Gap Five Forces

Topics: Brand, Millard Drexler, Gap Pages: 5 (1758 words) Published: April 25, 2011
Five Forces Model is a framework used in the analysis of industry structure and profitability. This model evaluates the ability of company to assess their standing in the industry. Understanding the industries is essential for any firm to be successful. This model evaluates the risk of entry by potential competitors; rivalry among established companies; substitute products; bargaining power of buyers and bargaining power of suppliers. Risk of entry by potential competitors

It is not difficult to enter the clothing industry and consumer switching costs are low, therefore, companies face many competitors who taking the same private label and give a challenge for the profit. It also is hard to establish a distinct brand name which helps the company generate profit and extend market share. The discount retailer who is Target however does a go job; he competes on price with trendy and becomes the second large retailer in America. To compete with the challenge in the market, Gap Inc. reestablished a larger core of consumers who were brand loyalists. For instance, he created such higher end clothing lines as Banana Republic, Old Navy which targets price conscious’s consumers. In an industry where the right mix of product differentiation and price play a key role, these three brands allow them to be competitive and maintain a superior brand image. Rivalry among established companies

There are a lot of experience specialty retailers in clothing industry, such as Gap, Abercrombie & Fitch, and American Eagle which are a disadvantage to the new firms as this industry is extremely competitive. Companies therefore should be up to date with fashion and customer satisfaction. For instance, Banana Republic was established in 1983, this helped Gap to stay in the business as a major retailer in businesswomen clothing. Gap also opened Old Navy stores in 1994 to compete with the existing discount retailers including Target and Sears. New entrants want to complete with these large companies, money and resources are the main factor. The table below shows total assets in millions of dollars for Gap, American Eagle, and Abercrombie and Fitch. These numbers show the large amount of resources available for these firms to compete in an industry.

Total assets for Gap American Eagle, and Abercrombie & Fitch (US $millions) Sources: Gap Inc 2006 annual report
Total Assets(millions)| 2002| 2003| 2004| 2005| 2006| Gap Inc.| $ 9,902.00| $ 10,713.00| $ 10,048.00| $ 8,821.00| $ 8,544.00| Abercrombie & Fitch| $ 994.82| $ 1,383.23| $ 1,347.70| $ 1,789.72| $ 2,248.07| American Eagleis| $ 741.34| $932.41| $ 1,293.66| $ 1,605.65| $1,987.48|

Threat of substitute products
Some key factors that go along with the threat of substitute products are buyer propensity to substitute, relative price performance of substitutes, buyer switching cost and perceived level of product differentiation. Clothing products between each competitor are substitute products that can satisfy similar customer needs, such as Target, Wal-Mart. The threat of substitute products therefore for clothing company is very real. To any firm to be success, companies should create value to their products. The value of the products therefore can better satisfy customer demands. With Gap Inc. having Old Navy, Gap, and Banana Republic stores, they had a large customer base by offered clothing for different age groups. And Gap reestablishes a larger group of brand loyalists with their “back to basics” simplistic style that consumers had known and loved. Bargaining Power of Suppliers

In apparel industry, the power of suppliers varies depending on the bargaining power of company itself. If the companies not rely on the suppliers, suppliers can’t be powerful. For example, the Gap’s suppliers have limited power as Gap purchases merchandise from approximately 790 vendors. The 2007 annual report stated that no suppliers supply more than 3 % of the...
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