Strategic Management

THE FUTURE OF GAP, INC. CASE ABSTRACT Founded in 1969 by Donald Fisher, Gap, Inc. was a leading specialty retailer operating primarily in North America offering clothing, accessories, and personal care products under the Gap, Banana Republic, and Old Navy brands. Paul Pressler, who replaced Mickey Drexler as the CEO of Gap, Inc. in 2002, introduced a turnaround strategy. Whereas, Drexler had been known as a merchandising genius, Pressler was known as a numbers man. Pressler emphasized cutting costs and redefining each brand's line of clothing. Sales increased in 2003, but then faltered. Key merchandising and design people, who had worked under Drexler, were leaving the firm. By 2004, the company was again in trouble. Pressler changed the strategy in mid-2004 to generate growth by investing in the stores and introducing a new marketing campaign. Pressler also used franchise agreements with leading retailers in S.E. Asia to open Gap and Banana Republic stores in the region. In addition, the company introduced a new store chain, Forth & Towne, in 2005 for women over 35. As a result, Gap, Inc.'s capital expenditures were among the highest in the industry. In 2006, the company operated 3,070 Gap, Banana Republic, Forth & Towne, and Old Navy stores throughout the U.S., Canada, the UK, France, and Japan. The company was organized into the four divisions of Old Navy, Gap, Banana Republic, and Others (including Forth & Towne and International). Sales and net earnings fell in 2005 and continued to fall through 2006. Of the four divisions, only Banana Republic showed increasing sales. Tired of declining sales, the board of directors hired Goldman Sachs to explore strategies ranging from the sale of its stores to spinning off a single division. Any strategic decision would have to be approved by the company's founding family, the Fishers, who still controlled more than 30% of the stock. The company's market value in January 2007 was estimated to be $16.4 billion. Assignment Tasks Write a recommendation in which you include responses to the following: 1. Discuss Porter's industry analysis forces and how each force pertains to the Gap? Explain. 2. Discuss the CEO's turnaround strategy? 3. Is there synergism between the Gap's three divisions? 4. Discuss the Gap's hiring of Goldman Sacks. 5. Can the Gap develop a differentiation strategy based on plus- size market for women?

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