) is a global specialty retailer which offers clothing, accessories
and personal care products for men, women and children under the
Gap, Old Navy, Banana Republic, Piperlime
Over the past year, the company has performed relatively better
than its peers, such as Aeropostale (
American Eagle Outfitters
Abercrombie & Fitch
), with a sharp response to changing fashion trends. Despite the
prevailing weakness in the U.S. apparel market, Gap Inc's
comparable store sales increased by 1%, 5% and 2% respectively,
during the last three quarters.
With steady growth in the U.S. and abroad, Gap Inc's stock price
has risen by more than 20% over the last 12 months. We believe that
there is still some value to be unlocked in the company. Our price
estimate of $50 is about 30% premium to the market price. In the
current scenario where U.S. buyers have shown low brand loyalty,
Gap Inc has maintained a strong connection with its customers with
appealing marketing campaigns anddesirable products. This should
help the company drive store and web traffic in the future as well.
Additionally, Gap Inc is focusing on smaller brands to gain further
market share in the U.S. Brands such as
Athleta, Piperlime, Intermix, GapKids
have done reasonably well so far, and the U.S. market provides
sufficient room for future expansion.
Also, targeted international expansion and a strong
direct-to-consumer channel are likely to play crucial roles in its
long term growth. We will discuss these two factors in a separate
note that will follow soon.
See our complete analysis for Gap Inc.
Gap Inc Knows What Its Customers Want
This year, U.S. buyers have shown low brand loyalty, as they
have been readily moving to brands that offer the most desirable
and latest fashion at affordable prices. As a result, there has
been a gradual shift of customers from retailers such as American
Eagle Outfitters, Aeroposatle, and Abercrombie & Fitch to
fast-fashion brands such as Gap Inc, Zara, Forever 21 and H&M.
The reason why Gap Inc has enjoyed this trend is because it caters
to a large demographic, knows what its customers want and connects
with them in appealing ways. The retailer offers its three main
Old Navy, Gap
- at different price points and creates separate shopping
experiences around each of these brands.
mainly offers casual clothing at affordable prices for value and
trend conscious high school and college students. The website
reflects an array of vibrant colors and features different products
under discounts every week. It shuffles between categories such as
women's dresses, jeans for the entire family, swim suits, flip
flops, etc. That way it covers a wider customer base while
maintaining interest in the brand. At
, the company offers its products at higher prices than
and targets working professionals along with teenagers. The brand's
website is more subtle, with products such as polos, jeans, khakis
is Gap Inc's affordable luxury brand, which has an organized
website reflecting a sense of expensiveness. It offers versatile
workwear for men and women for all occasions, ranging from desk to
dinner. Occasionally, the brand partners with leading designers to
offer an exclusive and limited addition collection.
serves as a viable shopping option for affluent buyers who are
looking to add some class to their workplace attire. Although Gap
Inc is a casual apparel retailer, it has created different markets
for itself with each brand targeting distinct groups of buyers.
This has worked well for the company so far and is likely to
continue the same way.
Additionally, Gap Inc. is leveraging fashion blogs to promote
its brand image among U.S. buyers. About a couple of years back,
the retailer introduced a website Styld.by in partnership with
popular fashion and lifestyle blogs such as Lookbook, FabSugar,
etc. From time to time, Gap Inc. features its collections on these
blogs since they serve as a valuable medium for company-customer
interaction. According to a 2011 Technorati report, while consumer
trust on traditional media had declined by 46% since 2006, around
35% consumers trusted blogs to be credible sources of information.
Interestingly, 19% agreed with the idea that they are better
written than traditional media sources. Gap's Styld.by blog
partners collectively have about 1 million average unique monthly
visitors. This strategy is helping the retailer generate more
interest among customers.
It Can Gain Market Share In The U.S.
While Gap Inc is consolidating its main brand networks in North
America, it is looking at other ways to gain share in $300+ billion
U.S. apparel market. Apart from expanding
, the retailer is relying on smaller brands for the purpose. In an
investor meeting held in April 2013, the company stated that it
will focus on
to grow its business in North America.
, Gap Inc offers performance driven sports apparel and footwear for
women. The retailer is planning to expand the brand's footprint in
the U.S., which is currently limited to just 61 stores ( Q3 2013).
It opened about 31
stores over the last one year and its likely to touch 100 this
year. We believe that this is a good time for
expansion, as its main competitor Lululemon is struggling with bad
publicity. According to SW Retail Advisors,
is the number one contender to benefit from Lululemon's problems,
as it has hired some valuable talent and is looking to replicate
Lululemon's success story.
Additionally, Gap Inc is planning to open physical stores for
its formerly exclusive online brand
(shoes, accessories and handbags). Although the company operates
store at the moment, it is likely to expand in the future. Gap Inc
also added Intermix (women's fashion botique acquired a year back)
to its online channel. Moreover,
are very popular brands in their respective segments, and can
provide some support to the company's long term growth.
How a Company's Products Impact its Stock Price at