Business Description

Gap, Inc. operates as a global apparel retail company, which offers clothing, apparel, accessories, and personal care products for men, women, and children. The firm operates through the following segments: Gap Global, Old Navy Global, Banana Republic Global, Athleta, and Other. The Gap Global segment includes apparel and accessories for men and women under the Gap brand, along with the GapKids, BabyGap, GapMaternity, GapBody, and GapFit collections. The Old Navy Global segment offers clothing and accessories for adults and children. The Banana Republic Global segment provides clothing, eyewear, jewelry, shoes, handbags, and fragrances. The Athleta segment offers fitness apparel for women. The company founded by Donald G. Fisher and Doris F. Fisher in July 1969 and is headquartered in San Francisco, CA.

Sources: FactSet

Figure 1: This is a map of GAP Inc. Locations and Distribution Centers around the world with most being located in the United States.Source: Bloomberg

Figure 2: This is a chart published on November 7, 2023, showing all of the 3,533 company-operated or franchised stores across 41 countries for GAP Inc.Source: https://www.gapinc.com/

Business Model

The Gap remains focused on the following strategic priorities in the near term: managing inventory to support a healthy merchandise margin; reducing and optimizing its fixed cost structure to improve profitability and manage through current macroeconomics challenges; driving sales through assortment improvement and a balanced and relevant category mix; driving creative excellence and delivering a product that offers value to its customers through a combination of fit, quality, brand, and price; rationalizing the Gap and Banana Republic store fleet; prioritizing asset-light growth through licensing , online, and franchise partnerships globally; optimizing investments in its four purpose-led lifestyle brand to drive relevance and market share; attracting and retaining strong talent in its businesses and functions; and continuing to integrate social and environmental sustainability into business practices to support long-term growth.

Source: Bloomberg

Business Segments

GAP operates in four segments: Old Navy, Gap Global, Banana Republic Global, and Athleta.
GAP's Old Navy Brand, a lower budget version of the Gap Brand, is its biggest earner at approximately 55% of total sales. The Gap brand itself brings in nearly 25%, followed by upmarket Banana Republic with about 15% Athleta, a line of activewear, accounts for the remaining revenue of 5%.
The company generates over 60% of its sales from its physical stores and the rest from its online stores.Source: Bloomberg

Customers, Suppliers, Competitors

Customers

Walmart Inc.

Walmart, Inc. engages in retail and wholesale business. The company offers an assortment of merchandise and services at everyday low prices. It operates through the following business segments: Walmart U.S., Walmart International, and Sam's Club. The Walmart U.S. segment operates as a merchandiser of consumer products, operating under the Walmart, Wal-Mart, and Walmart Neighborhood Market brands, as well as walmart.com and other eCommerce brands. The Walmart International segment manages supercenters, supermarkets, hypermarkets, warehouse clubs, and cash and carry outside of the United States. The Sam's Club segment consists of membership-only warehouse clubs and samsclubs.com. The company was founded by Samuel Moore Walton and James Lawrence Walton in 1945 and is headquartered in Bentonville, AR.

Amazon.com, Inc.

Amazon.com, Inc. is a multinational technology company, which engages in providing online retail shopping services. It operates through the following segments: North America, International, and Amazon Web Services (AWS). The North America segment is involved in the retail sales of consumer products including from sellers and subscriptions through North America-focused online and physical stores. The International segment focuses on the amounts earned from retail sales of consumer products including from sellers and subscriptions through internationally focused online stores. The AWS segment includes global sales of computer, storage, database, and other services for start-ups, enterprises, government agencies, and academic institutions. The company was founded by Jeffrey P. Bezos in July 1994 and is headquartered in Seattle, WA.

Figure 3: This is a list of the top 10 customers and partners of GAP Inc. from a wide range of industries ranging from Apparel Retail all the way to Petroleum Refineries.

Source: FactSet

Suppliers

Simon Property Group

Simon Property Group, Inc. is a self-administered and self-managed real estate investment trust, which engages in the ownership, development, and management of shopping, dining, entertainment, and mixed-used destinations, which consist primarily of malls, Premium Outlets, and The Mills. The company was founded by Fred Simon, Herbert Simon and Melvin Simon in 1993 and is headquartered in Indianapolis, IN.

Source: FactSet

Tanger Outlets

Tanger, Inc. engages in the operation of upscale open-air outlet centers. The firm focuses on developing, acquiring, owning, operating, and managing outlet shopping centers. The company was founded by Stanley K. Tanger in 1981 and is headquartered in Greensboro, NC.

Source: FactSet

Figure 4: The above figure is the top 10 customers of GAP Inc. by relationship ranking with a majority of the companies being part of the Equity REIT's which stand for Equity Real Estate Investment Trusts. Source: FactSet

Competitors

American Eagle Inc. (AEO)

American Eagle Outfitters is a leading global specialty retailer. The company works in two main business segments : American Eagle Brand that has a wide assortment of high quality, trend apparel while their intimates and active wear fall under the Aerie brand. Both Gap Inc. and American Eagle Inc. have a similar target market of young adults and teenagers' at a comparable price to each other. They both have a majority of their revenue coming from one business segment then have sub segments that make a modified version of their original clothing to meet the needs of the same target market. In the two figures below, the total revenue breakdown per segment can be seen for both companies. Even though American Eagle Inc. is a smaller overall company, it is the best direct comparison to GAP Inc.

Source: Bloomberg

Figure 5: GAP INC. Revenue by Business Segment

Source: FactSet

Figure 6: American Eagle Inc. Revenue by Business Segment

Source: FactSet

Urban Outfitters, Inc. (URBN)

Urban Outfitters Inc. is an American company that operates with lifestyle products that sell fashion apparel and other accessories. The company is not as large as GAP Inc. is relative to Market Cap which you will be able to see in the figure below. Even though they are not as big as GAP they are still considered to be competitors because of working within the same industry of casual clothing and accessories for young adults and teenagers within the same price range. Instead of separate stores, Urban Outfitters operates their business in three segments: Retail, Wholesale, and Nuuly.

Source: Bloomberg

Abercrombie and Fitch (ANF)

Abercrombie & Fitch Co. engages also in the retail of apparel and other accessories just like GAP Inc. It offers a wide range of products for men, women, and kinds under their main two business segments: Abercrombie & Fitch and Hollister with Abercrombie & Fitch making up 47% of their total revenue and Hollister with the rest at 53%. The also have the same target market as GAP Inc. with both having a strong brand identity towards young adults making them one of GAP Inc. direct competitors.

Source: Bloomberg

Burlington Stores, Inc. (BURL)

Burlington Stores, Inc. owns and operates clothing retail stores. The company offers a wide range of off-price high quality branded apparel through it stores and internet sites target men's, women's and children's apparels. They are a bigger company than GAP Inc. by Market Cap but are still competitors because of their price range of clothing and target market are similar. Burlington breaks down their business segments by product rather because they are all one company. There biggest revenue by segment is accessories and shoes which makes up around 25% of it revenue followed by ladies apparel and home, then men apparel, and finally kids and baby apparel.

Source: FactSet

Figure 7: Selected Financials of GAP Inc. and its competitors above.Source: FactSet

Disruptive Forces

Release of the TikTok Shop

In September of 2023, TikTok released its own version of a ecommerce business built right into their app. There app currently has over 150 million users just in the United States and over 1 billion users world wide. The newly established ecommerce offers consumers a wide selection of low priced goods that completely integrates ecommerce with the viral marketing of TikTok. This platform can really have an impact on established retail stores such GAP Inc. because of the accessibility features and low prices targeting the same market of young adults and teenagers. This can have an impact on the amount of sales and number of locations retail stores such as GAP Inc. have over the future years.

Sources:https://bnnbreaking.com/tech/tiktok-shop-disrupting-retail-with-viral-marketing-and-low-priceshttps://www.reuters.com/technology/tiktok-launches-online-shopping-us-2023-09-12/#:~:text=Sept%2012%20(Reuters)%20%2D%20TikTok,of%20the%20social%20media%20app.

Figure 8: As you can see in the chart of TikTok revenue by quarter from 2017-2023, you can see the major jump from the end of Q2 to the end of Q3 by more than $500 million dollarsSource: The Information

Figure 9: This is a copy from GAP Inc. Income Statement showing the sales, cost of goods sold, and Gross Income since 2019 covering before, during, and now after the pandemic. Source: FactSet

COVID-19 Disrupting Global Supply Chains Decreasing Sales

Published in GAP Inc. 10K on March 14,2023 under Risk Factors, one of the major ideas talked about is COVID-19. Even though the height of the pandemic was back in 2020 and 2021. COVID-19 forced many people to spend less money in person and more through online shopping, disruption between supply chain between countries around the world as well as the shutdown of companies locations. Even though most of these factors were temporalily there is always the possibility for it to occur again if COVID-19 is not contained in the future.

Key Metrics

Market Share

After doing some research on GAP Inc. and their market share as of Q3 in 2023 they have controlled around 14% of the market share compared to the other companies in the above figure. GAP Inc. has a major pull on the retail appeal industry controlling this much of the market. Because they control this percentage of the market share it comes with certain benefits including economies of scale, brand recognition, access to resources, and market power.

Figure 9: GAP Inc. market share compared to total market.Source: CSI Market

Overall Key Metrics

Figure 10: GAP inc. and Competitors Key Ratios Source: FactSet

GAP Inc. dominates its other competitors and total sales because of the large number of locations that they have compared to other stores.
Abercrombie and Fitch have the highest Gross Margin compared to the other companies because they are able to sell their goods at a higher price compared to other stores such as GAP, American Eagle, and Burlington.
GAP Inc. is in the middle range compared to its competitors for inventory turnover
Burlington has the highest Debt-to-Equity by a landslide meaning that they rely heavily on debt financing.
GAP Inc. has the most assets compared to all of its other competitors that I decided to use.

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