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Gap Inc.

Gap Inc. The Valuation Project -Mod 1 : Introduction Sherry Xu ( netID : jxu6). 1. Industry Overview. Apparel Stores Family Clothing Stores. 1.1 Industry Performance. The essentiality of industry products has kept demand at family clothing stores relatively stable.

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Gap Inc.

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  1. GapInc. TheValuationProject-Mod1:Introduction SherryXu(netID:jxu6)

  2. 1. Industry Overview • ApparelStores • FamilyClothingStores

  3. 1.1 Industry Performance • Theessentialityofindustryproductshaskeptdemandatfamilyclothingstoresrelativelystable. • CurrentPerformance (’08-’13): • Recovery from recessionary declines • Revenue: • Estimated annualized growth rate of 1.6% to $97.8bn • Profit margin: • Pre-recession: 8.1% • Recession: 3.0% (’09) • Post-recession: 7.6% (’13)

  4. 1.1 Industry Performance • Industry Outlook (’13-’18) • A relatively strong rebound • Revenue: • Estimated annualized growth rate of 2.2% to $109.2bn • Trends: • Consumers less price sensitive and more responsive to advertising and branding • Increasing personal disposable income • Brand conscious Generation Y • Market reaching saturation • Niches • Competitions

  5. 1.1 Industry Performance • KeyExternalDrivers: • ConsumerConfidenceIndex • Generalhouseholdexpenditure • Externalcompetition • eg. specialtyclothingstores,departmentstoresandonlinestores • Numberofadultsaged20to64 • Primarypurchasers • WorldpriceofCotton • Significantindustrycost • Life Cycle Stage: Mature

  6. 1.2CompetitiveLandscape • MarketShareConcentration:Medium • Top4industryparticipants:42.0%oftotalindustryrevenue • Competition:High • BarrierstoEntry:Medium • IndustryGlobalization:Low • Key Success Factors: • 1) Aclearmarketposition; 2) Abilitytocontrolstockonhand; 3) Productionofgoodscurrentlyfavoredbythemarket; 4) Establishment of brand names; 5) Attractive product presentation; 6) Experienced work force

  7. 1.2 CompetitiveLandscape Cost Structure Benchmarks:

  8. 1.3 Operating Conditions CapitalIntensity:Medium TechnologyChange:Low RevenueVolatility:Low Regulation: Medium Industry Assistance: Low

  9. 2. Company OverviewTheGapInc. • Globalretailerofferingapparel, accessories, and personal care products for men, women, children and babies • Brands: Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix • Operations: • Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, China, and Italy • Franchise agreements with unaffiliated franchise to operate Gap and Banana Republic stores in 40+ countries • Products available online in 80+ countries • Most of the products designed by the Company, with some designed by branded 3rd parties

  10. 2.1 Financial Results (’13)

  11. 2.2 Porter Five Forces Analysis • Industry Competition: High • Internal Competition: • Price remains a major basis of competition. • Style, product range and comfort are also important factors. • External Competition: • Specialty stores: wider variety to choose from and well-known brands that cater to current trends • Department stores: larger variety of brand names and discounts • Online stores: convenience and ease, price comparison

  12. 2.2 Porter Five Forces Analysis • Bargaining Power of Buyers: Medium/High • Established brand name at affordable price for price-sensitive but fashion-conscious customers • Bargaining Power of Suppliers: Medium • No vendor accounted for >5% of total purchases (’12) • Threat of Substitution: High • Threat of Entry: Medium • High costs of developing/maintaining brand reputations and networks

  13. 2.3 SWOT Analysis • Strengths: • Strong financial positions • ’12: delivered against stated priorities to drive increased sales with healthy merchandise margins, prudently invest in business, grow earnings per share, and return excess cash to investors • Ample liquidity for working capital needs and as a reserve for unexpected business downturns • Brand recognition: both necessity and fashion • Successful international expansion • Largecustomerandvendorbase

  14. 2.3 SWOT Analysis • Weakness • Sensitive to global economic conditions and consumer spending patterns, as well as apparel trends and customer preferences • Highly competitive industry • Costs and supply chain dependentonglobal sourcing and manufacturing • Nearly all products manufactured by independent 3rd parties • 98%ofmerchandiseunitsproducedoutsidetheUnitedStates • 26%inChina • Franchise subjective to risks not directly within control

  15. 2.3 SWOT Analysis • Opportunities • Access to credit and capital market • Profit growth fueled by bothvolume and margin • Furtherinternationalexpansion • Entry into E-commerce • Threats • Reduced customer demands during economic downturn • Pricingpressureduetocompetition • Supplychaindisruptionandincreaseinproductcosts • Brand value impacted by franchisees

  16. 2.4 Life Cycle Stage

  17. Questions?

  18. Thank you! Sherry Xu (netID: jxu6)

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