| Assignment2: GAP INC

1. 5-forces analysis reveal about the strength of competition in the US family clothing stores industry:-
US apparel industry is segmented based on gender, age, size and price considerations. Most of the clothing industries focus on women’s segment, because their clothing has a major market value of 50 % and the remaining 50% is shared by men’s wear (37%) and children’s wear (13%).Other than this market share is divided by price point.65 percent of market share is value price clothing industry, other 35 per cent is occupied by higher price items. With the help of 5 force analysis we will study the US family clothing industries competition in detail. i. Threat of rivals
As per the above conditions we can say that US clothing industry is highly fragmented. In this market there are many small firms which are fighting to improve their market share along with customer base to have higher margins. However, the four largest (Gap, TJX, A & F, Ross) national chains acquired 39.4% of US market share. In this atmosphere every firm is offering discounts to compete with the discount retailers, because of this the profit margins are becoming thinner. Other than this firms need to customize their designs with regular intervals as per fashion and should be up to date to capture the customer attention and satisfaction. ii. Threat of new entrants. Because of high competition existing firm’s laid new methods for cost cut down and established easy availability of resources. Due to this entry cost became low and there is no need to spend much on R &D initially. For this reason the entry barriers are narrowed and it is easy to enter into the market, but it is very hard to have sustainable growth in the long run and it is difficult to establish a distinct brand name among competitors.

iii. Threat of substitution products or services In this heavy competition every firm is offering wide variety of products like casuals, sports, formals, business apparels and so on, because of this people have their own choice of clothing. To attain customer attention in this competitive atmosphere retailers are offering apparels at low prices also. Through this consideration we can conclude that there are many substitutes available in the apparel industry as per customer choice and price. iv. Bargaining Power of Buyer: As there are many substitutes available for customers as per their budget and choice in this industry. Huge varieties of apparels are coming in to market frequently with easy availability. Since the buyer has a choice to shop around and select the clothes as per requirement. So, the firms need to strive hard to maintain the customer with them. Hence we can decide that the buyer has high bargaining power. v. Bargaining Power of suppliers: In this industry many resources are available for low production and the management of these industries focuses on developing countries for low wages and easy availability of raw materials. There are many vendors who supply materials as per the firm requirement. In case of Gap, it has limited the supplier’s power. It clearly stated in its annual report that no vendor is to supply the raw material more than 3 % of the company’s demand. This is the strength of Gap to set the target price to vendors and attain low operational cost. 2. Competitive strength assessment of the 4 major competitors:-
The methodology used for competitive strength assessment is an easy to use method. The advantage of this method is quantitative strength ratings of the firms with its key competitors in terms of resources and capabilities. Value chain analysis and benchmarking will expose whether the organization is having competitive advantage over its rivals or not with its individual resources.
This methodology consists of six steps to evaluate which firm is stronger and weaker among the competitors.
Step 1: - Need to list the industries key competitive factors or most telling measures in point strength and weakness. These measures should be at least 6 to 10.
Step 2: - Assign the weight to measures based on their importance. The highest weight could be 0.75 and lowest could be 0.20 with two or three strength measures. If the measures are more than that, then the lowest weight could be 0.05 0r 0.1ing0 and the relative cost should have highest rating (0.20 to 0.30). But the sum of all weights should be 1.
Step 3: - Rate the measures according to firm’s importance. Most preferred method for rating is from 1 to 10 (1= low & 10 = high).
Step 4: - The ratings need to multiply with the measured weights, which are assigned in Step 1.After multiplication we will get the scores of each measure with respect to the company.
Step 5: - Sum the scores of each firm and set the overall weighted competitive strength.
Step 6:- By using the overall strength rating we can conclud about the status of the firms i.e. which one is strongest and weakest among them.
Based on this we can conclude advantages and disadvantages of the firm and make a note of areas, strength and weakness.
With the help of same methodology I did analysis of 4 competitors of US family clothing store industry. COMPETITIVE STRENGTH ASSESSMENT | Rating Scale: 1 = very low ; 10 = very strong | | GAP | TJX | Ross Stores | A & F | Key Success Factors/Strength Measure | Importance Weight | Strength Rating | Weighted Score | Strength Rating | Weighted Score | Strength Rating | Weighted Score | Strength Rating | Weighted Score | | | | | | | | | | | Quality/Product Performance | 0.15 | 8 | 1.2 | 9 | 1.35 | 8 | 1.2 | 8 | 1.2 | Reputation /Image | 0.10 | 8 | 0.8 | 9 | 0.9 | 7 | 0.7 | 7 | 0.7 | Technological Skills | 0.10 | 8 | 0.8 | 9 | 0.9 | 8 | 0.8 | 7 | 0.7 | Dealer Network/Distribution | 0.10 | 8 | 0.8 | 8 | 0.8 | 7 | 0.7 | 6 | 0.6 | New Product Innovation Capability | 0.10 | 8 | 0.8 | 9 | 0.9 | 8 | 0.8 | 7 | 0.7 | Manufacturing Capabilities | 0.05 | 9 | 0.45 | 8 | 0.4 | 6 | 0.3 | 5 | 0.25 | Financial Resources | 0.10 | 9 | 0.9 | 8 | 0.8 | 7 | 0.7 | 5 | 0.5 | Relative Cost Position | 0.20 | 7 | 1.4 | 6 | 1.2 | 6 | 1.2 | 9 | 1.8 | Customer Service capabilities | 0.05 | 8 | 0.4 | 8 | 0.4 | 7 | 0.35 | 5 | 0.25 | Corporate Social Responsibility | 0.05 | 6 | 0.3 | 5 | 0.25 | 5 | 0.25 | 4 | 0.2 | Sum Of Importance Weights | 1.00 | | | | | | | | | Overall weighted Competitive strength rating | 7.85 | | 7.90 | | 7.00 | | 6.90 | | | | | | | | |

Note: - The above mentioned data is as per my knowledge, it is not authenticated.

In the above assessment we compared the rivals factor by factor, by this we can know where the rivals are stronger and weaker. Moreover the overall competitive strength rating indicates the positions and competitive advantages of rival’s scores. Other than this the strength rating provides the offensive and defensive strategies among the competitors.
The four rivals captured 39.4 % of US clothing market share. If we go in detail, TJX has 13.4 % share when compared to the year 2006 its graph increased by 2.1%.Gap has 15 % share, but it has a declined graph of 3.6 % when compared with year 2006.Ross store has 6.9% share, it is also increased its share from 4 % and A & F had captured 4.1 % of share compared to the year 2006.
As per the above analysis Gap needs to increase its focus on quality, technical skills and reputation building, otherwise the rivals Ross stores and A& F are almost close. In case gap could recover its position in weak areas it will lose its second position and it can’t reach TJX also. If Gap will develop its quality and new product innovation then it can rule the US market forever. Ross store and A& F almost have equal strengths, but A & F focuses only on premium price market and Ross store focuses on off pricing market. On the whole relative cost as the highest weight plays an important role in the market share. As A & F belongs to the premium price market its weight is highest compared to others.
From this competitive strength analysis, we can conclude that the strongest company in the competition is TJX because it has the highest score (7.90) of the competitive strength, and lowest score is 6.90 of A & F which is at the last position. As per my understanding all have at most equal competence, but they need focus more on weaker areas to improve themselves and to stay in competition.