Gap SWOT & PESTLE Analysis

Strength

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Weakness

1. Health and profitability of Gap and Banana Republic brands: The Gap and Banana Republic, which are the flagship brands of the company, have been consistently performing poorly for the past few years. Brands have recorded negative comparable sales since 2017. The Gap’s comparable sales reduced by 1% in 2017, 5% in 2018 and 7% in 2019. Similarly, Banana Republic recorded a negative growth of 2% in sales in comparable in the year 2017 and 2019. Both these brands were the major contributors in the overall decline of The Gap, Inc.’s comparable sales 3%, as well as a decrease of 1% in net sales. The major reason being cited for the poor performance of these brands is that these brands have become outdated and unable to keep up with the new trends in fashion. Customers don't seem to be attracted to the look of the stores and which makes them even less likely to make a purchase. This is especially the case with the Gap and some consultants are even suggesting to close its namesake stores and transit to an online only retailer brand.

2. Large amount of low-quality debt: Moody’s and S&P Global both have downgraded Gap’s credit risk rating BB- and Ba1 respectively. This especially happened after the company took a loan of $ 2.3 billion, after which the rating agencies placed the company in the speculative, or junk category. Although the company's debt-equity ratio is 0.37 it has a lot of other liability items in its balance sheet which downgrade the credit risk of the company. A lower credit rating means higher risk for the company, which means that financial institutions would be very off landing to the company. It also means that whatever earnings that the company the cruise right now would be used to playback the existing loans rather than invest in capital assets. The downgrading of the company's credit risk also means that the loan that the company has taken is speed utilized for low-return investments.

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Opportunity

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Threat

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Political

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Economic

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Social

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Technological

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Legal

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Environmental

1. Sustainable raw material sourcing as a trend: Consumers around the globe have become increasingly environment conscious, and this consciousness has circulated down to the companies. According to a McKinsey report, executives are strongly demanding sustainable sourcing at scale as a must have in their kitty. According to the executives interviewed by McKinsey, sustainability needs to be woven as an integral part of the company fabric. It needs to be included as a social purpose of the company, and companies need to set stricter targets for themselves in sustainable sourcing. Since 2016, Gap Inc has been a part of BCI (Better Cotton Initiative), which is the largest sustainable cotton program in the world. Gap was ranked fourth by BCI in 2019 among the top companies sourcing sustainably sourced cotton. By 2021, the company has set its target to become a company sourcing hundred percent sustainable cotton.

2. Apparel manufacturing heavily water intensive process: With each passing day water is increasingly becoming a scarce resource. Depending on the country, water is either short in availability, or there is a lack of access to water due to inadequate infrastructure. The growth rate of water use has been twice the growth rate of population since the last century coma and it is the reason that many countries are at the limits to provide adequate supply of water. Water stress has not reached at a global scale till now till now but individual countries must take preemptive measures to conserve water as much as possible. Consequently, corporations must take the onus on their shoulders since a large part of the water which goes to waste is a result of their actions. Apparel manufacturing as an industry is especially heavily water intensive. As consumers are becoming aware of the processes involved in the manufacturing of their clothes, they are becoming more sensitive towards the environment and switching to two more sustainable clothing. to retain existing customers, companies like Gap will have to come up with innovations which show that they are committed to sustainable production. The Gap has done the same, and committed itself to work only with those suppliers Who help the company in saving at least 10 million litres of water by 2020.