Mohammad Ayaz Khan

GAP China Microenvironment Analysis Introduction / A micro environment analysis of GA China consists of many different types of analyses and these are supplier analysis, competitor analysis, market analyses. and stakeholder analyses. This is because the microenvironment analysis of any organization relates to the analysis of the environment at the periphery of the company and that is where the suliers, competitors, the market and the stakeholders are located. Economists term the microenvironment as the task environment of the company as well. The microenvironment is very important as it affects the company but not necessarily the whole industry. It is therefore extremely important for any organization to constantly monitor all elements of the microenvironment and analyze them. As such, the type of analysis included in a microenvironment analysis are the following Competitive Analysis Competitive analysis which includes the identification rovess of any organizations in the market that provide similar products or services to customers. Competitors are evaluated on the basis of criteria that have been defined. A proper competitive analysis allows the company to v8ew itself from the lens of the competition as well as the customers to determine what can be improved and in which areas within the organization. A very important art of this analysis is the marketing mix of the competitors which has to be understood. Competitor analysis is adequately done by examining cometitiver trends in the apparel market for Gap in China. The company owning namesake Gap brands as well as the Banana Republic brand has been in China since 2010. However , many competitors like Fast Retailing Co Ltd, are giving it a very tough competition as this rival owns Uniqlo along with Spanish fast-fashion brands such as Zara from Inditex SA. As a result of heavy competition, even Inditex had closed its physical stores for three of its brands which are Bershka, Pull&Bear and Stradivarius. Gap had to abandon its Old Navy brand in China in 2020 as a result of competitive pressures. As far as eretailing is concerned, Gap products are also available on Alibaba Group's Tmall online shopping platform. Due to pressures, Ga is behind its competitors in terms of physical stores as well as digital presence in eCommerce. The demand has been low due to the pandemic in 2020 and 2021 and there is an oversupply of clothing in the Chinese market leading to fierce competition. Many clothing brands are leaving China for this reason. The way out of this crisis for Ga is to improve its eCommerce retailing capability and also own ethical stores in areas which are easily accessible to customers and therefore improve its omni-channel retail experience. At the same time, more brand awareness is needed. Social media needs to be exploited more and in better ways. This will allow for higher penetration (China Daily, 2021). Hennes & Mauritz AB or H&M has faced cancellation in China due to its policy of not using Chinese Xinjiang region cotton (Bloomberg, 2022). Supply chain costs increased in the post pandemic period in China and also there was an effect on store sales during the lockdown. The lockdowns also affected activities of people for which they purchase apparel and as such Old Navy being a brand that reflects active lifestyle suffered the most. The competition was also hit but because of Old Navy abandonment, Ga suffered more in this regard (Smith, 2022). Supply chains have been affected all over the world as a result of the endemic and Gap China is no exception as its supply chain costs rose during the last few years. The fuel and freight costs went up with the rise in oil prices in the last year and the higher prices could not be afforded by the low income groups thereby affecting the sales of the products. For this reason, the company resorted to heavy discounting, cutting down its profits. Supplier Analysis This analysis looks at the analyzing and approving of suppliers for GAP China within the organization. Both qualitative and quantitative research elements can be utilized for this analysis. The goal of a sulier analysis is to make sure that Gap China is provided with the best possible raw materials and accessories at the most reasonable prices. On the cotton use issue from Xinjiang, China, Gap states that it is committed to ethical and responsible practices across its supply chain and seeks to support human rights. It has confirmed that it does not use any raw materials for its products from the XUAR region. It is working with suppliers to ensure that its supply chain will not be affected. It has a strict code of vendor conduct as well as a Human Rights policy (Business and Human Rights Resource Center, 2020). However, on a global basis, Gap had lost $3 million by November 221 due to supply chain issues related to the pandemic (Business, 2021). A part of this loss is attributable to china operations as well. In December 2021, Gap had to send an extra $450 million on air freights as itrs supply chain had slowed down and this step had made the stakeholders quite worried. Thus, supply chain issues have been causing consternation with shareholders as well. However, Gap insisted that this step was necessary to uphold customer promise and it would lead to better brand loyalty as there will be sustained growth over time in the long run (Ryan, 2021). Customer analysis /The analysis of GA customers is extremely important for the company for its success in China. The marketing departments are business plans as well as marketing plans and these are all directed at the customers. This target provides information about the customer needs, the target audience, and how the company can cater to the needs for the product or Services. Customer Analysis is done as a two art analysis involving both a Behavioral Analysis and Demographic analysis. Ferrell’s 6W model is often employed for this type of analysis. Clothing customers in the recent years have shifted from buying such clothing items as fleece bodies and active clothing which Old Navy specializes in and are now purchasing office clothes and party dresses more. This is especially true for low income customers due to inflation. The revenues for Gap went down by 11% from 2021 to 222. The Old Navy brand went down by 22% while Banana Republic went up by 27%. Athleta was down by 7%. As such, the Old Navy had to be abandoned for China. (Thomas, 2022). Gap also ended up overestimating demand for large sizes in China and lack of stock of the other required sizes also resulted in lower sales figures (Smith, 2022). Stakeholder analysis Everyone including the internal as well as external people that get involved in the organization or its projects are the stakeholders. These people are analyzed and categorized as a part of this analysis. The grouping can be done according to their participation or interest in GAP China or its projects. The analysis determines how best they can be handled and what should be communicated to whom. The analysis also determines the decision makers. The stakeholders include consumers that have been hit by inflation and thus reduced purchasing power. They include suppliers whereby the supply chain costs have risen due to higher oil prices. Gap employment in China will be affected by the closure of Old Navy and the shareholders are facing a sluming stock drive as shown in the figure below. On 2 August 2022, it was USD 10.10 down from an August high of USD 11.75 (WSJ, 2022). Source (WSJ, 2022). Market Analysis Market analysis of Gap China has many parts. These include the ones that fall under the micro environment. The market in China is affected by inflationary headwinds as well as the slow down in the Chinese economy (Fiber Fashion, 2022). On an overall basis, the market share of US manufactured aarel which include those of Ga have been having an increase in market share in China which is still the largest market as shown in the following figure yet because of Old Navy closure, the Gap sales in China in 2022 were down as compared to the sales in 2021. Source (Wright, 2022). The market is conducive to American apparel but Gap needs to set its priorities right and sell more office clothes and party dresses to suit the present needs of the low income groups in China. Moreover, the sizes in the inventories need to be according to market demand as well. Conclusion Gap’s microenvironmental analysis suggests that the falling revenues can be tapered off and increase in the future in China if Ga can control its supply chain costs that have risen in the period after the endemic and on the consumer side, if it can stock what is demanded by the market and customer demographic. The closure of Old Navy will continue to hurt the company's sales in China but the brand manages its inventories better to lower costs. This will ensure that it holds in its inventories what is required by the customers in the market leading to sustained or even higher revenues. The su7ly chain woes need to be settled as well to reduce supply chain costs. These steps will stabilize the falling stock price as well.