Gap Inc. in the retail fashion industry: market share and competitive analysis

Gap is a major American retailer of casual apparel. This industry is mature, and highly fragmented. As such, the Gap and its competitors each have a relatively small market share. There are over 400 significant industry players (Global Industry Analysts, 2010). There are some generalizations, however, that can be made with respect to this market and Gap's position within the casual apparel market.

Overall, the casual apparel market in the United States is worth an estimated $195.6 billion as of 2007, with an annual growth rate of 3% (Business Wire, 2008). Given the economic slowdown, it is reasonable to assume that growth has stagnated since that point in time, so that the market is roughly the same size today as it was three years ago. The Gap's annual sales are approximately $14.195 billion (MSN Moneycentral, 2010), but 21% of that revenue is from outside North America. This leaves North American sales of $10.646 billion. Once estimates for Canadian sales are removed, Gap's estimated U.S. sales of $9.581 billion give it a market share of 4.89% in the United States (Townsend. The Gap is therefore one of the leading retailers of casual apparel in the country.

As the casual apparel market has stagnated, so too has the Gap's overall performance. The company has seen its sales decline every year since 2006, meaning that the Gap was losing sales even before the current economic crisis (MSN Moneycentral, 2010). In all of these years, the Gap has lost market share to its rivals. There are no specific U.S. figures for these years, but North American sales as a percentage of total sales has been steadily decreasing for years. The company is trying to rejuvenate U.S. sales by focusing on mobile and Web marketing, and has seen some increases in those sales, to over $1 billion worldwide (Townsend, 2010).

The Gap is a mainstream clothing retailer, without a defined focus. The company's brands include the Gap, Old Navy, Banana Republic, Piperlime and Athleta. These brands appeal to middle class consumers, and are offered at middle-of-the-road prices. If the industry was categorized on the basis of a diagram showing the tradeoff between price and style, Gap would skew slightly to the low price and low style quadrant.

Because the casual apparel industry is so fragmented, the Gap has a large number of competitors. Many of these competitors skew strongly to either the high fashion, high price or low fashion, low price quadrants and thus only compete loosely with the Gap. There are thousands of smaller mom-and-pop competitors in the industry, but they are not good points of comparison to the Gap specifically because of their limited scope. Among the remaining competitors are Aeropostale, American Apparel, J. Crew Group, TJX Companies (TJ Maxx, Winners, Marshalls, etc.), American Eagle, Nordstrom, Limited Brands, Urban Outfitters, Abercrombie & Fitch and Ross Stores (Yahoo! Finance, 2010).

Among these competitors, The Gap is one of the largest. The company has the largest market capitalization of any of its rivals at $11.88 billion, although many other competitors are in the billion-dollar class, both in terms of market cap and U.S. sales of casual apparel. The Gap's status as the largest of these reflects that the Gap is more international in scope, selling clothes in 80 countries worldwide. This gives it revenue streams that many of its competitors do not have.

Among the major competitors, the Gap's competitive position can be explained graphically in terms of two major factors in consumer buying decisions -- price and style. The Gap is taking steps to improve its style by increasing the speed at which clothes flow through the development pipeline, but this initiative will not come online until 2011 (Barrie, 2010). The graph showing the Gap's place within the industry is as follows:

This map indicates that the majority of competitors fall into a continuum that lies between the low end, cheap clothes at Wal-Mart and luxury apparel, primarily formalwear, men's suits and luxury brands. The Gap's prices are fair in relation to those their competitors, and their styling is fairly generic. Occupying this middle ground has generally been a strong strategic approach as it is has the company a place in the closet of millions of Americans. In recent years, however, it has lost market share to many of its more differentiated competitors, and to other categories of apparel in general.

The mature nature of the casual apparel industry implies that domestic growth is likely to be slow and stable over the coming years. The industry in general grows in line with the economy, but can be subject to stronger than average slumps, when compared with the S&P 500 Index. The Gap's performance closely mirrors that of the industry as a whole (Yahoo! Finance, 2010, 2).

The industry has a large size, and caters to virtually all Americans (at least those outside of the prison system). As such, the industry can be segmented in a number of ways. In general, gender is the primary line of segmentation as that impacts on design decisions. The industry is also segmented by season, by styling, by clothing items and by a wide variety of demographics and psychographics. Niche players appeal to only a few small segments, but mainstream retailers like the Gap and its competitors typically cater to a broad range of segments. The Gap targets both children and adults, but does not target senior citizens. The Gap's clothing has a basic, utilitarian appeal, which allows it to have some appeal to most consumers, and this lack of specificity is part of the company's marketing strategy. Many competitors specifically focus on large segments -- youth, female, male or families. The Gap targets all of these groups to some extent, and its marketing reflects a desire to appeal to a broad range of consumers, rather than a limited demographic. In particular, the use of multiple brands allows the Gap to reach the greatest number of customers.