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UNIVERSITY OF ECONOMICS AND LAW VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY CASE STUDY Predicting Consumer Tastes with Big Data at GAP Class: Digital transformation and artificial intelligence Lecturer: Nguyen The Dai Nghia Class code: 222MI5216 Group members: Name Student code Mission Evaluation 1 Than Pham Anh Duy K214020172 Leader 100% 2 Nguyen Quang Dat K214020174 Member 100% 3 Nguyen Ngoc Thao Nguyen K214020180 Member 100% 4 Nguyen Quang Phat K214020181 Member 100% 5 Le Phuong Thao K214020183 Member 100% TABLE OF CONTENT I GAP Incorporated .2 II Objectives 1 Eliminating creative directors to take full advantage of Big Data 2 2 Dissolving the barrier between the physical and digital channels 3 III Key issues 1 Difficulty in evaluating the current tastes of customers and meeting their demands 3 2 Slow growth in core market 3 3 Competition 3 4 Rise of E-commerse .4 5 Rise of fast fashion .5 6 Heavy and frequent discounting 5 7 The transformation from asset to liability of GAP’s size and ubiquity 6 IV Evaluation 1 Big data in, creative director out 6 1.1 Strengths 6 1.2 Weaknesses .7 2 Product 3.0 at GAP 7 1.1 Strengths 7 1.2 Weaknesses .8 3 Shifting the distribution model by selling products on Amazon .8 1.1 Strengths .8 1.2 Weaknesses 8 V Recommendations 1 Market analysis 9 1.1 SWOT .9 1.2 Porter’s five forces model 9 2 Recommendations 10 1.1 Applying big data 10 1.2 E-commerce 11 VI Implementation 1 Timeline 11 2 Resources estimation 12 3 Contingencies 12 4 Risk mitigation 12 VII Conclusion .12 VIII Trello observation and progress .12 1 PREDICTING CONSUMER TASTES WITH BIG DATA AT GAP I/ GAP Incorporated GAP Inc., headquartered in San Francisco, California, was founded in 1969 by Donald and Doris Fisher; Robert Fisher, their son, officially became the chairman of the board in 2017 As a pioneer of specialty retailing, this company chose to specialize in a particular product category instead of offering a wide assortment and producing its own private-label merchandise In that day and age, GAP remained the largest in its industry, with 135,000 employees and 3,659 company-owned or franchised stores in 50 countries, covering approximately 36.7 million square feet of selling space, generating $15.5 billion in global sales GAP had historically been the authority on American casual style, simultaneously managing five brands: GAP, Banana Republic, Old Navy, Athleta, and Intermix A wide variety of casual, classic, clean, comfortable basics were available at affordable prices from GAP, including jeans, khakis, button-down shirts, and pocket tees Some remarkable milestones of GAP Inc include: 21/8/1969: Fisher opened the first GAP store near City College on Ocean Avenue in Ingleside, San Francisco 1983: With the acquisition of Banana Republic, GAP Inc entered a higher quality/price tier by combining detailed craftsmanship to attain more expensive price points and meet the demands of higher-income consumers At the same time, Millard “Mickey” Drexler - a visionary executive - became the CEO and made sales grow from $480 million to $14 billion in 2000 as well as pushed GAP’s market cap to $42 billion 1994: GAP Inc created Old Navy - a new brand that ushered in a period during which it became chic for consumers of all income brackets With “wardrobe must-haves” at “incredible prices”, Old Navy soon became the first to reach $1 billion in annual sales within four years of its launch 2002: Drexler lost his magic touch and left GAP Inc in the wake of eight consecutive quarters of declining sales 2008: Athleta, a women’s fitness apparel brand, shifted women’s fashion from a jeans-based foundation to activewear 2012: Intermix, a multi-brand retailer of luxury and contemporary women’s apparel, offered the “most sought-after styles” from a carefully curated selection of “coveted designers.” 2015: Art Peck took over as CEO with a desire to replace the creative director for each of the firm’s fashion brands by a more collective creative ecosystem fueled by the input of big data II/ OBJECTIVES 1 Eliminating creative directors to take full advantage of Big Data In January 2017, Art Peck was struggling to turn around GAP Inc following two years of declining sales in an environment where many brick-and-mortar retailers were under pressure The reason was assumed to stem from relying on a single person’s artistic vision rather than market research, which left no mark on boosting sales Labeling creative directors as “false messiahs”, Peck had upset the delicate balance between creativity and 2 commercialization by eliminating creative directors to take full advantage of Big Data, leading to the revival of GAP Inc fashion positions for many decades 2 Dissolving the barrier between the physical and digital channels To accommodate consumers' transition to multichannel buying, Art Peck extensively invested in digital capabilities, putting a focus on removing the barrier between the physical and digital channels He advocated data-driven decision-making and encouraged his team to use big data to closely comprehend more about consumers' activities and provide a better customer experience Particularly, selling GAP products on Amazon could provide Peck and his managers with access to a whole new data stream, allowing them to gain knowledge about the purchasing patterns of current customers when they weren't making purchases through the company's own digital platforms or in-person It could also give them access to new customers who weren't previously attracted by the company's distribution efforts With this method, GAP Inc.’s online sales remarkably exceeded $2.5 billion by the year of 2017 after witnessing the decline in financial performance between 2015 and 2016 III/ KEY ISSUES: 1 Difficulty in evaluating the current tastes of customers and meeting their demands What was in and out of fashion was constantly changing as people naturally yearned for newness when yesterday’s fashion had become commonplace or outdated As soon as the fashion trend broadly permeated society, people would find it no longer outstanding anymore This phenomena had pushed many tastemakers to constantly sweep the culture for the latest ideas and inspirations Notwithstanding, GAP Inc failed to predict the customer preferences that its creative directors had relied more on their personal style in lieu of sensing or doing market research Taking Rebekka Bay as an example illustrated that her design aesthetic, created through her gut, resulted in the inconsistency with GAP’s optimistic brand Consequently, GAP was also unable to establish a consistent look over a period of time and reinforce a brand’s purpose 2 Slow growth in core markets GAP Inc competed in the $3 trillion global apparel industry, which marked 2% of the world’s gross domestic product (GDP) The U.S and Canadian markets accounted for over $340 billion and were expected to grow annually by 2% through 2025 These two markets accounted for 84% of GAP’s sales However, millennials were spending less on apparel This triggered the plan of closing 175 of its 675 GAP stores in North America as the brand was at the sea to turn around a business mired in a long sales slump Speaking to investors at a retail conference, Peck claimed that “there are no compelling [fashion] trends driving the business” and that there had been a shift in consumers’ buying habits by lacking the need to replenish their closets 3 Competition The mid-tier apparel landscape was fragmented and overcrowded, from classic to trendy, or from thrifty to pricey A variety of stores like Zara or H&M continuously launched new products to match fashion trends, to be seasonal or to satisfy the needs of customers 3 Figure 1: GAP Inc.’s Competitive Landscape 4 Rise of E-commerce In the United States, clothing became the best-selling online sales category, driven by the increasing strength in apparel in 2015, and 2016 was the year witnessing 19% of apparel which was sold through omni channels This proved that consumers were shifting their purchasing from brick-and-mortar stores to online media For instance, Amazon, the world’s largest multi-line and multi-brand Internet-based retailer, was on track to become the largest seller of apparel in the U.S by the end of 2017 Without any exception, GAP Inc.’s online sales noticeably exceeded $2.5 billion in this period of time Observing the massive acceleration of E-commerce, there was a redundancy of offline retailers that were about to face pressure to close locations Hence, GAP Inc had to figure out many efficient ways to balance between physical stores and online channels 4 5 Rise of Fast Fashion Unlike some competitors like H&M and Zara, whose low-priced products were knocked off from luxury fashion runways within weeks of their unveilings, GAP lagged those competitors behind by delivering products with an average product cycle time of 10 months to stores within four weeks due to their consumer-responsive and decentralized buying process This action allowed individual stores to order small batches of products, then wait to see how consumers responded to it, and finally airlift additional products to backfill the store’s inventory within days Nevertheless, in a constantly renewing fashion cycle, the speed and pace of the fashion cycle were dizzying, with new styles appearing in stores on a weekly basis It required GAP to keep on looking forward to tomorrow's fashion trends without being left behind Figure 2: Brand Consideration among Millennial Consumers 6 Heavy and frequent discounting Clothing was increasingly commoditized as consumers treated the lowest-priced garments as nearly disposable, yielding a need for low prices and heavy discounting Retail analysts were concerned about an overabundance of price promotions at GAP, where 40% discounts were common GAP was under the question of how to maintain and maximize the profit when continuously discounted the products for customers 5 Document continues below Discover more fDriogmita: l Transformation and AI MI2255 Trường Đại học… 12 documents Go to course [222MI5211] Group 8 Sign Language AIMi… 15 None Final Project about NEWA GROUP 19 None Chuyển đổi số 27 Chuyển 100% (2) đổi số và… AI Application - hay lắm coi đuy 13 Chuyển 100% (1) đổi số và… Trading HUB 3 36 Xác suất 96% (28) thống kê File giáo trình bản pdf HSK 2 100% (11) 8 Giáo trình chủ nghĩ… Figure 3: GAP Inc.’s Brand Representative Designs 7 The transformation from asset to liability of GAP’s size and ubiquity On account of offering classic styles, customers had a tendency to forge a more unique and modern identity IV/ EVALUATION 1 Big Data In, Creative Directors Out Improving running by eliminating the position of creative directors for each of the firm’s brand and replacing them with a more collective and collaborative team proceeding by the input of data 1.1 Strengths GAP’s decision making is not dominated by the individual decision maker In reality, not all fashion trends are completely accepted by everyone, specifically, creative directors stated that this kind of product was in fashion but consumers didn’t feel so Utilizing big data has more chances to learn more about the customer’s behaviors and taste Hence, we can create more products and access to more customers Listen to customers This approach was based on aggregate data from users, or a user’s purchase history, actually gathered through their reviews on social media or online shopping platforms As a result, GAP was able to identify client’s needs and upgrade customer care service, simultaneously 6 The future path of the company will not depend on any individual, declining the dependence on the workforce In the past, a core leader of an enterprise stepped down, instead of immediately finding another suitable replacement and having a fear of activities being delayed, the application and adaptation technology will rapidly resolve these issues 1.2 Weaknesses The crucial role of creative directors is inconvertible Many creative directors with top - notch design were tastemakers, trained in design and using their sensitive sense according to their incredible eye, personality to shape the look, feel, tone, and spirit of future’s fashion In addition, creative directors were the visionaries of the brand as well as guardians who took charge in its image and provided inspiration and wellspring of ideas for subordinates Big Data cannot produce products that match the vision and mission of the company Big data simply analyzes data from social media sites and develops algorithm-driven protocols to customize preferring characteristics or features of customers to create a new product that reaches maximum satisfaction Meanwhile, creative directors will concentrate on the vision and target of the company to create product lines matching with them With a distinct point of view generated from creative directors who will be visionaries, ensure that all the next steps of the business will serve that common direction Big data can find out new fashion trends but cannot bring creativity to a fashion brand A customer’s individual taste develops under the social influences including the tastes or fashion of others around them Consequently, the deviation in the fashion industry appears Changes in fashion occur naturally as people relied entirely on Big data will yield inaccurate and inaccurate predictions due to the fact that consumers are constantly changing their tastes and preferences crave for newness when yesterday's fashion turns out boring or out of date The data that has been gathered will not be effectively utilized without the assistance of knowledgeable creative directors An expert will be aware of which metrics are helpful and which are not Additionally, they employ their knowledge to utilize that data in the most efficient and practical manner 2 Product 3.0 at GAP 2.1 Strengths Product 3.0 relied heavily on the analysis of customer purchase data deeply comprehend the psychology of customer’s behavior GAP gathers client information, evaluates, and filters products, bringing to market the ones that best meet consumer wants and preferences Gradually switch to fast fashion on customer purchasing for numerous categories Peck has moved some manufacturing from Asia to the Caribbean for quicker deliveries He set up the fabric platform, bought the fabric in large quantities, and kept it on hand so he could swiftly produce designs that followed the latest fashions GAP has become much more responsive to information on customer purchasing for numerous categories Combining spotting trends with reading real-time performance and acting faster on that Using e-commerce purchase data to move forward rapidly so as to release to the market products which are able to meet customer’s requirements the most promptly 7 Figure 4: GAP Brand’s Design Process 2.2 Weaknesses - Data collection such as surveys, interviews were often insufficient or inaccurate - Data science simply isn’t complicated enough to predict any customer’s taste or demand 3 Shifting the distribution model by selling products on Amazon 3.1 Strengths Development of E-commerce: Consumers are shifting their purchases from brick-and- mortar stores to online channels In the United States, apparel was sold online in 2016 at a rate of 19%, and in 2015, clothing became the top online sales category driven by Amazon's increasing strength in the garment market By the end of 2017, Amazon, the biggest multi- line, multi-brand online retailer in the world, was expected to overtake other retailers as the top U.S seller of clothing Brands no longer required the same number of storefronts as internet sales increased GAP has more than 3,000 physical stores and is facing a drop in sales due to a traditional retail model, struggling to regain its footing in the 2000s In 2016, 55% of people Online shoppers started searching for their products on Amazon Amazon now offers more than 350 million different products on its platform, about 10% of which are in the apparel category As of 2017, online sales of GAP Inc have exceeded 2.5 billion dollars That is the evidence for expanding on the online selling model GAP used heavy and frequent discounting, customers have a fear of being judged discriminated against when being caught buying discounted goods When shopping for discounts online at e-commerce platforms as well as Amazon, customers do not seem to suffer any "discrimination" like when they shop for discounts at a brick-and-mortar store 3.2 Weaknesses - 80% of GAP Inc customers still preferred to visit a store to try on the clothes 8 - Amazon traditionally charged its third-party sellers a commission rate of 15%; however, given its size and brand strength, GAP might be able to negotiate a lower fee V/ RECOMMENDATIONS Weakness 1 Market analysis - GAP size and ubiquity made it become 1.1 SWOT casual in some customers’ eyes Strengths - Heavy discounts (up to 40%) can have a - GAP is one of the few retailers that has reverse psychology effect that results in more resources than competitors to the less sales point where it’s possible to create many - Heavy reliance on many brick-and- latest trends mortar retailers - A global institution with many brands - Hesitant to changes (adapt to the digital ranging from casual to fashion oriented shopping) clothing - Slower production cycle time than - Many familiar brands that have a large competitors and loyal customer base - Old Navy (one of GAP’s brands) is still considered to be very popular, even to millennials Opportunities Threats - The surge of ecommerce platforms and - Lack of compelling trends digitized shopping - Customers change in buying habits (less - Customers attach to phones and online spending overall) shopping is increasing at astonishing pace - Many powerful retailers have formed - Huge number of physical stores offer with strong digital backgrounds and strong ability for customers to try clothes cheaper logistic costs (H&M, Zara) that - GAP’s ability to collaborate with huge attract lots of younger generations online platforms with cheaper fees customers 1.2 Porter’s Five Forces Model New entrants threat in industry: The risk of new entrants to the retailers market that utilize big data is deemed to be low, due to the bigger existing brands that can already have well-established data systems to control the market This data focus market is extremely fierce and the competition among the competitors is already very high, which causes countless difficulties for the new incomers to the market It requires huge initial costs as well as thorough research to penetrate the market High marketing costs and strong supply chain networks have really reduced the power of the threat from new entrants Power of buyers: The bargaining power of the buyers is considered to be high (discounts historically up to 40%) Customers at GAP can have the product options ranging from casual to more fashioned With the help of data analysis, customers can buy more delicate products at lower costs, which moderates the intensity of the bargaining power of the buyer Power of suppliers: The bargaining power of suppliers is that the manufacturer is entirely dependent upon the suppliers for raw material, and the quality of product being provided is 9 dependent on the suppliers Furthermore, there is not any replacement offered in the market to provide materials, which is another reason behind the small amounts of the provider's bargaining power Threat of existing substitutes: The danger of replacement is extremely high in the industry The main reason behind the high threat of alternatives is due to low differentiation among the products even inside of GAP as well as other competitors’ Moreover, there is no expense or lack of disadvantages of switching up a buyer, which is another factor that increases the availability of replacements Competition in the industry: Fashion brands are always competing with each other to launch new products continuously to match fashion trends, to be seasonal or to match the needs of customers Many institutions that have strong databases and low production cycles take significant market shares 2 Recommendations 2.1 Applying big data Recommended solution : Applying big data into manufacturing and products’ strategy but only demoting the power of creative directors- not fire them Issues addressing: Difficulty in evaluating the current tastes of customers and meeting their demands, slow growth in core market While decentralizing the power of creative directors and pushing the use of big data is a great option, completely removing them can be less effective than still having some guidelines The following are the pros and cons of maintaining big data and creative directors simultaneously - Pros: The role of creative directors is irreplaceable Because creative directors are artistic visionaries and they establish the feel, look & tone of the brand From the materials they have established, low-level designers will create products and related materials based on it They will be the one who can and is able to create uniqueness for the product Combining this with the power of applying big data, analytics can predict the trends, preferences and “taste” of customers Therefore, creative directors can use this customers' data with their experiences and modify their creations and products to increase the velocity of catching up with trends Meanwhile, they can always rely solely on data to maximize effectiveness of pumping out suitable products Moreover, they can continue creating their own unique fashion ideas and have the chance to create new trends themselves - Cons: Big Data can help find new fashion trends but cannot bring out the creativity that a fashion brand must have And big data can also lead to bias in the fashion industry Merely analyzing data to find trends cannot completely replace the creativity and innovation that people can bring because it only follows an individual in consumer behavior Meanwhile if the company depends on creative directors, it still has the initial problems of depending on labor By combining both of these problems, it can be compounded and lead to more serious matters The cost of maintaining both of them is also nerve-racking 2.2 E-commerce Recommended solution: Cooperate with an e-commerce omni channel website (Amazon) while building an online website of GAP 10 Issue addressing: Competition, rise of e-commerce, rise of fast-fashion, heavy and frequent discounting, the transformation from asset to liability of GAP’s size and ubiquity Nowadays, online shopping has become a staple among customers, adapting online retailing methods is seen as a must in order to survive in today’s competitive market The pros and cons of adopting e-commerce are as follows: - Pros: Consumers have changed their preferences of their purchases from brick-and-mortar stores to online channels In the United States, 19% of apparel was sold through online channels in 2016, and in 2015 clothing became the best-selling online category, thanks to Amazon's growing strength in the clothing sector As online sales grow, brands don't need as many storefronts Empty stores lie in many shopping malls, as both specialty retailers and department stores face pressure to close locations GAP has more than 3,000 physical stores while facing a decline in sales due to the traditional retail model, and is struggling to regain its position in the 2000s While the company's website typically offers an entire product assortment, each brick-and-mortar store, with an average size of 10,000 square feet, is limited somewhat by space constraints and offers a diverse set of products Due to the limited space of brick-and-mortar stores, the online brand is a good choice for GAP to introduce the entire product range - Cons: While GAP could boost sales through Amazon in the short term, it has a significantly high risk to become a strategic mistake: Amazon would use sales data to improve its own apparel inventory and sabotage GAP’s, when GAP will dilute its brand and lose direct relationship with customers Moreover, 80% of consumers still prefer to go to the store to try on clothes Consumers can also jump to different varieties of products on Amazon, so they can lose focus on the GAP brand when shopping Revenue wise, Amazon charges many third-party sellers at least 15%, therefore GAP’s money stream can be worn out by Amazon In a nutshell, GAP can collaborate with Amazon to pull in customers and adapt to an online retailer nature, while developing its own e-commerce platform to reduce third-party costs and fees Having an independent website can improve customer behavior trackings and provide better coupons/ discounting systems to retain more customers VI/ IMPLEMENTATION 1 Timeline Peck’s strategy: Big Data in, Creative directors out - The first 2 years of being CEO - When Peck was appointed as president of GAP North America in 2011: + Fire GAP’s head of design creative director Patrick Robinson , then hired Rebekka Bay in 2012 - When Peck transited into CEO in 2015: + Eliminated the position of creative director, spread the responsibility to a collaborative team, informed by hard data, formulized his approach called Product 3.0 - Peck use Big Data and Predictive Analytics in Marketing: + Use customer purchase data and use Google Analytics data as a source of inspiration + Shifted some manufacturing from Asia to Caribbean to receive item faster + Implemented fabric platforming, buying large quantities of fabric + Cut television marketing and store-window merchandising 11 + Invest in digital platform + Tighten inventory + Consider cooperate with Amazon 2 Resources estimation There are 3 resources : budget, technology and partnership Among that, budget is one the most important factor to attract and build customers' trust came from high quality products 3 Contingencies Implementing fabric platforming, buying large quantities of fabric and holding it in inventory so that designs could be quickly created in response to of-the-moment trends Shortening the time it took for items to go from design to stores and postponed making the final decision on orders until he could incorporate the most recent data trends from limited-quantity early releases designed to test the waters Cutting the development cycle down to 8-10 weeks in some categories enabled GAP to be much more nimble and responsive to consumer purchasing data 4 Risk mitigation - Risk related to company’s interval: + Replaced creative director, strengthen the company’s foundation - Risk related to supply chain: + Develop comprehensive understanding of current supply chain risks + Build clear strategies to mitigate risks and align with business stakeholders on any business implications + Project manage operationalization of risk mitigation plans inclusive of COO shifts - Risk related to Brand Relevance and Brand Execution: + We must successfully gauge apparel trends and changing consumer preferences to succeed + We must maintain our reputation and brand image - Risks Related to Strategic Transactions and Investments: + Further develop an omni-channel shopping experience for our customers through the integration of our store and digital shopping channels VII/ CONCLUSION GAP’s inability to adapt to the ever-changing fashion trends, marketing trends and multimedia channels has severely affected its competitiveness, resulting in the reduction of sales However, by utilizing digital transformation, the situation can be greatly improved The business could consider applying big data analysis, along with e-commerce omni channels We believe that this will give GAP the flexibility to trends they are lacking as well as expand their market by a huge margin VIII/ TRELLO OBSERVATION AND PROGRESS 12 13 14 More from: Digital Transformation and AI MI2255 Trường Đại học Kin… 12 documents Go 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