Gap Pesti and SWOT Analysis
SCOPE
In this section, I am doing a PESTI and SWOT analysis of GAP Inc. The goal of a PESTI and SWOT analysis is to evaluate the performance of a firm by using their financial statements[footnoteRef:1]. In a PESTI and SWOT analysis you can determine the value of a firm by looking at its profitability and its growth. I will be using SWOT analysis and cash flow analysis to assess GAP's performance. After analyzing GAP I will forecast the next ten years based on our findings. [1: AmCham, Real Economy-Egypt. (Source: MoFT, January 2003 and Central Egyptian BankCEB, February 2002).]
I can either look at SWOT for GAP over several years to determine the success of the firm or I can compare the SWOT of GAP to other firms in the same industry. These SWOTs allow us to relate the financial numbers to the business reality. Looking at SWOTs for our firm over several years is called time series comparison. This allows us to hold some factors constant and determine the firm's strategy and how Ill they are implementing this strategy. If I compare the SWOT to other firms' PESTI I are doing a cross sectional comparison. This allows us to see how GAP compares to other firms in the same industry[footnoteRef:2]. This lets us determine in what areas they are lacking and what areas they are excelling in compared to firms in the same industry. [2: Cunningham, Michael: "ICT Skills Gap Analysis-Phase I." Partners for Competitive Egypt Project, December 2002.]
Finally after analyzing GAP's financial statements, I can forecast the future for the firm. It is important to forecast so I can determine the future of the firm and if the firm is currently undervalued or overvalued. I can use a number of methods to determine our forecasting values. You can average past performances of the firm and assume this past performance will continue. Sometimes this can provide inaccurate numbers. So values are mean-reverting, which means that over time they go back to the industry average.
Our PESTI and SWOT analysis and forecast of GAP should provide a clearer picture of the performance of GAP then just scanning their financial statement. This will allow us to determine the success that GAP has had in implementing strategies and gaining profitability and growth.
BACKGROUND
The Gap, Inc. operates as a specialty retailing company. The company offers clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, banana republic, Piperlime, and Athleta brand names. The company also franchises agreements with unaffiliated franchisees to operate Gap and banana republic stores worldwide. Gap Inc.'s net profit in 2010 was $1,102 million, an increase of 14% over 2009.
PESTI ANALYSIS
Political Factors
Apparel retail sales are driven by demographic trends. Changing fashion trends among women and teens result in short product life cycles. Age distribution, ethnicity, gender, and priorities force retailers to establish a narrow target market, stressing the importance of brand recognition.
Social Changes
The apparel retail industry leaders have developed diversified products and offer a variety of options to consumers to respond to the changing and unpredictable fashion trends. The current trend toward value-line clothing is shifting to more expensive lines as the economy recovers from the previous recession. There is also a shift toward "greener" initiatives. Companies are finding ways to reduce waste and manage sustainable energy consumption, exemplifying corporate social responsibility to add value to products. Health and Illness are another demographic trend, which is a driver behind athletic apparel.
Technology
Internet shopping has changed the retail business by making it easy to navigate between many brands, categories, and products quickly. Consumers can also quickly determine whether a desired product is being sold by a competitor for a lower price. When a consumer is confident they are receiving a product for the lowest price, the decision to purchase will be easier. I expect that the trend of consumers shifting to purchasing online will continue and online retail sales will grow by 10% in 2011 and maintain this growth through 2014.
International Forces
The Chinese retail market offers a large opportunity for growth. China's retail market grew at an annual rate of 17.3% during 2002-2009 and is expected to grow by 45% during 2010-2014. The industry is currently characterized by low globalization, allowing significant room to increase global market share. Additionally, as most of the raw materials for the apparel retail industry are imported, currency exchange rates also affect profit margins.
SWOT ANALYSIS
Strengths
Old Navy's position as a value-priced family apparel retailer allows...
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