Gap Inc. is a specialty retailer that operates stores selling
casual apparel, shoes, and other accessories for men
women, and children. It includes six registered trade
names: Gap, GapKids, BabyGap, Gap Shoes, Banana
Republic, and Old Navy Clothing Company.
During fiscal 1998, the company continued to focus
on developing and growing its brands, and the company
believes that its brands are among its most important
assets. The company is taking action to maintain and
strengthen brand loyalty, including significantly increasing
its investment in advertising and marketing.
Gap significantly increased its investment in advertising
and marketing during fiscal 1998. Besides expanding
the number of print ads placed in major metropolitan
newspapers and their Sunday magazines, major news
weeklies and lifestyle and fashion magazines, the company’s
ads appeared in various outdoor venues, such as
mass transit posters, exterior bus panels, bus shelters, and
gigantic billboards spanning entire buildings. The company
continues to run TV ads for all of its brands and
radio ads for Old Navy and to continue increasing its
investments in advertising and marketing in 1999. All advertisements
stress the central theme of American
design, quality, and moderate pricing, although they are
produced separately in each country to suit local tastes.
The company continues to add flagship stores and
increase television advertising to complement its in-store
customer service focus. The company also continues to
invest in store expansion as well as development of new
distribution channels to address changing market requirements.
Its new channels of distribution include Gap
Online and a catalog for Banana Republic.The company
has limited operating history in these new channels of
distribution and is faced with competition from established
retailers in these new lines.
The retail apparel business fluctuates according to
changes in customer preferences dictated in part by fashion
and season. These fluctuations especially affect the
inventory owned by apparel retailers, since merchandise
usually must be ordered well in advance of the season and
sometimes before fashion trends are evidenced by
customer purchases. Gap is also vulnerable to changing
fashion trends. In addition, the cyclical nature of the retail
business requires the company to carry a significant
amount of inventory, especially prior to peak selling seasons
when the company and other retailers generally build
up their inventory levels.Gap must enter into contracts for
the purchase and manufacture of apparel well in advance
of the applicable selling season. As a result, the company
is vulnerable to demand and pricing shifts and to suboptimal
selection and timing of merchandise purchases.