General Environment Analysis
The PEST framework is used to identify the opportunities and threats of the general environment. It consists of five components: Political/Legal, Economic, Social, Technological and Global. As for the political or legal environment, there is not much legal or political obstacle that could hinder GAPs growth as an apparel company (opportunity). They are expanding into international markets though, so some legal and political considerations have to be thought of carefully before rushing in (mild threat).
This is because cultural and political differences influence how GAP conducts its business in different countries. The next aspect is economic environment. GAP International considers 2001 to be a year fraught with difficulties. Besides the fact that GAP was in a highly competitive industry, consumer spending was almost stagnant due to the economic slowdown (Threat). In that same year, apparel comprises only 3. 2 percent of disposable income, down from 3. 5% in 1991 (Valid threat).
Consumers had become value shoppers, looking for stores that offer more and better discounts (Threat). The third aspect is social/cultural/demographic segment. Apparel retailers like GAP International catered to both men and women. Based on gender, women accounted for 83% of all purchases. Although men comprise only a small share of the purchases, the trend has been that men are increasingly purchasing casual clothes, due to changes on the dressing code for white-collar workers (Opportunity).
On the other hand, in terms of age, baby boomers which comprise about 23% of the population had shifted their focus from fashion apparel to casual wear, loungewear, underwear, and body care products (opportunity). The fourth aspect is technological. Due to the Internet, specialty retailers like GAP can offer their products to their customers on a 24/7 basis, which makes it simpler and safe for customers to buy (opportunity).
Customers want their favourite retail stores to have multiple channels in distributing their products. That way, they can avoid the inconvenience of going to the store themselves by just searching through GAP’s online catalogue (opportunity). The last segment is the global environment. Emerging markets in China, Latin America and Central Europe offer improved economic efficiency, increased competition and consumer purchasing power which are very attractive determinants of retail store success (Big opportunity).
However, local customs laws, tastes and other cultural differences as well as the supply chain challenges unique to each county can also take their toll on GAP’s market expansion in these countries (mild threat). That is why it needs to be careful to move into uncharted waters. 3. 2 Task Environment Analysis To properly analyze the internal environment within which GAP International operates, we will use Porter’s Five Forces framework. The first factor is the threat of new entrants.
1) Specialty retail stores are increasingly making their presence felt domestically by expanding into the other geographical areas; however this could lead to sales cannibalism. 2) In terms of product differentiation: different age groups require different fashion styles, what baby boomers want is usually different from what Generation Ys want 3) Capital Requirements: Retailers rel on their suppliers so much that any disruptions in supply could prove disastrous. Thus capital requirement for setting-up this kind of business is very high 4) Switching costs low: There are so many other retail apparel stores to choose from.
It is very difficult for GAP International to differentiate themselves from other competitors, especially in the domestic market 5) Access to Distribution Channels: Heavy reliance on suppliers and the supply chain could prove disastrous, especially when there are disruptions in supply. High standards must also be set when choosing vendors of GAPs products, including close monitoring of these vendors 6) Cost disadvantages independent of scale: since GAP distributes its products through retailers and specialty vendors, close monitoring is required.
Its response to cater to different segments of the market (by demographics) could offer a viable opportunity for growth 7) Government policy: Domestically, government policy plays only a slight role in terms of influencing sales movement of GAPs products. However, internationally these may prove to be a landmine of cultural and political differences. The second factor considered is the bargaining power of suppliers which is, in GAPS case, is a medium threat. This is because there are many suppliers yet suppliers’ inputs are important to buyers’ product.
Aside from that there is a persistent threat of forward integration by the supplier. The third factor is the bargaining power of buyers. 1) Consumers go for quality of products and will not buy poorly made apparel, they have an easy choice to switch to another distributor 3) Products are differentiated. 4) Buyer does not present a credible threat of backward integration since GAP has its own unique design characteristics. So in terms of bargaining power of buyers, it is considered as an opportunity. The fourth factor is the threat of substitute products.
As far as we are concerned, there is no real valid threat coming from substitute products. What can replace clothes to cover one’s body? The last factor is the rivalry among existing competitors. 1) GAP International faces multitudes of competitors in terms of grabbing market share 2) Price is not very differentiated thus it cannot be considered as means of competitive advantage. 3) There are high marketing costs involved especially in opening up international markets, considering the availability of local competition; 4) Increasing services, on-line offerings. Therefore, rivalry is a very serious threat to GAP International.
Sample Essay of Edusson.com