The Gap, Inc
The Gap, Inc.
Managing Mature Revenue Growth
Case Study
February 15, 2007
Background Information:
The Gap, Inc. is a global specialty retailer operating retail and outlet stores selling casual apparel, accessories, and personal care products for men, women and children. The business operates under the Gap, Old Navy, Banana Republic, and Forth & Towne brands, with stores in the United States, Canada, the United Kingdom, France and Japan. Additionally, US customers may shop online at , , and .
As of January 28, 2007, The Gap operated a total of 3,157 store locations. The number of stores has grown significantly since the company’s period of high growth during the 1990s and 1980s. More recently, the number of stores has been relatively flat over the last five years.
With such a high store count, many stock analysts feel that Gap has over-penetrated its potential market. They believe that during its period of high growth, Gap increased its store count to fast, and now have many unprofitable stores in poor locations.
Management has been under fire lately, as the stock has underperformed the market for many consecutive years. In fact, Paul Pressler, was recently fired as Gap’s CEO as he failed to turnaround the company’s slumping profitability.
Selected Financial Data:
Background on store openings and comparable store sales:
There are two ways which retail companies can grow sales:
1. Increase the number of stores by building new stores.
2. Grow sales at existing stores, which is also known as comparable store sales. Comparable sales growth is the annual growth in sales at retail stores which have been operating for at least one year.
Discussion Questions:
1. Analyze the Historical Number of Store Locations and the Historical Comparable Sales Growth data. Discuss how the information reflects the trends in the Selected Financial Data for 2005 and 2006 (i.e. look at recent sales and profitability trends and how the store data may explain them).
2. Do you agree that Gap grew too big, too fast? Did they oversupply the market by building too many retail locations? How does GAP’s situation compare to the current situation of General Motors and Ford in the automotive industry?
3. Recommend an expansion strategy for Gap over the next 5 – 10 years. Discuss how the strategy will impact the company’s financials, and any potential problems that might arise.
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