digital transformation and artificial intelligence case study 1 report

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VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW

DIGITAL TRANSFORMATION AND ARTIFICIAL INTELLIGENCE

CASE STUDY 1 REPORT

TEAM:

CLASS ID:

LECTURER:

13 225MI5204

VŨ VĂN ĐIỆP

Đoàn Anh Minh K225021971

List of members:

1 OBJECTIVE: 3

2 KEY ISSUES TO TACKLE: 4

2.1 Slow growth in core market 4

2.2 Competition 4

2.3 Rise of e-commerce 4

2.4 Rise of fast fashion 5

2.5 Heavy and frequent discounting 5

2.6 Gap’s size and ubiquity transforming from asset to liability 6

3.EVALUATE OPTIONS: 6

3.1 Option: 6

3.1.1 Removed the position of Creative Director 6

3.1.2 Distribution channels 6

3.1.3 Applying Big Data to predicting and analyzing behavior 7

3.1.4 Production 3.0 7

3.2 Evaluation of solutions: 7

4.PROPOSE: 7

5 IMPLEMENT: 8

5.1 Timeline 8

5.2 Source estimation 8

5.3 Contingencies 9

1 OBJECTIVE:

Doris and Donald G Fisher founded Gap Inc in San Francisco (USA) in 1969 They began by selling other brands' products, primarily Levi's jeans, but never considered creating their own brand This is a type of special retail developed by Gap in which a retailer focuses on a specific product category rather than a wide range of items or manufactures its own branded goods Gap is still regarded as a prime example of this specialty retail (as of the first quarter of 2023, Gap has 152,000 employees and 3,453 companies and franchised retail stores in more than

40 countries, generating $3.28 billion in net sales) Gap Inc currently manages four brands: Gap (casual fashion for both men and women), Banana Republic (office fashion), Old Navy (fashion for family members) and Athleta (gymnastics clothing for women)

The Gap market exploded in the 1990s and 2000s Gap, on the other hand, faded away from its glory days after that Former Gap CEO – Art Peck made bold moves

to pull the company out of a downward spiral He joined the group in 2005, far too late to witness Gap Inc rise to prominence As a result, Peck is not afraid to devote himself to assisting the company in welcoming a new wave of transformation Gap Inc needed to develop a completely new strategy, and the common goal was to assess clothing trends and changing consumer preferences This brand's two secrets

to success are having the right product for each customer category and controlling the entire process from design to consumption Their success entirely depends on

it Specifically:

 First, conducting customer behavior research and providing excellent experience Business improves customer experience by promoting decision-making based on data and optimizing Big Data to analyze customer preferences Gap Inc is working on developing a business model based on modern technology, with a particular emphasis on Product 3.0

 Second, increasing competitiveness with new rivals such as H&M, Zara, and Forever 21, as well as strengthening partnerships with businesses who specialize in E-commerce and incorporating technology into business to create a platform for analyzing consumer tastes by using Big Data

 Third, seeking out voluntary collaboration throughout the organization Businesses require an executive sponsor to manage stakeholders and monitor initiative activities in order to avoid risks when implementing new options Working actively with executive sponsors will assist businesses in forming a complete feedback mechanism system with Big Data, thereby stimulating new ideas and initiatives from employees, and assisting businesses in improving more

2 KEY ISSUES TO TACKLE:

The fashion brand Gap has faced several challenges in recent years

2.1 Slow growth in core market

The GAP Inc contributes 3 trillion dollars global apparel industry, estimated to account for 2% of gross domestic product (GDP) of the world

In the 2022 report, which shows that the company is experiencing a decline in market share As of the end of the fourth quarter of 2022, net sales of $4.24 billion were down 6% year while comparable sales were down 5% year-over-year Retail sales also fell 3% and online sales even dropped 10% Online sales now account for 41% of total sales at Gap For the entire Gap Inc in 2022, the company reported revenue of $15.6 billion, compared with revenue of $16.7 billion in 2021 and a net loss of $202 million

The obvious manifestation of the growth retardation is that several divisions in the group's portfolio of brands, including Gap, Banana Republic, Old Navy, Athleta, Hill City, Intermix and newly acquired children's clothing brands Janie & Jack, also cut With the Gap brand, many members of the design team have left

2.2 Competition

The Gap Inc must face fierce competition from rivals like Primark and Uniqlo, but at the same time Gap itself is struggling with its own brand image Attempts to find brand identity failed The brand has been on the decline since before the pandemic With competition from lower-priced brands like Zara, H&M and Forever 21, Gap's market share has decreased compared to before

Gap Inc.'s biggest competitors include companies such as H&M, Zara, Uniqlo and Fast Retailing These companies are known for their fast fashion, affordable prices, and trendy clothing offerings While Gap Inc has traditionally offered classic, American-style clothing, these competitors have gained popularity in recent years

by offering more fashion-forward options at similar or lower price points In terms

of financial performance, Gap Inc has struggled in recent years, with declining sales and store closures, while some of its competitors have seen growth and expansion However, Gap Inc has been working to revamp its brand and offerings

to better compete in the fast fashion market

2.3 Rise of e-commerce

Consumers are rapidly turning away from purchasing directly from stores and toward purchasing and selling via internet platforms In the United States, 19% of

clothes were sold online in 2016, and clothing became the best-selling online category in 2015, thanks to Amazon's growing presence in the fashion business Competition from online retailers: The growth of e-commerce has opened opportunities for online retailers like Amazon, Zara, and H&M These companies have attracted more and more customers by offering convenience, competitive prices, and better services This has put great competitive pressure on Gap Inc and caused a drop in sales

Change in customer shopping habits: e-commerce has changed the way customers shop Nowadays, many people shop online and search for products on the Internet before deciding to buy This has made reaching and attracting customers more difficult for Gap Inc and other traditional retailers

Having trouble creating an omnichannel shopping experience: To compete with

online retailers, Gap Inc must also develop its own online sales channels

2.4 Rise of fast fashion

Fast fashion is the trend of producing and consuming cheap and fast changing clothes One of the difficulties is that Gap Inc is facing fierce competition from fast-fashion brands such as Zara, H&M and Forever 21 These brands are quick to offer the latest products at affordable prices, capturing the interest of consumers online shoppers and young consumers At the dizzying pace of the fashion cycle, new models appear in stores every week in a cycle of constant innovation

As the fashion market moved to a faster model and shoppers shifted online, Gap remained resolutely the same The emergence of sports labels transitioning into fashion spelled the end of the original athleisure brand, devouring any market share Gap had left

2.5 Heavy and frequent discounting

Declining sales and profitability during the last several years might be viewed as a key weakness that has hampered the company's entire performance and strategy, as described in this report as a present problem that demands remedies

As customers perceive low-quality fast-fashion items as disposable, the need for cheap pricing and significant discounts is driving the commoditization of clothing Retail analysts worry about the significant price rises at Gap, where 40% off is frequently offered

The issue with the company's pricing goes beyond its initial prices: Gap's three primary brands continue to be offered at steep discounts According to Wells Fargo research, Gap, Banana Republic, and Old Navy all increased their promotional

activity during the second quarter compared to the same time last year Peck addressed this in May and mentioned that measures were being made to stop such reductions The corporation is compelled to give reductions because of the competition from stores like H&M, who sell high quality apparel for less money However, it won't be necessary to conduct such strenuous advertising operations if the company's beginning pricing is competitive

2.6 Gap’s size and ubiquity transforming from asset to liability

One of the main challenges that GAP Inc faces as a result of its size and ubiquity is increased competition As the retail industry becomes more saturated, with the rise of e-commerce and successful fast fashion competitors, the company struggles to differentiate itself and maintain its market share This is particularly evident in the declining sales and foot traffic in its brick-and-mortar stores

Sales fell for eight quarters before growing 2% in Q4 2016, leaving sales down 2% for the year, even though marketing expenses rose 4% The market capitalization of Gap Inc has been reduced to $9.2 billion, and the board is looking for more permanent solutions

3.EVALUATE OPTIONS:

3.1 Option:

3.1.1 Removed the position of Creative Director

Creative directors in the fashion sector play a key role in the product development process In addition to the function of designing unique new products, they must also

be market attributors and distribute products with other designers and businesses When Art Peck realized the difficulty of creating and shaping products to market, he was skeptical about the creative director's competence Out of skepticism, Peck decided to remove the position of creative director with Big Data To make decisions regarding GAP's upcoming plans, Big Data will be used to gather user data from data from social networks, site visits, call logs, and other sources

3.1.2 Distribution channels

In the current 4.0 era, a large number of potential customers tend to switch from shopping habits at traditional distribution channels like chain of stores, branches, booths at shopping centers, ect to shopping on e-commerce platforms like Taobao, Amazon, eBay…Recognizing this widespread trend, GAP has conducted partnerships with popular online retailers to attract consumers

3.1.3 Applying Big Data to predicting and analyzing behavior

Noticing significant changes in consumer shopping habits, Peck decided to invest in predictive marketing – one of the useful applications of Big Data Predictive marketing is simply understood as the application of data science to make more accurate marketing decisions instead of predicting according to emotions, subjective Through data collection and analytics, GAP can align its business strategies, and provide customers with products that suit their tastes and needs At the same time, the collected data also helps GAP to predict time trends in the next season and satisfy consumer desires

3.1.4 Production 3.0

In the face of the strong increase in fast fashion, Peck decided to implement the Product 3.0 strategy Based on the data collected from customers, GAP will plan on which items are popular with customers, should be continued to produce, which items are outdated and should be cut down GAP will be able to manage the inventory level and better match the market supply chain more efficiently by implementing the Product 3.0 strategy

3.2 Evaluation of solutions:

In general, the solutions that Peck offers are aimed at solving the problem of declining sales, brand recognition and other difficulties that businesses face And Peck's solutions all have in common that they focus on digital transformation, leveraging Big Data to improve products and customer experience And the application of technological achievements to the operation of such enterprises is a suitable strategy in today's industry 4.0 Not only that, the application of digital transformation also helps businesses make appropriate changes in the way they operate to increase their competitiveness in the ever-changing fashion market during the past time Specifically, from the synthesis of data and analysis, Gap can generalize and make recommendations, adjustments and product improvements that are more suitable to market tastes 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 businesses expand their customer base but also take advantage of used for market data analysis purposes

4.PROPOSE:

 Based on the synthesis of problems faced by Gap Inc and analysis of the solutions that enterprises pose, the following are recommendations to overcome the weaknesses in Gap's solutions: The use of Big Data to make predictions about trends and product ideas in line with consumer tastes with high accuracy but lacks originality and novelty

 Therefore, Gap Inc should consider taking advantage of the harmonious coordination between the roles of creative director and Big Data to be able to optimally exploit the strengths of each party in the research process Businesses will use Big Data in analyzing actual consumer behavior Based on the information that Big Data brings, the creative director will be the final decision maker for the next product trend of the business according to his own perspective, experience and knowledge

 Along with production following fast fashion trends to increase competitiveness with potential competitors, Gap should also consider improving the value of its products using environmentally friendly fabrics with improved product quality Not only will this help Gap fulfill its responsibility to the environment, but it can also help Gap stand out 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 of depending on businesses on the Internet, at the same time creating its own mark in consumers, reinforcing its brand identity Businesses should develop both offline and online platforms accordingly to reach a wide range of customers and meet the shopping needs of each customer group

5 IMPLEMENT:

5.1 Timeline

Our proposal is in the hope of restoring, developing, and enhancing the high position

of Gap Inc January 2018, removing creative directors for each brand company page and replacing them with a decentralized model, using Big Data application May

2018, using Big Data to predict customer behavior In early 2019, changing distribution models, investing in digital and eCommerce In 2020, the company quickly got on board with this trend and started collaborating with influencers to promote its products further The company also released a limited-edition version of the brown logo hoodie and asked TikTok users to vote for the next color

5.2 Source estimation

There are three sources: budget, technology, and partners

About banks: One of the important factors in attracting and gaining trust from customers is good-quality products The gap should use the budget to improve product quality in accordance with the needs and tastes of users Besides, invest in marketing and advertising so that more people know about their products, helping customers have a good shopping experience This will leave a good impression on the customers and make them loyal customers in the not-too-distant future

About technology: Investing in technology is an important and necessary job Most customers today tend to switch to online shopping Technology is also evolving, especially through the development of e-commerce The investment and application

of technology in predicting customer behavior, enhancing the online shopping experience, and cooperating with online retailers like Amazon will help the company increase revenue and profit and collect many pieces of data for the analysis of the field after this

About partners: Gap Inc cannot operate independently but needs to have many partners The growth of e-commerce along with the application of Big Data to analyze consumer behavior requires Gap to cooperate with large online retailers, often with consumers accessing and interacting with sites like Amazon, Alibaba, etc

So, Gap's cooperation with Amazon, TaobaoMall, Zalando, etc will help Gap's products reach closer to consumers across countries and increase due

Hire a new creative director: according to salary.com, the average salary of creative directors in the US is 122,337 USD per year Salary ranges greatly from 102,103 USD/year to 145,566 USD/year

 Additional Data Analyst/ Data Scientist: The estimated total pay for a Data Scientist is $124,975 per year in the United States area, with an average salary

of $103,098 per year (glassdoor.com)

 Analytics Tools: Data analytics tools range from free up to $10,000.00 or more per year, depending on the number of employees and business needs

 Marketing campaign: An ad campaign can cost from $5,000 to $250,000,000

A PR campaign can cost $2,500–$100,000 a month

5.3 Contingencies

In the near term, we remain focused on the following contingencies:

 Driving improved sales through assortment improvements and a balanced and relevant category mix;

 Reducing our fixed cost structure to improve profitability and manage through current macroeconomic challenges;

 Leveraging our scale to navigate disruptions and constraints in the global supply chain

 Managing inventory to support a healthy merchandise margin;

5.4 Risk mitigation

Investing in technology requires a large amount of money, which Gap Inc may not

be able to meet, in which case Gap may issue shares, bonds, votes, and calls for capital from partners and other companies