Gap Inc. Is Taking Significant Strides Towards Its Omni-Channel Platform

by Trefis Team
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One of the strongest global apparel retailers Gap Inc (NYSE:GPS) is looking to leverage its omni-channel platform to further solidify its brand image and provide better customer service. Over the past few quarters, the company has deployed several omni-channel initiatives to provide a seamless shopping experience across all the available channels. In a recent press release, Gap Inc stated that it has made considerable progress towards the development of its omni-channel platform. The company’s chairman and CEO Glenn Murphy said that implementing omni-channel strategies will be among the company’s top priorities in the coming five years. [1] This appears to be a valid move given that the entire apparel industry is shifting towards multichannel retailing in wake of growing interest for online shopping.

Despite the heavy surge in online orders, e-commerce hasn’t turned into a big business for a number of retailers. In response, the U.S. apparel industry is gradually adopting omni-channel retailing to leverage customers’ online shopping interest to enhance store sales. Some reports suggest that multichannel customers have a tendency to spend more than regular customers. Response to this concept has been so strong that retailers are actually struggling to fulfill customer demand. With its aggressive push towards this concept, Gap Inc can utilize its vast store base to take advantage of the boom in the online apparel market. More importantly, it will help the retailer to remain competitive in the U.S. market where most retailers are adopting multichannel retailing.

Our price estimate for Gap Inc is at $50, implying a premium of more than 30% to the market price.

See our complete analysis for Gap Inc.

Apparel Industry Is Adopting This Concept

The U.S. apparel market is highly saturated with a number of established chains and private label players sparring over prices, quality, fashion trends, and other aspects of the business. Such a competitive environment has limited the room for growth for apparel players, forcing them to focus on alternate channels such as e-commerce. However, despite the retailers’ efforts and the surge in online retail sales, e-commerce has not grown into a big business for several players, including American Eagle Outfitters (NYSE:AEO), Aeropostale (NYSE:ARO), Guess (NYSE:GES) and also Gap Inc. The direct-to-consumer business accounts for just 12% of Gap’s revenues, 9% of Aeropostale’s revenues and 13% of American Eagle’s revenues.

Since online business isn’t getting big, retailers are now looking to integrate their online and stores channels. According to a survey conducted by Retail Systems Research (RSR) in June 2013, around 84% of the retailers polled worldwide believed that creating a consistent customer experience across channels was very important. [2] Moreover, multichannel shoppers have a tendency to spend more than regular shoppers as they have access to a wider product range and additional discounts. Therefore, investing in omni-channel retailing is quite essential for U.S. retailers. An Edgell Knowledge Network survey suggested that a majority of retailers in North America are planning to ramp up their consumer mobile initiatives over the next two years. [3]

However, the current landscape of omni-channel retailing is not well-developed in the U.S. According to eMarketer, retailers have been inefficient in coping up with multichannel shoppers’ demands. The RSR survey found that less than one in five respondents reported full synchronization in the 13 most important aspects of omni-channel strategy. [2] This provides a big opportunity for Gap Inc to completely develop its omni-channel platform ahead of its peers and gain a competitive advantage. It shouldn’t be difficult for the company given that it has wider physical presence than any other apparel retailer in the U.S.

Gap Inc Is Accelerating Its Push Towards Omni-Channel Retailing

An omni-channel platform enables retailers to engage customers irrespective of the shopping channel they prefer. A while back, Gap Inc launched its ship-from-store service, which allows the fulfillment of online orders through store inventories. This service not only enables the company to offer a greater variety of merchandise over the Internet, but also helps it improve delivery responsiveness and store traffic. In Q3 last year, Gap Inc launched “find in store” and “reserve in store” services to enhance its customer service and integrate the digital and store channel. The “find in store” function informs the customers where to find the nearest stores and the “reserve in store” service allows them to reserve up to five items online to try in stores. Since buying clothes is a personal experience and online shopping provides convenience, this offers customers the best of both channels. Encouraged by the pleasing response, the company recently announced that its “reserve in store” service will be expanded to all Gap Stores in the U.S. by the end of the second quarter of 2014. In addition, it will begin testing a new order in store capability later this year, which gives customers an instant access to expanded merchandise offerings over the Internet. [1] Gap Inc will also be testing self-service kiosks in its stores in the first half of fiscal 2014.

We believe that such efforts will help the retailer bridge the gap between its store and online business, and take significant strides towards the complete development of its omni-channel platform. Subsequently, Gap Inc will be able to garner significant customer attention over the Internet, and divert its web traffic towards its stores. Over time, this can help the company improve its store sales and better anticipate customers’ tastes.

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Notes:
  1. Gap Inc. Outlining Advances in Omni-Channel Retailing, Global Growth and Supply Chain, Gap Inc, Apr 16 2014 [] []
  2. Retailers Lag Behind Consumers’ Omnichannel Desires, eMarketer, Dec 18 2013 [] []
  3. Omnichannel Is The Key For the 2013 Holiday Shopping Season, eMarketer, Sep 10 2013 []
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