Case studypredicting consumer tastes with big data at gap

Eliminating creative directors to take full advantageof Big Data ...22.. 2008: Athleta, a women’s fitness apparel brand, shifted women’s fashion froma jeans-based foundation to activewea

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:

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

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

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

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

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

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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

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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

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