Executive Summary
The Gap, Inc. is an American clothing and accessories retailer based in San Francisco, California, and founded in 1969. It is one of the largest global specialty apparel retailers, with fiscal 2009 revenues of $14.2 billion. It operates five of the most recognized apparel brands in the world � Gap, Banana Republic, Old Navy, Piperlime and Athleta. Gap retails casual apparel, accessories, and personal care products for men, women and children through more than 3,100 stores in the United States, Britain, Canada, France, Japan and Ireland.
Though this industry is in the mature stage of the industry lifecycle and is very saturated. With industry trends of value driven consumers, competition is also high for this industry; the company still leverages its large network of physical stores to improve margins, enhance its brand image and target new markets. With more than 300 stores outside the U.S., Gap is well known, and still has plenty of room to grow globally.
This business proposal is to evaluate the feasibility of developing Gap Inc.’s Greater China Market by analyzing both internal and external environments of the company. Porter’s Five Forces model is also applied to analyze the attractiveness of the industry. Industry and market analysis show the growth rate in both retail sales and spending power of Chinese people which strongly support the feasibility for the company expanding to China. After summing up the findings and analysis, ways are suggested on how Gap Inc. enters China market as well as the most suitable retail strategy in the biggest Asian country.
Competitors
Gap does not see Abercrombie and Fitch and American Eagle Outfitters as the top competitors but also Wal Marts, Zara and Forever 21.
Market analysis
According to the National Bureau of Statistics (NBS), the total retail value of clothing, shoes, hats and textiles by wholesale and retail enterprises above designated size in 2008 grew nominally by 25.9% year-on-year to achieve 377.55 billion yuan. In 2009, the nominal retail value growth slowed to 15.5% year on year but it is far ahead when comparing with the U.S. retail sales growth of 2.7%. We can see that there is a larger room for Gap Inc. to expand in China.
In 2008, per capita disposable income of urban households increased by 8.4% in real terms to 15,781 yuan. Urbanites on average spent 10.4% of their annual expenditure on clothing (1,166 yuan). According to the NBS, in the first to third quarter of 2009, per capita annual expenditure on clothing per capita was 923.8 yuan.
On the other hand, the Hong Kong Trade Development Council (HKTDC) has conducted a Survey on Garment Shoppers in Major Chinese Cities on apparel consumption in 13 major cities namely Harbin, Shenyang, Tianjin, Hangzhou, Nanjing, Beijing, Chengdu, Dalian, Guangzhou, Shanghai, Wuhan, Chongqing and Ningbo in China. Among the 3,250 respondents, the average spending on apparel from the fourth quarter 2007 to fourth quarter 2008 was 2,758 yuan. The average spending in each city was directly proportional to the level of disposable incomes in that city. We can see that the continuously increasing spending power of Chinese consumers and the affordability of mid- to high-end apparel segments in major Chinese cities.
Threats of substitute products
Firms in specialty apparel or leisure and casual wear compete with firms that provide other substitutes such as athletic footwear and apparel. Many younger consumers are turning to sporting good textiles and footwear as substitutes for other types of casual dress.
The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases. Substitutes are a threat because they are in an attractive alternative product or service, which customers can easily shift to if there is low switching costs. The availability of substitutes invites customers to make price, quality and performance comparisons. Competitively priced substitutes impose a maximum value on prices relevant industry can charge for its products or services.
There is intense competition, fashion trends, and price conscious consumers that have slowed growth of the company. This creates difficult situations for companies to produce a brand image that appeals to consumers that want to shop for cheaper apparel, but also apparel that has quality.
Recommendations
Retail strategy
Products
The brand Gap of Gap Inc. is suggested to be introduced firstly to China. It is not only offers a range of wardrobe essentials for men, women, and children such as T-shirts, hoodies, great-fitting pants and denim but also nursery gears for mothers and babies. The large product ranges attracts many different kinds of consumers and enhance the recognition of the brand.
Product adaptation is necessary when a middle class American foreign brand going to Asia countries especially China. It is important to adapt the product to the Chinese culture. Style is more important in fashion industry, which also includes the color and symbols. The meaning of a color or a symbol can differ from culture to culture. For example, bright red is a must color when the products are selling in the period of Lunar New Year. Besides, size of apparels is also a main concern since Asian has a comparably slimmer body figure.
Place
According to the NBS data, Shanghai, Beijing and Guangzhou are leading far ahead of other cities in market size and spending power. We suggest Gap Inc. to open its flagship stores in these cities. Since Beijing, Shanghai and Guangzhou together account for 12% of China’s consumer market. The consumer market of these three cities is characterized by large urban population and high urbanization rate. As their residents’ disposable income leads the country, their consumer market is large and their spending power is strong.
Promotion
Media advertising and celebrity endorsement are popular in China. It can raise the brand awareness of large numbers of people and motivate consumers who see them in an ad to purchase the product advertised. Due to increasing consumerism in China, consumers consider a status symbol to purchase an endorsed product. They prefer to own a brand that has a good reputation, and when someone like a famous film star or a sport star is associated with that particular brand, it is obvious that the consumers will get attracted to it, because the consumer wants to maintain some status, and feels that using a brand promoted by a star can satisfy that longing. Besides, opening flagship stores in prime locations is also an effective way to raise the brand’s visibility.
Department stores are the most suitable destination for consumers to shop for apparel items. According to the aforementioned survey on apparel by HKTDC, 67.1% of respondents shopped in department stores for apparel most often.