digital transformation and artificial intelligence case study 1 report

Distribution channels In the current 4.0 era, a large number of potential customers tend to switch fromshopping habits at traditional distribution channels like chain of stores, branche

VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITYUNIVERSITY OF ECONOMICS AND LAW

DIGITAL TRANSFORMATION AND ARTIFICIAL INTELLIGENCE

CASE STUDY 1 REPORT

TEAM:CLASS ID:LECTURER:

13 225MI5204VŨ 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

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 neverconsidered creating their own brand This is a type of special retail developed byGap in which a retailer focuses on a specific product category rather than a widerange of items or manufactures its own branded goods Gap is still regarded as aprime example of this specialty retail (as of the first quarter of 2023, Gap has152,000 employees and 3,453 companies and franchised retail stores in more than40 countries, generating $3.28 billion in net sales) Gap Inc currently managesfour brands: Gap (casual fashion for both men and women), Banana Republic(office fashion), Old Navy (fashion for family members) and Athleta (gymnasticsclothing for women)

The Gap market exploded in the 1990s and 2000s Gap, on the other hand, fadedaway from its glory days after that Former Gap CEO – Art Peck made bold movesto pull the company out of a downward spiral He joined the group in 2005, far toolate to witness Gap Inc rise to prominence As a result, Peck is not afraid to devotehimself to assisting the company in welcoming a new wave of transformation GapInc needed to develop a completely new strategy, and the common goal was toassess clothing trends and changing consumer preferences This brand's two secretsto success are having the right product for each customer category and controllingthe entire process from design to consumption Their success entirely depends onit Specifically:

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

 Second, increasing competitiveness with new rivals such as H&M, Zara, andForever 21, as well as strengthening partnerships with businesses whospecialize in E-commerce and incorporating technology into business tocreate 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 andmonitor initiative activities in order to avoid risks when implementing newoptions Working actively with executive sponsors will assist businesses informing a complete feedback mechanism system with Big Data, therebystimulating new ideas and initiatives from employees, and assistingbusinesses 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 toaccount for 2% of gross domestic product (GDP) of the world

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

The obvious manifestation of the growth retardation is that several divisions in thegroup'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 atthe same time Gap itself is struggling with its own brand image Attempts to findbrand 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'smarket share has decreased compared to before

Gap Inc.'s biggest competitors include companies such as H&M, Zara, Uniqlo andFast 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 yearsby offering more fashion-forward options at similar or lower price points In termsof financial performance, Gap Inc has struggled in recent years, with decliningsales and store closures, while some of its competitors have seen growth andexpansion However, Gap Inc has been working to revamp its brand and offeringsto better compete in the fast fashion market

2.3 Rise of e-commerce

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

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

Change in customer shopping habits: e-commerce has changed the way customersshop Nowadays, many people shop online and search for products on the Internetbefore deciding to buy This has made reaching and attracting customers moredifficult 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 changingclothes 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 offerthe latest products at affordable prices, capturing the interest of consumers onlineshoppers and young consumers At the dizzying pace of the fashion cycle, newmodels appear in stores every week in a cycle of constant innovation

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

2.5 Heavy and frequent discounting

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

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

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

activity during the second quarter compared to the same time last year Peckaddressed this in May and mentioned that measures were being made to stop suchreductions The corporation is compelled to give reductions because of thecompetition 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 ifthe 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 isincreased competition As the retail industry becomes more saturated, with the rise ofe-commerce and successful fast fashion competitors, the company struggles todifferentiate itself and maintain its market share This is particularly evident in thedeclining 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 ofGap Inc has been reduced to $9.2 billion, and the board is looking for morepermanent 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 developmentprocess In addition to the function of designing unique new products, they must alsobe market attributors and distribute products with other designers and businesses.When Art Peck realized the difficulty of creating and shaping products to market, hewas skeptical about the creative director's competence Out of skepticism, Peckdecided to remove the position of creative director with Big Data To make decisionsregarding GAP's upcoming plans, Big Data will be used to gather user data from datafrom 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 fromshopping 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 partnershipswith 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 inpredictive marketing – one of the useful applications of Big Data Predictivemarketing is simply understood as the application of data science to make moreaccurate marketing decisions instead of predicting according to emotions, subjective.Through data collection and analytics, GAP can align its business strategies, andprovide customers with products that suit their tastes and needs At the same time, thecollected data also helps GAP to predict time trends in the next season and satisfyconsumer desires

3.1.4 Production 3.0

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

3.2 Evaluation of solutions:

In general, the solutions that Peck offers are aimed at solving the problem ofdeclining 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 theapplication of technological achievements to the operation of such enterprises is asuitable strategy in today's industry 4.0 Not only that, the application of digitaltransformation also helps businesses make appropriate changes in the way theyoperate to increase their competitiveness in the ever-changing fashion market duringthe past time Specifically, from the synthesis of data and analysis, Gap cangeneralize and make recommendations, adjustments and product improvements thatare more suitable to market tastes At the same time, Gap Inc's cooperation withonline fashion retailers such as Zalando, China's Taobao Mall, JD.com and Amazonmarketplace not only helps businesses expand their customer base but also takeadvantage of used for market data analysis purposes

4.PROPOSE:

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

 Therefore, Gap Inc should consider taking advantage of the harmoniouscoordination between the roles of creative director and Big Data to be able tooptimally exploit the strengths of each party in the research process.Businesses will use Big Data in analyzing actual consumer behavior Based onthe information that Big Data brings, the creative director will be the finaldecision maker for the next product trend of the business according to his ownperspective, experience and knowledge

 Along with production following fast fashion trends to increasecompetitiveness with potential competitors, Gap should also considerimproving the value of its products using environmentally friendly fabrics.with improved product quality Not only will this help Gap fulfill itsresponsibility to the environment, but it can also help Gap stand out from themultitude of businesses that are also following this fashion trend

 In addition to cooperating with online fashion retailers and e-commerceplatforms, Gap should also invest resources in developing its own website tominimize the risk of depending on businesses on the Internet, at the same timecreating its own mark in consumers, reinforcing its brand identity Businessesshould develop both offline and online platforms accordingly to reach a widerange 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 positionof Gap Inc January 2018, removing creative directors for each brand company pageand replacing them with a decentralized model, using Big Data application May2018, using Big Data to predict customer behavior In early 2019, changingdistribution models, investing in digital and eCommerce In 2020, the companyquickly got on board with this trend and started collaborating with influencers topromote its products further The company also released a limited-edition version ofthe 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 fromcustomers is good-quality products The gap should use the budget to improveproduct quality in accordance with the needs and tastes of users Besides, invest inmarketing and advertising so that more people know about their products, helpingcustomers have a good shopping experience This will leave a good impression on thecustomers and make them loyal customers in the not-too-distant future

About technology: Investing in technology is an important and necessary job Mostcustomers today tend to switch to online shopping Technology is also evolving,especially through the development of e-commerce The investment and applicationof technology in predicting customer behavior, enhancing the online shoppingexperience, and cooperating with online retailers like Amazon will help the companyincrease revenue and profit and collect many pieces of data for the analysis of thefield after this.

About partners: Gap Inc cannot operate independently but needs to have manypartners The growth of e-commerce along with the application of Big Data toanalyze 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'sproducts reach closer to consumers across countries and increase due

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

 Additional Data Analyst/ Data Scientist: The estimated total pay for a DataScientist is $124,975 per year in the United States area, with an average salaryof $103,098 per year (glassdoor.com)

 Analytics Tools: Data analytics tools range from free up to $10,000.00 or moreper 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 andrelevant category mix;

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

 Leveraging our scale to navigate disruptions and constraints in the globalsupply 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 notbe able to meet, in which case Gap may issue shares, bonds, votes, and calls forcapital from partners and other companies