSWsA&feature=youtube_gdata

http://www.youtube.com/watch?v=8jp5k2Hlmq0&feature=youtube_gdata

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What’s the “gap” between The Gap’s brand sales and sales by segment and geographic region?

Gap

Gap (Photo credit: Wikipedia)

As described in The Gap, Inc.’s Disclosure statement (specifically, the report dated September 6, 2011), “The Gap, Inc. is a global specialty retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands.  Most of the products sold under its brand names are designed by the Company and manufactured by independent sources.  The Company also sells products that are designed and manufactured by branded third parties.  The Company operates in two segments: Stores, which includes the results of the retail stores for Gap, Old Navy, and Banana Republic, and Direct, which includes the results for its online brands, both domestic and international.  The Company has franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in many other countries around the world.  Under these agreements, third parties operate or will operate stores that sell apparel and related products under its brand names.”

The Gap, Inc. and its competitors in the retail apparel industry are minimally, or not at all, segmented.  As mentioned above, Gap operates in two segments and reports only nominal financial information by segment.  The competitors we chose to focus on, Abercrombie and Fitch Co. and American Eagle Outfitters, Inc. only report financial information for the company as a whole.  Abercrombie notes sales and sales growth by store brand in their annual report, but any further detail is not required and not volunteered.

One of the areas Gap is focusing its strategic resources on is franchise agreements, as alluded to in the description above.  The annual report as of FY2010 (ended January 29, 2011) does not specifically breakout currents sales and financial performance for franchises.  It is included in “Other” along with its wholesale businesses, its online-only brand Piperlime, and Athleta.  The FY2011 (ended January 28, 2012) annual report does breakout franchise and wholesale sales, but no further financial information.

The following charts reflect Gap’s sales breakdown by brand, segment, and geographic region.  These figures are according to the information found in the FY2010 Annual Report (the most recent report available at the time this research project began).  The first chart notes sales and % of total sales by brand for the company.  The second and third charts represent the segment breakdown by geographic region for the company.

The Gap, Inc. - Sales by Brand - FY2010

The Gap, Inc. - Sales by Region - FY2010 - Stores Segment

The Gap, Inc. - Sales by Region - FY2010 - Direct Segment

There are a couple “take-aways” from these charts.  The first is that Old Navy is actually Gap’s largest brand sales producer.  Personally, this was something I was not aware of before this project.  Gap’s “Other” brands account for the lowest percentage of its sales.  This group includes its franchise and wholesale businesses, Piperlime (its online only brand), and Athleta (recently acquired women’s active wear brand).  Recall, franchises are an area the company would like to focus some of its growth strategies.  If the existing brands Gap is known for continue to bring in higher, or at least consistent, sales while Gap focuses more of its strategic resources on the “Other” brands, it will position itself nicely in the family retail apparel market.  Additionally, the opening statement to this blog notes the strategic focus is swinging toward international expansion.  In both the Stores and Direct segments, we can see there is great room for growth.  Again, assuming the domestic sales remain steady, this is another area that should prove to move Gap to greater market share and higher stock prices.

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Bridging “The Gap” in the U.S. and Global Retail Apparel Markets

If you have read some of my other posts and clicked on the page, “About the Site Owner,” you know that one of the reasons for my website is because it is a requirement for my final MBA class, Strategic Management. The website is a means for blogging some of the findings of my final MBA career group project (and to show how smart I am). Please stay with me. I really am not that arrogant; a little witty perhaps. (I divert).

If this is the first blog post of mine you have read, that’s okay, too. This post takes a look back at one of the first areas my team and I researched as we began our final project. (Have I mentioned this is my FINAL class)? One of our first tasks was to gain an understanding of our company’s industry and its market share – both domestically and globally. Additionally, we discovered how to measure the market concentration by using the Herfindahl-Hirschman Index or HHI.

In the U.S. Family Clothing Stores sector (NAICS 44814), our company, The Gap, Inc., ranks among the top four players in the industry. An industry that is defined by the IBISWorld Industry Report dated December 2011 as, “retailers [who] stock a general line of new clothing for men, women, and children without specializing in sales for an individual gender or age group. These establishments may provide basic alterations, such as hemming, taking in or letting out seams, and lengthening or shortening sleeves”.  With 13.3% of the $85.8 billion U.S. sales in 2011, The Gap is actually the market leader in the domestic family clothing industry. The other three competitors included in approximately 40% of the market share are TJX Companies with 12.5%, Ross Stores with 9.8%, and Abercrombie & Fitch with 4%. Other companies each make up less than 4% of the remaining 60% of the industry.

U.S. Family Clothing Stores Market Share as indicated by IBISWorld Industry Report for December 2011

Market share, alone, does not paint the whole picture. Named after economists Orris C. Herfindahl and Albert O. Hirschman, the Herfindahl-Hirschman Index measures the size of the companies in relation to the industry to give a better indication as to the competition among them. HHI is also applied in antitrust reviews by the Department of Justice when evaluating mergers. It is calculated by squaring the market share of each competing firm in the industry and then summing the results. The number can range from 0 to 10,000 with HHI’s on the higher end indicating a monopolistic industry and an HHI on the lower end being an indication of a competitive industry. One of the main benefits of the HHI is that it gives more weight to larger firms. The HHI for the U.S. market is as follows:
HHI=(13.3^2) + (12.5^2) + (9.8^2) + (4.0^2)
HHI=176.89 + 156.25 + 96.04 + 16
HHI=445.18
Hence, the U.S. is a very competitive market.

How does the U.S. market compare to the global market? The global market, according to Datamonitor, consists of North America, South America, Western Europe, Eastern Europe, and Asia-Pacific. The latest report available, 2009 global sales totaled $1,031.5 billion. The four major global competitors in this industry are The TJX Companies, Inc with $19 billion in revenue (1.8%), H & M Hennes & Mauritz AB with $15.49 billion in revenue (1.5%), The Gap, Inc with $14.526 billion in revenue (1.4%), and Levi Strauss & Co with $4.023 billion in revenue (0.39%).

2009 Market Share for the Global Apparel Retail Industry as reported by Datamonitor

We can see from the chart above that the global market is even more fragmented than the U.S. retail market. The HHI for the global industry is calculated as follows:
HHI= (1.8^2) + (1.5^2) + (1.4^2) + (.39^2)
HHI= 3.24 + 2.25 + 1.96 + .15
HHI= 7.6

In this age of global expansion and becoming an international firm, the retail apparel companies, including The Gap, Inc. have to realize that gaining market share and concentration will be a long and never-ending process. Although competition is strong, “the world is [their] oyster.” (Derived from the quote from Shakespeare’s The Merry Wives of Windsor).

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Let’s “Strike” Out Cancer!

I believe everything happens for a reason.  Good or bad, it’s meant to be.  It may be hard to understand in the moment, but as time goes on, the event that caused you happiness or pain seems to make sense in the big picture.

Another one of my beliefs is that God does not give you more than you can handle.  (Also refer to the last sentence in the above paragraph).  No matter what I have been faced with, I try to reflect and have appreciation that someone is experiencing some greater hardship than I and “this too shall pass.”

official logo of the American Cancer Society R...

official logo of the American Cancer Society Relay For Life (Photo credit: Wikipedia)

So, where am I going with this?  For the second year, I am participating in the American Cancer Society‘s Relay for Life.  “Two for Two” as I like to call it, because this year I am involved in two events.  One in New Kent, VA and one in Romeoville, IL.  The first is happening on June 2nd in Virginia.  I will be doing it with my aunt in memory of her aunt (my great-aunt) and my grandpa (her dad) who both died from cancer last year.

The second event is on June 30th in Romeoville with my teammates: the Donating Divas…and Dudes.  As part of our fundraising efforts, we are sponsoring a Candlelight Bowl in Joliet, IL on Saturday, April 28th.  Let’s “Strike” Out Cancer!  Couples tickets are $50 and includes bowling, shoe rental, and food.  It’s hardly possible these days to have a date night or girls night out under $50 and help a great cause!  Check out the attached flyer for more details: Donating Divas…and Dudes Candlelight Bowl.

If cancer has affected you, your friends, or your family, but you cannot attend the event, please consider making a donation to myself or my team.  No donation is too small. 

Remember, whatever your pain, whatever your sorrow, you are here.  Remember those who no longer can feel anything.  Thank you for your support and God Bless!

 

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Keeping an Eye on and an open Mind to The Gap, Inc.

Español: Mapa mental de las directrices para u...

Español: Mapa mental de las directrices para un mapa mental. English: Mind map of the mind map guidelines. (Photo credit: Wikipedia)

Keeping an eye on and an open mind to The Gap, Inc. will take on a whole new meaning as you continue reading this post.

The Gap, Inc. is made up of five brands and two reporting segments.  Gap brands include its namesake branded apparel known for its jeans and khakis, GapKids, and babyGap.  Old Navy and Banana Republic complete the list of brick and morter stores (although Athleta – specializing in women’s active apparel and footwear – is slowly opening retail stores in select areas of the U.S. as I write this post).  Collectively, these retail avenues form the “Stores” reportable segment of the company.  Stores are located all over the world, including the U.S. and Puerto Rico, Canada, Europe, Asia, and other regions.

Its second and final reporting segment is known as the “Direct” segment.  This includes all online brands, both domestic and international, and especially Piperlime – an online only brand which offers footwear for the entire family.

To demonstrate the weight of each of the brands and reporting segments, I have created a mind map using xmind of the FY2010 (ended 1/29/11) sales revenue by segment, brand, and region.  What is a mind map, you ask?  A mind map is a diagram that presents words, ideas, etc. visually in such a way to emphasize the relationship between the different concepts.

Following is the Embed Code for this mind map:

<iframe id=’xmindshare_embedviewer’ src=’http://www.xmind.net/share/_embed/TSchikoraMBA/the-gap-inc-1/’ width=’900px’ height=’300px’ frameborder=’0′ scrolling=’no’>

Including the above text in the HTML portion of a blog post will display the mind map within the post.  (See below).  I would highly recommend creating your own account at www.xmind.net.  The basic service is free and you can share maps amongst your colleagues and friends.

Do you understand my “eye”-catching heading now?  Oddly enough, this “mind” map displaying the revenue flow of The Gap, Inc. for FY10 looks like an eyeball.  Presenting the information in this manner clearly demonstrates how the Stores reporting segment compares in size to the Direct reporting segment.

 

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The gap The Gap is creating: SWOT Analysis

The 1969-1986 Logo

The 1969-1986 Logo (Photo credit: Wikipedia)

Deutsch: Logo von GAP

Deutsch: Logo von GAP (Photo credit: Wikipedia)

Founded in 1969 by Doris and Don Fisher of San Fransisco, CA, Gap, Inc. went public in 1976.  The company’s popularity boosted in the 1990’s with the help of its trendy jeans and khakis.  I can still remember the first pair of Gap jeans I owned.  I wore them past their prime – until the holes in the back pockets became too large to hide with an over-sized shirt.

The Gap family grew in the twenty-plus years since it began being publicly traded.  Banana Republic was acquired in 1983 and features upscale apparel.  The kiddos began enjoying fashionable clothing in 1986 when the first GapKids store opened.  In 1989, the company went global and became the second-largest branded apparel in the world by 1992.  Having joined the Gap family in 1994, Old Navy was the solution to capturing the family, value- yet fashionably minded, market.

Fast forward to today.  Like most retailers, The Gap has felt the pressures and the presence of competitors in these tough economic times.  By knowing where the company stands in relation to its rivals, the Gap can better position itself to keep or improve its market share.  Hence, an analysis of its SWOT: Strengths, Weaknesses, Opportunities, and Threats is essential.  Strengths and weaknesses are derived from a company’s internal environment, whereas opportunities and threats are based on external factors.  Strengths enhance a firm’s competitiveness in its industry and weaknesses are deficiencies of the company or competitive liabilities.  Opportunities can open the door to help formulate company strategies and threats can close them.  Let’s take a look at The Gap, Inc. and see how it is creating a “gap” amongst the competition with its SWOT breakdown:

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Tracy’s Quote for Today, Monday, March 19, 2012

Quote

William James Quote

William James Quote (Photo credit: Psychology Pictures)

“Nothing is so fatiguing as the eternal hanging on of an uncompleted task.”~William James

Unlike almost all of the other courses I have taken during my college career, both undergrad and graduate, my last class, Strategic Management, is proving to be the most challenging.  As my instructor has repeated many times in class, it’s not necessarily the work that’s difficult, but more the discipline to keep up with the course load when 95% of the graded work is not due until the end of the semester.

For perpetual procrastinators, like myself, this is not a good thing.  It’s not necessarily that I purposely procrastinate, it’s just that I try to do too many things at once – so much so that sometimes it means a lot of a little is actually getting done and no tasks are fully completed.  I guess this is an occupational hazard as a full time working mom of a five year old and one year old (and sometimes 33 year old).

Take this post, for example.  I should be posting my SWOT analysis for our group project: The Gap, Inc., but instead I am updating my blog with a quote.  (Although, I’d like to say it’s warming me up for my first official, important post – because it will be graded).  So, with that, I will close this post with a quote that says it best: “The best way to get something done is to begin.” ~Author Unknown.

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Tracy’s Quote for Today

Quote

Oklahoma's Premier Old West Town

Isn't this the truth...

“Tomorrow’s progress is surely fascinating, but equally so is the journey that has gotten us to today.” – Tracy Schikora

I love quotes!  They are so powerful.  It’s amazing how a handful of words can have so much meaning behind them.

I took this picture at Prairie Song in Dewey, Oklahoma (http://www.prairiesong.net/).  Another thing I love is photography.  Hopefully, once I have completed my MBA I will be able to devote my new “free” time to this passion.

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