Gap Inc. Equity Valuation and Analysis Valued at November 1, 2006

making a newer, trendier style of clothing. GAP also created flashy commercials
that included choreographed dance numbers and singing. This change alienated
many of Gap’s core customers and as a result, the company lost a sufficient
amount of money. Around 2002, then CEP Millard Drexler launched a “back to
basic” campaign. This campaign consisted of going back to Gap’s roots and
specializing in items such as denim, T-shirts, hooded sweaters, and basic pants.
This has improved sales, but it has been an uphill battle. Essentially, Gap’s brand
image tries to differentiate itself from competitors by offering very high quality,
basic, casual clothing.
Differentiation companies require heavy investments in research and
development. At GAP Inc., each item is sold and then registered for analysis by
planners and distribution analysts. These analysts monitor weekly sales trend
reports and determine which stores need to be stocked with what products.
These “replenishment shipments” usually occur one to three times per week.
This process continues until the season ends. At this point, all customer
feedback, performance notes, and suggested improvements are analyzed so GAP
is ready to being this cycle again.
As far as differentiation goes, Gap’s investment in brand image is by far
the most important aspect of value chain management. A bad decision, such as
the one made in 2000, can cripple a company. GAP is just now recovering and it
has been a slow process. In order to achieve and sustain competitive advantage,
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