Here Are The Three Key Drivers For Gap’s Growth

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Th efforts of Gap Inc‘s (NYSE:GPS)  new CEO towards reviving its mainline brands be key to drive future growth in the company. He aims to accomplish this   by focusing on better designs and materials, achieving  faster production cycles and creating stronger brand identities for each of the retail businesses. Also important to the recovery are the new retail era innovations in the digital commerce with omni-channel retailing providing a mix of customer convenience and experience. With the kids and baby apparel market projected to grow at almost 4% per year, GapKids and BabyGap could be the brands which could drive revenues for the company in future.

See our complete analysis for Gap Inc.

Re-establishing Itself As An Iconic Brand

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Gap’s namesake brand has been losing its relevance and faces tough competition from fast fashion brands such as Zara and Forever 21. The company’s new CEO Arthur Peck has started revamping the brand and is working on a strategy to improve designs, materials and reduce the production cycle to bring this brand back to its lost glory. We believe that  faster production cycles with better designs hitting the stores more frequently will be key for Gap’s growth in future. The challenge for its Old Navy brand has been a perception of generic, cheap clothing. The company is working on a new strategy to revive this brand by making trends available at low price points and this could improve sales. Similarly, Banana Republic is now being steered into a more fashion forward territory. It appears that Mr. Peck understands these issues and has a revival strategy in place to focus on its existing brands and  improve their appeal as regaining popularity will be key for Gap’s growth in future.

Omni Channel Retailing

In a changing retail era, omni-channel retailing has now become necessary for companies to retain their customers. If an in-store pick up option is available for online orders, retailers can generate 7% higher sales. [1]. Gap has proactively deployed several omni channel initiatives such as “find in store”, “reserve in store”, “ship from store” to integrate its digital and store channels and these initiatives have shown results. The company’s new CEO is focused on dissolving the wall between the physical and digital merchandise offerings and has plans to make mobile the central point of all customer interactions, wherever their locations.  Gap has seen tremendous growth in its e-commerce sales and we believe digital initiatives will be key to driving growth in future,  THey will complement the revival efforts for its mainline brands.

Focus On GapKids and BabyGap

Gap Inc’s management has stated in the past that the market shares of GapKids and BabyGap in their respective segments are significantly higher than the retailer’s market share in adult apparel. The children’s wear market is one of the most lucrative segments in the global apparel industry and is expected to have a stable CAGR of 4.2% through 2017. [2]. Gap has experienced success in the limited collection space of kids’ apparel and both its lines launched in 2012 and 2013 were well received. Compared to the teen apparel market, competition in the kids and baby apparel space is not very intense. We believe that, given the tremendous growth opportunity in this market and the fact that kids’ apparel does not get impacted by economic slowdowns, this will be a key driver for future growth in Gap.

 

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Notes:
  1. Get Ready For More Omni Channel Retailing []
  2. www.fashionbi.com []