Deep Dialysis: The Gain And Loss Of The Old King'S Fast Fashion Gap

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We hope to recalling the development path of Gap group in the three stages of rise, silence and recovery, and analyze its gains and losses in the market strategy, marketing strategy and product strategy, so as to explore the business strategy of mass positioning Brand Company in the face of big market.

Gap group was founded in 1969. Since its first brand Gap store was established, it has continuously strengthened the layout of the North American market, enriched the brand matrix, and actively promoted global expansion. It has gradually grown into the first and the world's leading apparel brand group. As of 2017, the company achieved a revenue of 15 billion 855 million US dollars and a total of 3594 stores.

Gap group has gone through the development path from the multi brand matrix to the North American casual wear market to the global expansion and speed up and the growth of the market segments. We divided the development history into three stages: rise, silence and recovery in 2001 and 2011 respectively.

Phase 1 (FY86-FY01): Rise

The early Gap group focused on the American casual wear market, and built the brand name Gap, the main brand of jeans, T-Shirts, shirts, khakis and other wardrobe necessities, as the representative brand of the mid priced American casual wear. In 1986, it creatively put forward the SPA mode and achieved rapid expansion through vertical integration.

It also acquired Banana Republic in 1982, and founded OldNavy brand in 1994. It has formed an American casual wear brand group with high and low price.

As of 2001, the Gap group achieved a revenue of 13 billion 848 million US dollars and a 1986-2001 annual revenue increase of 20.47%.

Phase second (FY02-FY11): silence

The 2002-2011 year is the 10 year of the Gap group's gradual fall, and the growth of revenue side is stagnant.

On the one hand, the mature brand products such as Gap and Banana Republic are aging and consumer groups are continuously losing. The main market represented by the US is continuously impacted by the fast fashion brands such as H&M and Zara. On the other hand, the overseas market and online channel expansion are weak, and missed the strategic opportunities for the layout of the high growth Asian market.

Phase third (FY12 to date): resuscitation

Since 2012, Gap group has vigorously adjusted the strategy of brand optimization and market layout, and actively promoted the process of group rejuvenation.

Taking the strong North American market as the base, while optimizing the mature brand operation efficiency of Gap and Banana Republic, we actively promote the expansion of new brands such as Old Navy and Athleta. Since 2013, we have set up the international business division for the three major brands, Gap, Old Navy and Banana Republic, further enhancing the importance of overseas market expansion strategy, and exploring the layout of digital retail business by establishing the "Navy".

As of 2017, the company achieved a revenue of 15 billion 855 million US dollars, an increase of 2.19% over the same period last year, ending the 4 year slowdown in revenue growth.

"Market strategy: multi brand focus on North American market, missing global expansion opportunities".

From the perspective of market strategy, Gap group has gone through the development path from the multi brand matrix to the North American casual wear market, to the global expansion and speed up, the high growth and market segmentation.

From rapid development to stagnation, the pformation of Gap group is just in a few years.

As the four largest mass leisure company in the international fast fashion industry, Gap group has not only experienced the expansion path of "expanding the local market - global expansion - focusing on the regional market", but also rapidly created a parity brand Old Navy that surpassed the Gap brand income volume based on the experience of the previous brand management, and established a relatively balanced multi brand income structure.

From the development stage, the rapid expansion period of the group in the 1986-2001 years, the compound growth rate of the revenue end reached 20.47%; the follow-up was influenced by the low price strategy and the mediocrity of product development, Gap and Banana Republic continued to close, Old Navy expansion slowed down, the development of the group in 2001-2017 years was almost stagnant, and the compound growth rate of the revenue end slowed to 0.85%.

Since the acquisition of Banana Republic in 1982, the company has set up Old Navy in 1994, and purchased Athleta, Intermix and Weddington Way in 2008, 2012 and 2016. It has established a brand matrix of different styles including 6 brands, covering the high and low price casual wear market, and the high growth segments such as sporting goods, buyer retail and wedding e-commerce.

By 2017, the company's two largest fist brands Gap and Old Navy achieved revenue of $5 billion 318 million and $7 billion 238 million, respectively, with revenue contributions of 34% and 46%, respectively.

Mature brand in adjustment, growth brand expansion.

From the perspective of multi brand operation performance, Old Navy, a cheap casual wear brand, has achieved rapid growth in the short term since its first store in the United States in 1994. With the help of its operation experience and its proper brand positioning, it has grown into a brand with 889 stores and 6 billion 747 million dollars sales revenue as of 2004, contributing 41% of the Gap group's revenue share.

Over the next 10 years, Old Navy and Gap went through a long period of adjustment, and entered the stage of recovery growth in 2014, while Gap brand was restricted by the closing factor.

In September 2017, the company's strategic planning announced on the official website pointed out that Gap and Banana Republic will close about 200 stores in the next 3 years on the basis of nearly 200 stores closed since 2014, and Athleta and Old Navy will gradually become the main force for expansion.

At this stage, the company's brand strategy has gradually been adjusted to provide robust business cash flow with mature brands such as Gap and Banana Republic, to support growth brands such as OldNavy and Athleta, and to expand the growth space, and to explore the stereoscopic brand matrix of new business prospects such as Intermix and Weddington Way.

Second, in the market dimension, the expansion strategy of Gap group is mainly focused on the deep North American market, and the pace of global expansion is lagging behind.

As of 2017, the revenue of the North American market was 13 billion 741 million yuan, which was basically the same as that of 2007.

Brand level, Old Navy has gradually become the main driving force for the resumption of growth in North American market since 2013. As of 2017, Old Navy achieved a revenue of 7 billion 117 million yuan in North America, contributed more than half of the volume of revenue in the North American market, and the annual compound growth rate of the 2013-2017 year revenue was 3.59%, while the maturity of the brand Gap and Banana Republic grew at the same time -4.73% and -3.66%.

The early Gap group relies heavily on the North American market and the Asia Pacific market expansion dividend. At this stage, the leading brand of the first big brand group in the North American market is further strengthened by optimizing the operating efficiency, and accelerating the layout of the overseas market and finding new expansion power through the establishment of sub brand international division and the exploration of digital marketing.

In the background of the weakening of the domestic market in North America, Gap accelerated its global expansion, made relatively mistakes in its early Asian market development strategy, and delayed the adjustment in the mature and highly competitive Japanese market. In 2011, it made it clear that it should pay attention to the expansion of the second largest markets in the world.

Since its debut in London in 1987, the Gap brand has opened up the pace of global expansion, and in 2007, it has clearly put forward the strategy of globalization, expanding the franchise through the development of franchised stores.

Since 2008, the international market has become the focus of Gap group's expansion.

In the context of continuous adjustment in the domestic market, the company was established in 2012.

And Banana Republic sub brand international division, to enhance the strategic position of global expansion.

At the same time, the company actively adjusts Asian market development strategy to reduce growth and competition.

Layout, in 2017, the company closed the Old Navy brand in all 53 stores in Japan, and moved to the market with more energy consuming China.

Benefiting from channel expansion, Gap group's international market revenue share increased from 10.25% in 2007 to 13.33% in 2017, while revenue composite growth rate reached 2.73% in the same period. In the same period, the annual composite growth rate of North American market business was -0.29%.

Looking ahead, Gap group's market strategy will focus on optimizing the efficiency of the North American market and accelerating the layout of overseas markets.

In 2001, in the background of the failure of Gap fashion pformation and the loss of performance, the adjustment of the company's product level tended to be conservative, while the European fast fashion brand represented by H&M and Zara continued to impact the share of the company in the US market.

Under the background of the gradual completion of multi brand matrix, the company will optimize the operation efficiency of mature brand channels on the one hand. On the other hand, it will use Athleta, Intermix and Weddington Way to layout sports products, buyer retail and wedding e-commerce and other high growth segments.

Global layout level, as of 2017 Gap group

Asian and Asian markets account for 60% of the total sales, which is the main market for global expansion. From the brand matrix, Gap brand contributes 88% of international market revenue.

At this stage, the company actively adjusts Asian market expansion strategy, on the one hand, to reduce the layout of the Japanese market, and on the other hand, optimize the brand structure of China's market and grasp the development opportunities of the Chinese market.

Since the Gap brand entered China in 2010, the total number of shops opened as of 2017 has reached 127. The aging of the product image and the higher price limit limit the space for brand expansion, and may help the Old Navy brand meet the demand of low price products in the future.

"Marketing strategy: optimize the main brand stores, and strive to improve the efficiency of the whole channel."

At the marketing strategy level, Gap group is trying to optimize the channel structure of the local market while actively trying out the business layout of the emerging channel, and through the whole channel retail mode upgrade to open up customer consumption data and improve the terminal efficiency.

In the 2005-2012 year, the proportion of group net shops increased to less than 50%. Especially in 2009, under the background of large-scale adjustment of Gap and Old Navy, the total number of shops increased negatively.

On the basis of closing inefficient stores, Gap brand promotes store efficiency by opening new stores. In the early stage, the Old Navy brand with a large scale strategy takes the opposite way. It promotes the overall efficiency of the flat by opening a relatively small area store mode, thus promoting the resumption of single store revenue growth.

In the 2012-2014 year, the group stepped into the channel expansion stage led by the distribution channel and other emerging brands. In the 2015-2016 year, the proportion of group store adjustment increased again, which was affected by the large-scale closure of Gap and the adjustment of OldNavy Japanese market strategy.

In 2015, the number of Gap brand stores in North America reached 150, and the related costs amounted to US $132 million. In 2016, we continued to improve operational efficiency and streamline the brand operation mechanism, and the related expenditures due to lease termination, staff resettlement and store assets clearance amounted to US $197 million.

The group website revealed that it plans to streamline the operation area of Gap and Banana Republic in the North American market, and intends to further close 200 stores in 2017-2019 years.

As the closing of the main market is coming to an end, the performance of the North American market is expected to stabilize in the future based on the expansion of new brands and the optimization of operation processes.

In the context of the three-dimensional development of retail channel structure, in order to quickly meet the needs of consumers for convenience and fashion, the company set up GID Growth (Innovation, and Digital) in 2012, developing digital retail channels and Athleta and other emerging brand businesses.

In 2013, we put forward a full channel retail system with the layout of "Find in Store" and "Reserve in Store", with a view to quickly meet consumers' demand for convenience and fashion in the era of efficiency.

As of 2015, the Gap group's direct business (e-commerce) channel achieved a revenue of 2 billion 605 million yuan, accounting for 16.49% of its revenue from 2004 to 16.49% and a compound annual growth rate of 14.94%.

Benefiting from the streamlining of continuous shop closes and the sales pformation promoted by channel structure adjustment, Gap group's terminal human effectiveness has been continuously improved.

Product strategy: product is not good enough, supply chain optimization supports scale advantage.

Poor product image and insufficient innovation are the main reasons for the two mature brands of Gap group.

For Gap and Banana Republic brands, the early expansion of the channel and effective marketing promotion made the traditional American leisure style popular among the people. While the product image was too solidified, it provided an expanding market for European parity fast fashion brands represented by H&M and Zara.

To increase the attractiveness of traditional brands to new consumer groups, the company is actively trying to enhance the exposure of products through new media cooperation and designer joint names, and has also increased advertising marketing since 2015 in the context of channel efficiency optimization.

Different from UNIQLO, with the help of fabric upgrading to get rid of the low price image to achieve functional upgrading, and Zara with the help of supply chain efficiency optimization to respond quickly to the fashion consumption demand of consumers, and so on, Gap has chosen to cooperate with fashion media and fashion industry groups to select new designers to jointly improve the exposure of products.

From the perspective of sales pformation, product upgrading strategy with external force rather than self innovation does not bring growth to the brand.

The product strategy is characterized by small profits and quick turnover. Therefore, the company actively optimizes the supply chain structure and strengthens production efficiency and cost advantage through quantitative consolidation and decentralization.

In a series of international comparison reports, we have repeatedly suggested that after the establishment of a certain scale advantage, the probability of a marginal decrease in operational efficiency will occur for garment enterprises. Therefore, the optimization of operational efficiency will become another important task for Gap group to find new business growth points.

As of 2017, the number of cooperative suppliers was about 800, of which 2 of the top 2 suppliers accounted for 5% of their orders. Suppliers were distributed in 50 countries, accounting for 25% and 22% in Vietnam and China.

In 2011, the number of cooperative suppliers exceeded 1000, and the single supplier orders accounted for less than 2%. Suppliers were distributed in 43 countries, of which China accounted for nearly 26% of orders.

By comparing the above data, we can find that at the supply chain level, the cost savings and product delivery cycle are reduced.

We should actively promote the core supplier system and accelerate the development of supplier resources outside China in the context of textile industry pfer.

"Market performance: enjoy the valuation premium of the leading company and push shares repurchase many times".

Growth stagnation, the valuation center has shifted down, enjoying the premium valuation of leading companies.

Based on the analysis of the topic "how to see the current valuation level of the spinning and weaving services sector", we believe that after the establishment of a certain scale advantage, the medium-term valuation of the overseas public Brand Company contains a marked steady growth premium.

Taking the fast fashion company ITX (Zara parent company), H&M, FR (UNIQLO parent company) and Gap as an example, by comparing the performance and valuation performance of its expansion and maturity periods, we find that the excellent earnings companies whose earnings and performance growth are relatively slow and their long-term profitability (ROE characterization) remain stable often enjoy the valuation premium at maturity.

Even if Gap growth is almost stagnant, it can get a stable valuation center and premium based on relative scale advantage. Since 2002, the median of PE has remained above 15x level in the background of stagnation of revenue growth.

The PE valuation was repaired after the centralized repurchase was completed, but the Central Committee did not move up.

Since 2004, under the backdrop of poor performance and declining share prices, the company has implemented the share repurchase program several times. As of 2018, the total repo stock in the China Daily reached $15 billion 800 million, and the total market value of the company at the end of the reporting period was US $11 billion 800 million.

From the perspective of financial and market performance before and after the implementation of the share repurchase program, it has benefited from the decrease in the scale of cash assets and the improvement of asset turnover rate, which has led to the improvement of ROE. However, in 2005, 2007, 2010-2011 and 2014, the PE valuation of the company has been revised, but the central nervous system has not shifted significantly.

Review of the United States first

The development history of the three stages of Brand Company Gap group's rise, silence and revival has shown that: (1) in the face of the vast local market, the early expansion of mass dress Brand Company preferred to build multi brand matrix and enhance the market share; (2) the emerging market with better growth and unstable brand environment is the first choice for overseas expansion, and the brand matrix should fit in with the market demand; (3) the product innovation that complies with the consumer demand is the key to maintain the competitiveness of the clothing brand; (4) after the establishment of scale advantage, the supply chain layout gradually shows the characteristics of coexistence of quantitative reduction and decentralization.

Specifically to the domestic clothing Brand Company, the local mass positioning Brand Company is similar to the Gap group, facing the opportunities and challenges of the broad market.

Considering that the growth of local clothing market is relatively good and the share of enterprises is still low, it is still the strategic focus of the local mass brands at this stage to build a competitive barrier based on the domestic market and enhance the efficiency of competition. At the same time, we also see that the brand group represented by Semir costumes and Hai Lan home has gradually opened up the overseas market layout strategy.

We believe that, in the context of the smooth clearing of industry inventories and significant improvement in channel profitability, local brands will rely on the broad and most growing low line market, based on the cognitive advantage of local consumers and the omni-directional self evolution is expected to increase their share. Based on international research reference, Semir clothing and Pacific bird's home market are continually recommended to have safety margins.

Industry perspective

The listed companies' reports gradually revealed that in the background of 17Q4 and 18Q1 benefiting from the cold winter and the increasing income side of the peak Spring Festival, the growth rate of the revenue side of the garment company 18Q2 has been expected. However, in the context of the drop of the retail sales growth rate, the market is worried about the consumption anxiety in the second half of the year, and therefore pays more attention to the cash flow and store expansion in the first half of the year.

According to the currently disclosed reports, some representative Brand Company appeared to have negative net operating cash flow and limited expansion outlets in the first half of the year.

We believe that on the one hand, the negative cash flow from operation is mainly affected by the increase in inventory and the decrease in operating capacity. At present, the sales return is in good condition, and accelerating the return rhythm in the backdrop of the increase of upstream business pressure will help to ensure the stability of the supplier system.

On the other hand, in the history of clothing brands, the peak season of shops is concentrated in Q3. In the first half of the year, most of them are channel adjustment stage and less shops. From the tracking situation, there is no expectation that clothing enterprises will concentrate on the sharp reduction of the opening shop plan. It is expected that the pace of Q3 expansion will accelerate, and the performance of key companies should be expected to rise.

At the same time, cotton prices in the medium term upward superposition of RMB devaluation favorable upstream quality manufacturing, help speed up the second half of the year, quality manufacturing is in the middle of the layout of the opportunity.