Building a responsive supply chain is a key priority for Gap

Building a responsive supply chain is a key priority for Gap

US speciality clothing retailer Gap Inc has said one of its strategic priorities in the new fiscal year will be to continue building a responsive supply chain in order to boost flexibility and speed.

As part of turnaround efforts in the US, the retail group last year turned its focus to leveraging its global brands in order to gain a larger share of the $1.4trn global apparel market.

At the heart of this strategy were efforts to realign the business so that it focuses on brands instead of channels, a global assortment, and speed to market.

The company managed to cut its core pipeline by one-third. It then turned its attention to "fabric platforming".

Responsive supply chain
CEO Glenn Murphy told analysts on the firm's earnings call yesterday (27 February), that building a responsive supply chain was a key priority for the group in 2014.

"2013 started with a consolidation of our fabrics, eliminating lots of fabrics we didn't need," he explained. "Now that we have a fabric library that's a lot less than it was the previous year, now you can platform those fabrics, and we're making huge progress on that.

"It's going to be a big difference in our business. It introduces flexibility and speed to an operating model which we didn't have before, VMI or vendor-managed inventory. We made big strides in 13."

Murphy said Gap is also doing a lot more testing of products. "Test and respond. You'll see a lot of that."

And in the back half of the year, it will finally introduce "rapid response". "That's just having a model, which you can react in season. All of those will come together, and we're feeling pretty good about the progress we made."

As part of its supply chain efforts, late last year Gap promoted Sonia Syngal to lead the company's global supply chain division.

International ambitions
As well as its focus on the supply chain, however, Gap is keen to build its international presence, and yesterday outlined its overseas plans for the year ahead.

Murphy told analysts the company's international online business had had "another very strong year", although it did not break out figures by region. Total online sales grew 15.9% to US$698m for the quarter.

The chief executive, however, said the company continues to look at "what the right balance is" of its bricks-and-mortar business to its growing digital business internationally.

"In Europe, in Japan, in China, there's always going to be a need for a customer to go into a store. Philosophically and strategically, Gap Inc believes that. But finding the balance in our international markets is going to be important where the fleet is not as large as here domestically."

In China, Gap plans to have over 30 stores in four new cities. It ended fiscal 2013 in 21 cities. It expanded its store base on the mainland, opening 34 stores, making a total of 81, inclusive of Gap outlet stores.

"There are 50 cities in China with more than 5m people, so we're not even halfway there yet.

"We've been making a big investment in marketing and brand awareness long-term; that's how you're going to win in China, by having a real brand that people know what it stands for and what it represents. Our awareness in 2013 hit 70%, and that's equal to or above a lot of our international competitors who've been there many years before us."

Murphy, however, was also keen to point out the investments being made in its online and mobile business in China.

"We're lining ourselves up with some strategic partners. Everything we're doing here domestically we've seen in spades in China - which lines up so nicely with how we see our business and winning both in digital and physical."

He also told analysts the company is "very focused" at the beginning of this year on "winning, on building this bridge between digital and physical", and on executing its four global priorities "flawlessly".

Sliding earnings and sales
Gap will be hoping its efforts pay off after it yesterday booked a drop in fourth-quarter earnings and forecast weakening foreign currencies will hit earnings for the full year. Sales were also down, both negatively impacted by the loss of a 53rd week in the 2013 figures and heavy discounting over the holiday period.

CFO Sabrina Simmons said the company will continue to pursue "a balanced approach" to deliver on its goals this fiscal.

"Specifically, we'll focus on growing sales with healthy merchandise margins, managing our expenses, delivering earnings per share growth and, as always, returning excess cash to shareholders. Our objective overall is to deliver modest positive comps on a full year basis."

For the full year, Gap expects its EPS growth rate to be negatively impacted by around five percentage points, as a result of weakening foreign currencies. As a result, it has forecast EPS to be in the range of $2.90 to $2.95.