Gap in Strategic Management Analysis of Gap Inc

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Strengths
Large network of physical stores
Gap, the company, has a large network of physical locations. At the beginning of February 2008, the company had 3,167 stores, including 1,249 in the US and 1,918 in international locations such as Canada, the UK, France and Japan. Gap has also entered franchise agreements to operate Gap stores or Gap and Banana Republic stores in Singapore, Malaysia, United Arab Emirates, Kuwait, Qatar, Bahrain, Oman, Indonesia, and Korea. Comparatively, Gap’s competitor, Abercrombie & Fitch Co, operated 1,035 stores in the US, Canada and the UK. Another competitor, Aeropostale merchandise operates 828 stores. Gap’s large physical network of stores enhances the company's sales penetration and gives it a competitive advantage.

Building financial strength
Gap’s cash flow from operations reported a significant growth in FY2008. The net cash provided by the operating activities increased by 66% from $1,250 million in FY2007 to $2,081 million in FY2008. The company’s operating margins increased from 7.69% in 2007 to 8.34% in 2008. The strong cash position would boost the company’s dividends. Unlike Gap, its competitors recorded a decrease in net cash from operating activities. For instance, Aeropostale’s cash flow from operations decreased from $177.4 million in FY2007 to $171.08 in FY2008. Similarly, American Eagle Outfitters’ cash flow from operations decreased from $749.3 million in FY2007 to $464.3 million in FY2008. Gap’s strong cash position provides the company with a strong financial base to pursue its expansion plans. Strong financial leverage

Gap is financially leveraged to a significant extent. The company’s long-term debt to shareholders equity ratio was 1.27 in FY2008 compared to 3.63 in 2007. This is primarily due to a decrease in long term debt in recent years. The company’s long term debt has been reduced at a CAGR of 70% during 2005¬¬–08 from $1,886 million in 2005 to $50 million in 2008. The company’s capability of...
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