predicting consumer tastes with big data at gap

In order to replace the position of creative director, he opted to apply theconcept of "Big Data in, Creative Directors out." He then went on to collect consumerdata using platforms like

VIETNAM NATIONAL UNIVERSITYUNIVERSITY OF ECONOMICS AND LAW

Predicting Consumer Tasteswith Big Data at Gap

Lecturer: Nguyễn Thế Đại Nghĩa

Student name:Lê Ngọc Nhật Hà - K214080593

Nguyễn Mai Hân - K214080594Hoàng Diệu Huyền - K214080595Phan Uyên Phương - K214080602Lê Gia Hân - K214081851

Donal and Doris Fisher founded Gap Inc in 1969 Gap is one of the brands thatcreated specialty retail, in which a retailer focuses on a single product category instead ofcarrying a diverse selection and producing its own brand of items In 2016, Gap owned135,000 employees, and 3,659 company-owned and franchised retail locations in 50countries, representing 36.7 million square feet of sales area, generating global sales of$15.5 billion Until now, Gap is still seen as a prime example of this specialty retail

Gap Inc managed five brands including Gap, Banana Republic, Old Navy, Athleta,and Intermix The Gap brand provided fashion products that are casual, simple, andcomfortable and sold at affordable prices for both males and females Gap acquired theBanana Republic brand in 1983 with a strategy to penetrate the high-end fashion market.Gap Inc created the Old Navy brand in 1993 with the motto "providing the must-haveproducts in everyone's wardrobe" at "unbelievably low" prices Next, Gap Inc continuedto buy the Athleta brand (sportswear for women) in 2008 and the Intermix brand(high-end, modern women's fashion with sought-after designs) in 2012

Mickey Drexler became CEO of Gap Inc in 1983 Under Mickey, the company'ssales increased rapidly at first but then recorded a severe decline The reason is that Gap'sproducts rely too much on Mickey's aesthetic eye

In January 2017, Art Peck - CEO of Gap, struggled to find a way to turn thesituation of Gap Inc after 2 consecutive years of seeing sales decline in an environmentwhere traditional retailers were under a lot of pressure due to the competition of themarket at that time Gap Inc had to come up with a completely new strategy and toachieve that, the common goal to be achieved was to assess clothing trends and changeconsumer preferences Their success depended mainly on their ability to assess customertastes and provide goods that meet customer needs in a timely manner More specifically,Gap Inc aims to build a business model with modern technology, mainly focusing ondeveloping Product 3.0 Thereby delving into customer behavior research and deliveringa better customer experience by driving data-driven decision-making and optimizing bigdata to analyze customer tastes Moreover, they intensify competition with newcompetitors such as H&M and Zara as well as strengthen partnerships with businessesspecializing in e-commerce and bringing technology to business to create a foundationfor using Big Data to analyze consumer preferences

KEY ISSUES TO TACKLE

1 Slow growth in the core market:

Gap Inc competed in the $3 trillion global apparel industry, which comprised 2%of the world's gross domestic product (GDP) The two large markets, which are the U.S.and Canada, accounted for more than $340 billion in this industry and 84% of Gap’ssales However, many surveys pointed out that people aged 27 to 42 were likely to bemore frugal when shopping When CEO Peck of Gap Inc responded to retail investors,he claimed that “there are no compelling fashion trends driving the business” andconfirmed there had been a change in consumers’ buying habits leading to a lack of needto replenish their closets

2 Competition:The mid-tier apparel landscape needed to be more cohesive and modern

3 Rise of e-commerce:

Online channels were replacing traditional storefronts as the primary place forconsumer purchases Clothing became the best-selling online sales category in 2015, ledby Amazon's growing power in the garment market, and 19% of clothes were soldthrough online channels in 2016, then by the end of 2017, Amazon was expected tosurpass all other clothing retailers in the U.S Brands no longer required the same numberof shops as online sales increased American shopping malls were filled with emptybusinesses as both department stores and specialist retailers were under pressure to closelocations However, Gap Inc possessed over 3,000 physical stores, whereas its onlinesales surpassed $2.5 billion by 2017

4 Rise of Fast Fashion:

New competitors like H&M and Zara appeared as many old brands had to dealwith new challenges, namely supply chains, low-priced delivery… This caused the slow

development of Gap when its average product cycle time was 10 months and Gap couldnot satisfy its consumer buying process as Zara The speed and pace of the fashion cyclewere dizzying, with new styles appearing in stores on a weekly basis in a constantlyrenewing fashion cycle.

5 Heavy and frequent discounting:

As buyers began to perceive fast fashion's lower-quality goods as disposable,clothing turned into a commodity, forcing steep discounts and low pricing Retail analystswere concerned that Gap, where 40% discounts were frequent, was engaging in anexcessive amount of price marketing

6 Gap's size and ubiquity were transforming from asset to liability:

Consumers looking to create a unique appearance were moving away from Gap'sclassic offerings As a consequence, product assortment was the main key and Gap'smodel was failing for selecting the right assortment While Peck knew that the problemfrom 15 years ago could not be fixed overnight, the results for 2015 and 2016 weredisappointing Despite a 4% increase in marketing expenses, comparable sales haddecreased for eight quarters before increasing by 2% in Q4 2016 to give a 2% salesreduction for the year The market capitalization of Gap Inc had fallen to $9.2 billion,and the board was searching for longer-term solutions

EVALUATING OPTIONS

1 Criterion

The business was dealing with several difficulties when Peck was appointed Thefirst is the core markets' modest growth, which according to Peck, is affected by a shift inconsumer purchasing patterns, such as less of a desire for people to restock their closets.The market is likewise fiercely competitive and saturated Then, in the 4.0 age, the adventof E-commerce and the development of rapid fashion were both influenced by thedevelopment of information technology Another problem GAP is dealing with is heavyand frequent discounting Retail analysts expressed alarm about a glut of pricepromotions at Gap, where 40% off was frequently offered

2 Options

2.1 Replace the role of creative director with Big Data.

Creative directors have historically been in charge of coming up with original,new, and special items for the product They are a vital part of practically every business.Peck started to have doubts about the creative director's abilities, after recognizing thatthe company was having trouble coming up with and defining precisely the right productto market In order to replace the position of creative director, he opted to apply theconcept of "Big Data in, Creative Directors out." He then went on to collect consumerdata using platforms like Google Analytics, Google Trends, and social networks toinfluence products

2.2 Big Data in analytics and predicting behavior

Peck made the decision to invest in digital transformation skills after realizing howconsumer behavior was changing This was done to maximize the potential from the shiftin customer shopping behavior from in-store to online Gap's adoption of digitaltransformation enables it to monitor client purchasing patterns and compile data on theironline activity Gap is able to offer customers customized product recommendations that

are catered to their preferences by gathering such data In addition, Gap can makeadjustments to product specifications and fashion trend predictions appropriate for theupcoming season to accommodate consumer demands.

2.3 Production 3.0

Faced with the current "throne" of fast fashion, along with the pressure to createproduct trends in line with consumer tastes, Peck decided to implement the "Production3.0" strategy Gap concentrates on creating and manufacturing products that arewell-liked by the market and reducing those that no longer suit customer tastes bygathering and evaluating customer buying data Additionally, Peck has applied thismethod to specific choices, such as Gap was able to accelerate the production processthanks to the choice to relocate some production facilities from Asia to the Caribbean.Since Gap has discovered that fashion trends in various countries at the same time arevery varied, the design will continue until the product is shown in a store in this market.In order to rapidly and appropriately develop new designs in line with current trends andbring them to market, Gap has also purchased and stocked a significant amount of fabric.In order to lower costs and inventory pressure, Gap Inc has also employed techniques tocreate scarcity, which entails that companies only make and introduce a small number ofpopular, trendy products

2.4 Changing distribution model

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

In general, the solutions that Peck offers are aimed at solving the problem ofdeclining sales, brand recognition, and other difficulties that businesses face.Additionally, Peck's solutions all center on digital transformation, utilizing Big Data toenhance both the quality of the products and the consumer experience And in today'sindustry 4.0, applying technological advancements to the management of such businessesis an appropriate tactic Not only that, but the use of digital transformation also enablesbusinesses to make necessary adjustments to the way they run their operations to improvetheir competitiveness in the constantly evolving fashion market in the leisure sector Gapcan specifically generalize from the data and analysis synthesis and make suggestions,modifications, and product improvements that are better in line with market preferences.At the same time, Gap Inc's cooperation with online fashion retailers such as Zalando,China's Taobao Mall, JD.com, and Amazon marketplace not only helps businessesexpand their customer base but also take advantage of use for market data analysispurposes.

Although one cannot deny the benefits that digital transformation brings to people,especially in the business field, Peck's solution to replace the position of creative directorwith Big Data, in this case, is not feasible Because although Big Data can helpbusinesses make accurate predictions, it cannot create a unique and special product like acreative director Not only that, it is the creators who understand the brand's values best,so they are the most suitable factor in shaping product trends In addition, Gap Inc's moveto exploit the potential in the fast fashion field means that this business also contributes toincreasing pressure on the waste problem when most fabrics are made from nylon fibers.difficult to decompose Additionally, working with significant trading platforms can helpGap reach more people and boost sales, but there is always a hidden risk to the brand'srecognition

Based on the synthesis of the problems that Gap Inc encountered and the analysisof the solutions that the business posed, the following are recommendations to addressthe imperfections in the solutions of Gap:

The use of Big Data to make predictions about trends and product ideas which arein line with consumer tastes brings a high precision but lacks originality and novelty.Therefore, Gap Inc should consider taking advantage of the harmonious coordinationbetween the role of creative director and Big Data to exploit the strengths of each party inthe research process as fully as possible Businesses will use Big Data in analyzing actualconsumer behavior Based on the information that Big Data brings, the creative directorwill be the final decision maker for the next product trend of the business according to hisown perspective, experience, and knowledge

Apart from production following fast fashion trends to improve competitive abilityagainst potential competitors, Gap should also consider improving the value of itsproducts by using eco-friendly fabrics and improving its product quality Not only willthis help Gap fulfill its responsibility to the environment, but it can also help Gap standout from the multitude of businesses that are also following this fashion trend

In addition to cooperating with online fashion retailers and e-commerce platforms,Gap should also invest resources in developing its own website to minimize the risk ofdepending on these businesses, and at the same time create its own mark amongconsumers, reinforcing its brand recognition Businesses should develop both offline andonline platforms adequately to reach a wide range of customers and meet the shoppingneeds of each customer group

There are three sources: budget, technology, and partners.

Budget: High-quality items are one of the most important elements for attracting

and retaining clients It is proposed that Gap utilize its funds to improve product qualityto meet client desires Additionally, marketing and advertising expenditures arerecommended This would enhance GAP's product identity and consumer experienceswhile leaving a favorable impression Making them loyal clients is not a far possibility

Technology: Investing in technology is unquestionably an essential and crucial

factor Currently, it is considered that the majority of people prefer to purchase onlinesince advanced technology, particularly e-commerce platforms, becomes extensive Byinvesting in digital applications, predicting the behavior of customers, developingshopping experiences, and even partnering with online retailers such as Amazon, thecompany could increase its income and profits, as well as acquire additional data that isessential for market analysis in the future

Partner: Without the assistance of other partners, Gap Inc cannot make revenue on

its own To construct the e-commerce platform and Big Data applications that evaluateclient behaviors, Gap Inc must work with Amazon and Alibaba, two of the largest online

merchants with consistently high daily access rates Cooperation with these recognizedpartners would enhance Gap's products' global accessibility and sales rates dramatically.

3 Minimizing risks and problems

Lack of funds: To invest in technology, Gap Inc must obtain a big quantity of funds

that it probably cannot afford In this instance, Gap is able to issue shares, and bonds,along with raising funds from partners and other businesses

Discord and Partners' departure: To avoid this, Gap Inc must negotiate with its

business partners in order to reach agreements that are beneficial to both parties

Product variety: Gap Inc is required to accommodate all consumer demands in

order to achieve greater success because different market segments will have specificdemands Therefore, in order to achieve this, Gap must separate the business intoappropriate market groups with distinct client requirements; as a result, consumers willhave more choices and purchase more of the company's items, hence increasing sales

Marketcompetition: Gap Inc could capitalize on its available andcustomer-accessible brand images by creating trendy and attractive products withreasonable costs to lure consumers, establish their trust, and strengthen the company'sposition in the international market

External impact (disasters, diseases, the development of advanced technology ande-commerce platforms…): Gap Inc must propose adequate solutions for each period and

acquire a contingency fund for unforeseen circumstances They should not only apply thepolicies outlined for each scenario but also control the direction; if the implementation ofthe policies is inappropriate, Gap Inc should instantly modify them in order to avoidlong-term effects

Negative reviews from customers: Reevaluate the quality of the products, the

services provided, and the customers' experiences when shopping online or offline,