case study analysis report predicting consumer taste with big data at gap inc

The strategy of “Big Data in, Creative Directors out” aims to replace the position of creative director, move to use the data obtained from Big Data, collect consumer data through tools

Semester 3/2022 - 2023 Course: Digital Transformation and Artificial Intelligence CASE STUDY ANALYSIS REPORT PREDICTING CONSUMER TASTE WITH BIG DATA

AT GAP INC Instructor: Nguyễn Thế Đại Nghĩa

Course code: 225MI5211

GROUP 7 LIST OF MEMBERS:

Ho Chi Minh City, 7/2023

a Executive leadership updates 11

b Fourth Quarter Fiscal 2022 Financial Results– 13

Gap Inc is a global retail company that operates a portfolio of well-known brands, including Gap, Banana Republic, Old Navy, Athleta, and Intermix Founded in 1969 by Donald Fisher and Doris F Fisher, Gap Inc has grown to become one of the largest specialty retailers in the world

Gap Inc has built a strong presence both online and offline, with its products being sold through e-commerce platforms and over 3,000 stores worldwide The company has a significant global footprint, with operations in North America, Europe, Asia, and other regions

Over the years, Gap Inc has faced challenges in the ever-evolving retail landscape, including increased competition and changing consumer preferences However, the company continues to adapt and innovate to meet the demands of its diverse customer base, including implementing digital transformation and artificial intelligence

Overall, these initiatives empower Gap Inc to enhance performance, customer satisfaction, and competitiveness in the retail sector

B OBJECTIVE  Using predictive analytics to sell existing products;  Using predictive analytics for new product development;  Predicting consumer preferences;

 Shifting the distribution model;  Looking ahead to the future;

Create new growth opportunities:

1 Replace the position of creative director for each the firm fashion brands with a more collective creative ecosystem; Selling GAPS‘ products on Amazon could open up a whole new data stream to Peek and his managers, providing insight into shopping habits of existing consumers when they were not shopping on digital storefronts, retail stores or the company’s own digital platforms Therefore, GAPS can be provided access to new customers not currently attracted by the company’s distribution efforts

2 Address consumers’ shift to omnichannel shopping, focus on dissolving the wall between the physical and digital channels

3 Deliver a better customer experience

C KEY ISSUES TO TACKLE

1 Slow growth in core market

Gap Inc competed in the $3 trillion global apparel industry, which accounted for 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 Millennials were spending less on apparel Speaking to investors at a retail conference, Peck claimed that “there are no compelling [fashion] trends driving the business” and lamented that there had been a change in consumers’ buying habits such that there was a lack of need to replenish their closets

2 Competition

The mid-tier apparel landscape was fragmented and overcrowded

3 Rise of e-commerce

Consumers were shifting their purchasing from brick-and-mortar stores to online channels In the U.S., 19% of apparel was sold through online channels in 2016, and in 2015 clothing became the best-selling online sales category, driven by Amazon’s increasing strength in apparel Amazon, the world’s largest multi-line, multi-brand Internet-based retailer, was on track to become the largest seller of apparel in the U.S by the end of 2017 As online sales grew, brands did not need the same number of storefronts Empty stores lined the American shopping malls, as both specialty retailers and department stores simultaneously faced pressure to close locations Gap had over 3,000 physical stores By 2017, Gap Inc.’s online sales exceeded $2.5 billion

4 Rise of fast-fashion

New competitors, such as H&M and Zara, compressed supply chains, delivering low-priced looks knocked off from luxury fashion runways within weeks of their unveilings With an average product cycle time of 10 months, Gap lagged competitors such as Zara that could deliver products to stores within four weeks due to their consumer-responsive and decentralized buying process, which allowed individual stores to order small batches of product, wait to see how consumers responded to it, and then airlift additional products to backfill the store’s inventory within days The speed and pace of the fashion cycle was dizzying, with new styles appearing in stores on a weekly basis in a constantly renewing fashion cycle

5 Heavy and frequent discouting

Clothing was increasingly commoditized as consumers viewed the lower-quality fast fashion offerings as disposable, yielding a need for low prices and heavy discounting Retail analysts were concerned about an overabundance of price promotion at Gap, where 40% discounts were common

6 Gaps size and ubiquity were transforming from asset to liability

Consumers looking to forge a unique identity were moving away from Gap’s classic offerings

D SOME SOLUTIONS

Solution 1 - Replace creative directors with Big Data

Up to now, creative directors are the people responsible for creating unique, new and special products for the product They play a very important role in almost every business However, realizing that the company was having difficulty inventing and defining exactly the right product to bring to market, Peck began to doubt the creative director's ability So he decided to make war The strategy of “Big Data in, Creative Directors out” aims to replace the position of creative director, move to use the data obtained from Big Data, collect consumer data through tools such as Google Analytics, Google Trends, social networks to shape products

Solution 2 - Develop an augmented reality app

Realizing the changes in consumer behavior, Peck has decided to invest in digital transformation capabilities to adapt and maximize the potentials from the shift in customer shopping behavior from shopping direct to online Digital transformation allows Gap to follow the customer's shopping journey as well as collect information about their online behavior By collecting such data, Gap can provide customers with personalized product recommendations, suit their needs Besides, Gap can rely on shopping history, customer reviews to adjust product details and also adjust fashion trend predictions suitable for the next season to meet people's tastes Moreover, developing email programs to provide relevant, personalized messages to consumers

Solution 3 - Change distribution model

Realizing the limitation in reaching customers, and wanting to take advantage of the opportunity to accompany consumers when the explosion of electronic devices is happening, Gap Inc has cooperated with fashion retailers online stores such as Zalando, China's Taobao Mall, JD.com and consider cooperating with the Amazon commerce platform to replace the model of direct selling at chain stores combined with online selling on its website

Solution 4 - Product 3.0 at Gap

Peck has also implemented this strategy into specific decisions, such as: The decision to move some factories from Asia to the Caribbean helped Gap shorten the time from design until that products are displayed in stores in this market because Gap has noticed that fashion trends in different regions at the same time are completely different In addition, Gap has also purchased and stocked a large amount of fabric so that new designs in line with current trends can be produced and brought to market quickly and at the right time Gap Inc has also implemented strategies to reduce inventory by creating scarcity, which means that businesses only produce and launch a small amount of trendy products that are loved by customers to reduce inventory pressure and increase the demand of customers

E EVALUATE OPTIONS

I. Criterion

The solution provides the highest efficiency for the Gap

II. Options 1 Product strategy Big Data in, creator directors out

Eliminating the position of creative director and using the information from Big Data, customer data assembled through digital tools such as Google Analytics, Google Trend or social media for product positioning

2 Big Data and predictive analysis of marketing

Employing digital data streams to observe customers' purchase journeys and collect a detailed trail of data about their online behaviors

3 Product 3.0

Collecting and analyzing customer purchase data to determine which items to reorder and which to abandon; optimize delivery time by shifting some manufacturing; using scarcity as a strategy

4 Change the distribution model

Cooperating with online retailers such as Zalando, China’s Taobao Mall, JD.com or commerce platform Amazon in replacement of direct sale models combined with online sale via their own website

e-III. Evaluation of options 1 Product strategy Big Data in, creator directors out

Advantages: • Make the most of the resources and collaboration to form the most optimal idea; • Using a collaborative, decentralized, data-driven model (Zara);

• Avoid conflicts in synchronization between employees and leaders Disadvantages:

• The lack of creative director leads to indistinct fashion orientation; • Conflict in making synchronous decisions between a group of partners without a guide; • Retail analysts are skeptical

2 Big Data and predictive analysis of marketing

Advantages: • Use the available data sources to induct consumer preferences; analyze and predict market trends; • Marketing and sell existing products or create new products that meet tastes;

• Anticipation of incoming orders gives rise to reducing the time lag between ordering and receiving items;

• Serve up customized digital advertising to entice consumers complete the purchase; Disadvantages:

• Customer tastes are difficult to predict because consumers are notoriously poor to predict their future behaviors;

• Consumer interests are built rather than revealed; • The taste of each person is not the same

3 Product 3.0

Advantages: • Using Big Data as the original source of innovation for fashion trends; • Using real-time sales data to determine which items to reorder and which to abandon; • Predicting new fashion in the upcoming season;

• Combine the clear brand vision with a common model; • Using Google Analytics data as a source of inspiration; • Significantly improved the ability to meet the supply chain and inventory management

4 Change the distribution model

Advantages: • Access to digital customers; • Collaboration with online retailers and e-commerce platform Amazon is beneficial to market expansion and market data analysis;

• Sharing risk while learning the local tastes; • The distribution of products through two alternatives is to use amazon as a transport channel or use amazon as a distributor;

Disadvantages: • Cannot guarantee the situation around the customer; • The choice between giving up control to use the amazon giant; • Retailers know customers’ action on their own e-commerce sites but have no idea whether they browsing and buying on other sites;

F RECOMMENDATIONS

I Market Analysis 1 Five Forces

THREAT OF NEW ENTRANTS: • The number of suppliers is a lot more than the number of firms or it can be said that there are numerous players in the industry in which the GAP Inc operates -> high rivalry among competitors; • Enterprises often sell differentiated products rather a standardized product -> strong emphasis and attention on advertising and customer services -> strong brand identity;

 Those factors make a threat of new entrants a weak force within enterprises GAP Inc will be facing high new entrants threat if:

• Existing regulations support the entry of new players;

• Consumers can easily switch the brands due to weak/no brand loyalty; • Initial capital investment is high;

• Building a distribution network is easy for new players; • Retaliation from the existing market players is not a discouraging factor; How The GAP Inc can tackle the threat of new entrants?

• Take advantages of scale economies it has, fight off new entrants through its cost advantage; • Focus on innovation to make its products unique, differentiate to create strong identification through marketing;

BARGAINING POWER OF SUPPLIERS: Reflects the pressure exerted by suppliers on business organizations by adopting different tactics like reducing the product availability, reducing the quality or increasing the prices

• Suppliers have less control over prices; • The products are fairly standardized, less differentiated and have low switching costs (or Zero switching cost) -> easier for buyers like The GAP Inc to switch suppliers;

• High supplier bargaining power can increase the competition in the industry and lower the profit and growth potential for Gap Similarly, weak supplier power can make the industry more attractive due to high profitability and growth potential;

• Bargaining power of suppliers will be:

HIGH FOR GAP IF LOW FOR GAP IF - Suppliers’ concentration is higher than their

buyers, focus on a specific region - The cost to switch from one supplier

another is high for buyers - Suppliers are few and their demand

product is high, then it strengthens tsuppliers’ position against Gap

- If Gap is not well educated, does not haadequate market knowledge and lacks price sensitivity, it automatically strengthethe suppliers' position against torganization

- High product differentiation offered bsuppliers, Gap making a small proportionsuppliers’ overall sales and unavailability of the substitute products

- Suppliers are not concentrated - Switching costs are low - Product lacks differentiation - Substitute products are available - Gap is highly price sensitive and h

adequate market knowledge - There is no threat of forward integration

suppliers

How The GAP Inc can tackle The Bargaining Power of Suppliers? • Purchase raw materials at a low cost In case the costs or products are not suitable for The GAP Inc, then it can switch suppliers because the switching costs are low;

• Have different suppliers for different geographic locations to ensure efficiency within its supply chains;

• Develop long- term contractual relationships with suppliers BARGAINING POWER OF BUYERS:

The pressure that customers exert on the business organizations to get high quality products at affordable prices with excellent customer service

• The number of suppliers is a lot more than the number of firms producing the products -> few firms to choose -> do not have much control over prices;

• The product differentiation is high This means that buyers are not able to find alternative firm producing a particular product;

• The income of buyers is low This means that there is pressure to purchase at low price, making the buyers more price sensitive;

• There is no significant threat to the buyers to integrate backwards; • Factors increase the bargaining power of buyers:

o In case there are few in number whereas a number of sellers (business organizations) are too many;

o Low switching costs (economic and psychological); o In case of corporate customers, their ability to do backward integration strengthens their position in the market Backward integration shows the buyers' ability to produce the products themselves instead of purchasing them from Gap;

o Consumers’ price sensitivity, high market knowledge and purchasing standardized products in large volumes also increase the buyers' bargaining power

How The GAP Inc can tackle the Bargaining Power of Buyers? • Focus on innovation and differentiation to attract more customers; • Build a large customers base through marketing effort aimed at building brand loyalty; • Develop cost advantage and sell at low prices to the low-income buyers

THREAT SUBSTITUTE: • Make the competitive environment challenging for GAP and other existing players; • High substitute reflects that customers can use alternative products from others enterprises/ industries to meet their needs;

• The Threat of Substitute increases when: (and vice versa) o A cheaper substitute product is available from another industry; o The switching costs of moving from industry to substitute products are low; o Substitute product offers the same or even superior quality and performance as offered by GAP’s products

How The GAP Inc can tackle the Threat of Substitutes? • Clearly emphasis how its offered product is better than the available substitutes; • Provide convincing reasons to the customers by offering a better experience and high value for money;

• Raise switching costs by working on loyalty; • Improve the quality, set strong differentiation basis to discourage customers from using the substitute product

COMPETITIVE RIVALRY: • Reflects the numbers of competitors that give tough competition to the GAP; • High rivalry shows The GAP Inc can face strong pressure from the rival firms, which can limit each other’s growth potential;

• The products produced are highly differentiated As a result, it is difficult for competing firms to win the customers of each other because the products are unique;

The Rivalry among existing firms will be low for Gap if: • There are only a limited number of players in the market; • The industry is growing at a fast rate;

• The products are highly differentiated, and each market player targets different sub-segments; • The economic/psychological switching costs for consumers are high

How The Gap Inc can tackle the Rivalry Among Existing Firms? • Focus on differentiating its products so that the actions of competitors will have less effect on its customers that seek its unique products;

• As the industry is growing, The Gap Inc can focus on new customers rather than winning the ones from existing companies;

• The Gap Inc can conduct market research to understand the supply-demand situation within the industry and prevent overproduction

2 SWOT analysis STRENGTHS: • The portfolio of Gap Inc includes the brands Gap, Banana Republic, Old Navy, Athleta, and Intermix, which cater to the demands of various customer segments in the clothing and fashion sector Gap is identified with upbeat American casual style, whereas Athleta offers performance and lifestyle wear for the fitness-conscious lady A variety of Gap sub-brands, including GapKids, GapBody, GapMaternity, GapFit, and babyGap, are also available and successfully cater to the needs and tastes of pertinent customer categories From the perspective of appealing to a wider client segment with beneficial effects on the volume of revenues, Gap Inc.'s present strong portfolio of distinctive brands is a significant strength;

• A multinational corporation, Gap Inc operates about 3,700 stores across the globe, including company-operated locations in the US, Canada, the UK, France, Ireland, Japan, China, and Italy, as well as franchise locations in Asia, Australia, Europe, Latin America, the Middle East, and Africa.[1] In addition to offering significant advantages in the form of economies of scale, the brand's global presence is essential for the market penetration of new products;

• The company's product line includes a number of classic, recognizable items, like worker shirts, khakis, and denim jeans from 1969 Among other things, these products are to blame for Gap's success on a global scale Due to their consistent appeal among the target client category for many years, it can be argued that the company is poised to benefit from its timeless iconic items for the foreseeable future; • With factories in over 40 countries, Gap Inc maintains strategic connections with its more than 1000 suppliers [2] Each year, the corporation makes roughly 1,000 trips to the factories where its clothing is made in order to evaluate, address, and help them improve their capabilities [3] The company adopted supplier transparency standards in 2016, providing a list of the global manufacturers that produce its clothing

• The corporation has been neglecting to address declining sales and profits2 for the past two years, which is a serious vulnerability Comparing fiscal 2014 and fiscal 2015, net sales for the latter fell by 4% to $15.8 billion USD and $16.4 billion USD, respectively Fiscal 2015 had a decrease in gross profit to USD 5.7 billion from USD 6.3 billion in fiscal 2014.[4] Despite the fact that GAP's CEO Art Peck unveiled a number of efforts to solve the problems, including refocusing on core items, beginning to sell on Amazon, and intensifying international market expansion, these plans might not be successful in bringing the company back on the path to profitability;