Gap Inc. Value Chain Analysis

Value chain analysis is a strategic analytical tool that analyses the sources of value creation for businesses. Gap Inc. value chain analysis presented below critically analyses the most important primary and support activities that contribute to the competitive advantage of the apparel and accessories retailer.  The figure below illustrates the essence of value chain analysis.

gap-inc-value-chain-analysis

Gap Inc. Value chain analysis

Primary Activities

Inbound logistics

Gap Inc. inbound logistics involves purchasing from about 1,000 vendors that have factories in about 40 countries. During the fiscal year of 2015, approximately 99 percent of purchases, by dollar value, were from factories outside the United States, while the remaining 1 percent of all purchases were from domestic factories. Moreover, about 24 per cent of total purchases by dollar value during the same period were made from factories based in China.[1]

Due to the massive purchase volumes, economies of scale can be specified as the main sources of value creation for Gap Inc. Moreover, the company benefits from strategic, long-term relationships with its suppliers. In 2016, the company embraced supplier transparency practices disclosing the list of factories that produce its clothes around the world.[2]

Operations

GAP Inc. business operations are conducted in two formats[3]:

  1. Gap Inc. has company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and beginning in October 2015, Mexico.
  1. The company also has franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic, and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East, and Africa.

Gap Inc. has 3,721 company-operated and franchise store locations throughout the world. The company derives value in operations primary activities mainly through opening its stores in locations and shopping centers frequently attended by the representatives of the target customer segment.

 

Outbound logistics

Gap Inc. outbound logistics involves warehousing and distribution of products to the customers. Gap maintains a large part of its inventory in distribution centers. The company owns about 8.6 million square feet of distribution space in the following locations:[4]

  • Fresno, California;
  • Fishkill, New York;
  • Groveport, Ohio;
  • Gallatin, Tennessee;
  • Brampton, Ontario, Canada;
  • Rugby, England.

The company creates value in outbound logistics by leasing some parts of distribution space it owns to other companies as an additional source of revenue. Specifically, out of 8.6 million square feet of distribution space owned by Gap Inc. approximately 117,000 square feet is leased to and occupied by other businesses.[5]

Marketing and sales

Gap Inc. marketing and sales efforts involve utilization of various components of marketing communication mix such as print and media advertising, sales promotion, events and experiences, public relations and direct marketing.  The company’s advertising expenses equaled to USD 578 million, USD 639 million, and USD 637 million in fiscal 2015, 2014, and 2013, respectively.[6]

Gap’s sales and margins are highly fluctuating in nature. The volume of sales usually peak during the end-of-year holiday period. Over the past five years, the company’s reported gross margins have ranged from a high of 39.4 percent in fiscal 2012 to a low of 36.2 percent in fiscal 2015 and fiscal 2011. In addition, over the past five years, Gap’s reported operating margins have ranged from a high of 13.3 percent in fiscal 2013 to a low of 9.6 percent in fiscal 2015.[7]

Gap Inc. creates value in marketing and sales aspect of the business by providing online shoppers the opportunities of purchasing multiple brands within its portfolio into one shopping card. Additionally, brands within Gap Inc. portfolio are competent in effective utilization of point of sales marketing within stores.

Service

Service primary activities within value chain analysis refer after the sales service provisions provided by businesses. Gap Inc. has a competitive product return policy. Customers can return items bought at Gap, Old Navy and Banana Republic within 45 days of purchase and items purchased from Athleta may be returned at any time. Moreover, the company stays connected to its customers via multiple channels including e-mail communication, social media and text messaging.

Gap Inc. Report contains a detailed discussion of Gap Inc. Value Chain Analysis. The report also illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces and McKinsey 7S Model on Gap Inc.. Moreover, the report contains analysis of Gap Inc. marketing strategy, leadership and organizational structure and discusses the issues of corporate social responsibility.

gap-inc-report

[1] Annual Report (2015) GAP Inc

[2] Annual Report (2015) GAP Inc

[3] Annual Report (2015) GAP Inc.

[4] Annual Report (2015) GAP Inc.

[5] Annual Report (2015) GAP Inc.

[6] Annual Report (2015) GAP Inc.

[7] Annual Report (2015) GAP Inc.

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