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COMPANY PROFILE

The Gap Inc

REFERENCE CODE: 0988E498-82E3-4CC2-985F-7D9B38ACCD4E
PUBLICATION DATE: 23 Jul 2019
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The Gap Inc
TABLE OF CONTENTS

The Gap Inc
© MarketLine

Page 2

TABLE OF CONTENTS

Company Overview ………………………………………………………………………………………….. 3
Key Facts …………………………………………………………………………………………………………. 3
SWOT Analysis ………………………………………………………………………………………………… 4

The Gap Inc
Company Overview

The Gap Inc
© MarketLine

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Company Overview

COMPANY OVERVIEW

The Gap Inc (Gap) is an Omni-channel retailer company. The company merchandises apparel,
accessories and personal care products for men, women and children through its retail stores, franchised
stores and e-commerce portals. Its products are marketed under various brands including Gap, Old Navy,
Banana Republic, GapFit, GapBody, GapKids, babyGapy, Athleta and Intermix. Gap also offers various
Omni-channel services including order-in-store, reserve-in-store, find-in-store, and ship-from-store. It also
provides license to various third parties to sell and market these products. The company’s operations are
spread across the US, Asia, the Middle East, Europe and Africa. Gap is headquartered in San Francisco,
California, the US.

The company reported revenues of (US Dollars) US$16,580 million for the fiscal year ended February
2019 (FY2019), an increase of 4.6% over FY2018. In FY2019, the company’s operating margin was
8.2%, compared to an operating margin of 9.3% in FY2018. In FY2019, the company recorded a net
margin of 6%, compared to a net margin of 5.3% in FY2018.

Key Facts

KEY FACTS

Head Office The Gap Inc
Two Folsom Street
San Francisco
California
San Francisco
California
USA

Phone 1 415 4270100
Fax
Web Address www.gapinc.com
Revenue / turnover (USD Mn) 16,580.0
Financial Year End February
Employees 135,000
New York Stock Exchange Ticker GPS

The Gap Inc
SWOT Analysis

The Gap Inc
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SWOT Analysis

SWOT ANALYSIS

The Gap Inc (Gap) is a specialty retailer of apparel, footwear and accessories. Global presence, inventory
turnover ratio and liquidity position are the company’s major strengths, whereas dependency on
merchandise vendors remains a major area for concern. Online Retail Market in US, acquisition of Janie
and Jack, and spin-off and restructuring plans are likely to provide growth opportunities to the company.
However, foreign exchange risks, intense competition and manpower costs in US could affect its
business operations.

Strength

Global Presence
Inventory Turnover Ratio
Liquidity Position

Weakness

Dependence on Merchandise Vendors

Opportunity

Online Retail Market in US
Acquisition of Janie and Jack
Spin-off and Restructuring Plans

Threat

Foreign Exchange Risks
Manpower Costs in US
Intense Competition

Strength

Global Presence

Wide geographic presence helps the company to mitigate the risks associated with dependence on a
single region. As of February 2019, Gap operated a total of 3,666 company-owned and franchised stores
across North America, Europe and Asia. It also owns stores in the US, Canada, the UK, France, Ireland,
Japan, Italy, China, Hong Kong, Taiwan, and Mexico. The company operates franchised stores in Asia,
Australia, Europe, Latin America, the Middle East, and Africa. It also has franchise agreements with
unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic stores across Europe, Latin
America, Asia, the Middle East, and Africa. In FY2019, the US accounted for 80.5% of the company’s
total revenue, followed by Asia (7.4%), Canada (7.2%), Europe (3.6%) and Other Regions (1.3%).

Inventory Turnover Ratio

Improved inventory turnover ratio and lower inventory turnover days signify that the company incurs low
inventory carrying costs, which help improve its operating performance. In FY2019, Gap reported an
inventory turnover ratio of 4.9. Its inventory turnover ratio was higher than one of its major competitors,
Guess Inc (3.7) and Abercrombie & Fitch Co. (3.3) during the same period. With the given turnover ratio,
the company will take 75 days to sale its inventory as compared to 99 days by Guess Inc and 110 days
by Abercrombie & Fitch Co, respectively.

The Gap Inc
SWOT Analysis

The Gap Inc
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Liquidity Position

The company recorded a current ratio of 1.9 times in FY2019 and was higher than the Retailing industry
average current ratio of 1.4. The higher than average industry current ratio indicates that the company is
better-placed to payout its obligations. The company’s current ratio was significantly higher than that of its
major competitors, including Nordstrom Inc (0.9), and The TJX Companies (1.5). The increase in current
ratio was due to 11.7% decline in total current liabilities from US$2,461 million in FY2018 to US$2,174
million in FY2019. High liquidity is an indication of the increasing ease in funding the company’s day to
day operations, which also improves its ability to capture growth opportunities in the market.

Weakness

Dependence on Merchandise Vendors

The company is highly dependent on the vendors outside the US. It purchases private label and non-
private label merchandise from approximately 700 vendors having facilities in approximately 40 countries.
These outside vendors require complying with certain vendor conducts and environmental, labor, health,
and safety standards in domestic and international markets. About 28% of the company’s FY2019
purchases, by dollar value, were from factories in Vietnam, while 21% were from factories in China. Its
two largest vendors accounted for 12% of the total sales in FY2019. Increase in product costs and taxes,
import, financial and regulatory issues, or disruption of imports from Vietnam, China, or other foreign
countries could affect the company’s business operations.

Opportunity

Online Retail Market in US

Gap stands to benefit from the positive outlook of online retail market in the US. The company
merchandises products through various online platforms, including gap.com, oldnavy.com,
bananarepublic.com, intermixonline.com, weddingtonway.com and athleta.com. According to in-house
research, online retail sector in the US is forecast to grow at a CAGR of 8.5% during 2017-22 to reach
US$447.4 billion from US$297.8 billion in 2017. Multi-channel retail was the leading mode of sale in the
US retail sector in 2017, accounting for a 58.2% share, while online pureplay accounted for the remaining
41.8%. The US accounts for about 32% of the global online retail sector value. The retailing of electrical
and electronic goods was the largest segment in the sector in 2017, which accounted for 35.7% of the
total value, followed by apparel retail (22.6%), home and garden products (12.1%), food and grocery retail
(11.6%), furniture and floor coverings (4.2%), and footwear (3.5%). Other category accounted for 10.3%
of the value.

Acquisition of Janie and Jack

The company continues to view acquisitions as a major part of its growth strategy. These acquisitions are
intended to augment growth, expand its business with new products, and enhance its geographical reach.
In March 2019, the company acquired Janie and Jack, an apparel retailer with more than 100 retail stores

The Gap Inc
SWOT Analysis

The Gap Inc
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in the US along with an e-commerce platform, from Gymboree Group Inc. The acquired entity will
continue to operate as a standalone brand based in San Francisco. The deal allows Gap to expand its
portfolio into the premium kids and baby business. The acquisition price was about US$35 million with an
additional deal to purchase the Janie and Jack inventory at cost plus additional fees and expenses.

Spin-off and Restructuring Plans

Strategic restructuring plans help the company to increase revenue and market share. In February 2019,
the company approved a plan to separate it into two independent publicly-traded companies: Old Navy
and a new company yet to be named. Expected to complete in 2020, the spin-off enables each stand-
alone company to maximize focus and flexibility, align investments and incentives, and optimize cost
structure to deliver profitable growth. The separation allows Old Navy the flexibility, focus and control
required to increase customer access by applying its strategic real estate strategy, evolving its omni-
channel model and expanding product categories. The new company (to be named) with approximately
US$9 billion in revenue, will include the iconic Gap brand, Athleta, Banana Republic, Intermix and Hill
City. In the same month, the company announced plans to close about 230 Gap specialty stores in
FY2019 and FY2020, as part of its plans to restructure the specialty fleet and strengthen the Gap brand.

Threat

Foreign Exchange Risks

Gap operates in many parts of the world and is exposed to fluctuations in foreign exchange rates. The
company reports financials in the US dollar and therefore its revenue is exposed to volatility of the US
dollar against other functional currencies, as it conducts business operations worldwide. Significant part
of its revenue is also denominated in other currencies such as Canadian dollar, Japanese Yen, Indian
rupees, Euro and British pound, among others. Major elements exposed to exchange rate risks include
the company’s investments in overseas subsidiaries and affiliates and monetary assets and liabilities
arising from business transactions in foreign currencies. In FY2019, the company reported a loss of
US$17 million from foreign currency translation adjustments as compared to a gain of US$35 million in
FY2018. To minimize risks from currency fluctuations, the company involves in foreign exchange hedging
activities by entering into foreign exchange forward contracts. However, there may be no assurance that
such hedging activities or measures may limit the impact of movements in exchange rates on the
company’s results of operations.

Manpower Costs in US

Increasing manpower costs could have an adverse effect on the company’s margins. As of February
2019, Gap employed 135,000 part-time and full-time employees. The tight labor markets, government
mandated increases in minimum wages and a higher proportion of full-time employees could result in an
increase in labor costs. The federal minimum Labor costs are rising significantly in the US. The federal
minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). As of January 2019, the
minimum wage rate in the US was US$7.2 per hour. The minimum wage rate in 29 states and the District
of Columbia is more than the federal rate. These wages range from US$ 13.2 in District of Columbia,
US$12 in Massachusetts and Washington, US$11.1 in Colorado, US$11 in Arizona, US$10.8 in Vermont,

The Gap Inc
SWOT Analysis

The Gap Inc
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US$9.9 in Arkansas, US$8.5 in Florida, US$8.2 per hour in Illinois. The minimum wage in the District of
Columbia reached US$13.3 per hour.

Intense Competition

The company operates in a highly competitive clothing retail market. Intense competition could have a
material adverse impact on the company’s operations. To survive and succeed in a stiff competitive
environment, it is very important for the company to distinguish its product and service offerings through a
clear and unique value proposition. Its major competitors include Abercrombie & Fitch Co., American
Eagle Outfitters Inc, Guess Inc, Belk Inc, and Urban Outfitters Inc. Some of the competitors of the
company have greater financial, marketing and other resources, which enables them to pursue more
vigorous marketing and expansion activities.

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