this should be in memo format about the attached case, thank you. example of a memo is also attached.
Predicting Consumer Tastes with Big Data at Gap 9-517-115 R E V : M A R C H 1 9 , 2 0 1 8 Professor Ayelet Israeli and Senior Lecturer Jill Avery prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2017, 2018 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. A Y E L E T I S R A E L I J I L L A V E R Y Predicting Consumer Tastes with Big Data at Gap In January 2017, Art Peck, Chief Executive Officer and HBS MBA ‘79, was struggling to turn around Gap Inc. following two years of declining sales in an environment where many brick-and-mortar retailers were under pressure. Peck took over as CEO in February 2015, after serving as President of Growth, Innovation, and Digital, when he envisioned and implemented Gap’s digital strategy using an analytical approach. (See Peck’s resume in Exhibit 1.) Gap’s troubles were not new to Peck; the company had been struggling to regain its footing since 2000. One way he hoped to improve operations was to eliminate the position of creative director for each of the firm’s fashion brands and to replace them with a more collective creative ecosystem fueled by the input of big data. Creative directors were the visionaries of a fashion brand, serving as guardians of its image and providing its taste inspiration and its wellspring of ideas. These designers, such as Karl Lagerfeld for Chanel and Christopher Bailey for Burberry, established a design direction for each line, created a small number of inspiration pieces, and oversaw and approved the designs of other products in the line. Their personal vision established and reinforced the look, feel, tone, and spirit of the brand. However, Peck was critical about the amount of power this concentrated in one individual. Many creative directors with top-notch design experience had come and gone during his tenure without making a significant mark to boost sales. Labeling creative directors “false messiahs,”1 Peck reflected, “We have cycled through so many, and each has been proclaimed as the next savior.”2 Instead of betting the future on the next savior, he replaced creative directors with a decentralized, collective process that no longer required the approval of a creative director. Rather than relying on a single person’s artistic vision, Peck pushed the company to use the mining of big data obtained from Google Analyticsa, Google Trendsb, social media, and the company’s own sales and customer databases as the backbone to inform the next season’s assortment. Ideas could thus arise anywhere, even from Gap’s external vendors, and would no longer have to be vetted by a creative director serving as maestro of the collection. Once a trend was spotted, it could be immediately and simultaneously incorporated into all three of the company’s brands, hitting stores within three months. “There is now science and art, and they can come together [in this new process],” proclaimed Peck.3 With the elimination of his creative directors, he was upsetting the delicate balance between creativity and commercialization, between designers and merchants, that existed at most fashion brands and that had supported Gap Inc.’s fashion cycles for decades. a Google Analytics is a Google web analytics service that tracks, measures, and reports website traffic to gain customer insights. b Google Trends is a service that shows how often specific search-terms are entered on Google across different regions of the world. For the exclusive use of M. Harthi, 2022. This document is authorized for use only by Mashor Harthi in BA 590 Marketing Management (Fall 2022) taught by Johnny Chen, Oregon State University from Sep 2022 to Dec 2022. 517-115 Predicting Consumer Tastes with Big Data at Gap 2 Peck was also considering expanding online distribution by selling Gap’s brands on Amazon, an online retailer. His previous role at Gap taught him the importance of e-commerce and digital, and he expressed his opinion that Gap could be at a disadvantage if it didn’t consider the Amazon opportunity. Selling on Amazon could provide an additional data about customer behavior to inform Gap’s decision making.4 Company Overview Gap Inc. was founded in 1969 by Donald and Doris Fisher; their son, Robert Fisher, was chairman of the board in 2017. Gap was one of the creators of specialty retailing, in which a retailer focused on a particular product category rather than carrying a wide assortment and produced its own private-label goods. It remained the largest example of the genre, with 135,000 employees and 3,659 company-owned and franchised retail locations in 50 countries, accounting for 36.7 million square feet of selling space, which generated global sales of $15.5 billion.5 (Also see Exhibit 9). Gap Inc. managed five brands: Gap, Banana Republic, Old Navy, Athleta, and Intermix, and had historically been the authority on American casual style. The Gap brand offered female and male consumers casual, classic, clean, comfortable basics—including jeans, khakis, button-down shirts, and pocket tees—at accessible prices. Some called it democratic fashion, “ordinary, unpretentious, understated, almost lowbrow,” while others labeled it iconic: “They elevated incredible basics to not just an iconic status in terms of clothing, but also a spirit—you felt like there was such a strong attitude, so much energy.”6 In 1996, Gap was at the height of its cool; actress Sharon Stone wore a Gap turtleneck on the red carpet of the Academy Awards. In 1983, Gap Inc. acquired Banana Republic, moving into a higher price/quality tier. Luxurious materials were combined with detailed craftsmanship to support more expensive price points and attract a higher-income consumer. In 1994, Gap Inc. created a new brand, Old Navy, to compete with discount department stores and mass merchandisers such as Sears and Target, ushering in a period during which it became chic for consumers of all income brackets to shop for a bargain. Offering “wardrobe must-haves” at “prices you can’t believe,” embedded in a fun shopping experience, Old Navy was an immediate success with families, becoming the first retailer to reach $1 billion in annual sales within four years of its launch.7 Two acquisitions followed: Athleta (2008), a women’s fitness apparel brand, capitalized on the shift in women’s fashion from a jeans-based foundation to activewear, and Intermix (2012), a multi-brand retailer of luxury and contemporary women’s apparel, offered consumers the “most sought-after styles” from a carefully curated selection of “coveted designers.” In 1983, Millard “Mickey” Drexler became CEO of Gap Inc. During his tenure, sales grew from $480 million to $14 billion in 2000 and Gap’s market cap swelled to $42 billion. Drexler, described as “a visionary executive [who] helped transform Gap from a grab-bag of styles into a trend-setting machine that made simple clothes look great, even elegant,”8 was dubbed “the merchant prince” for his trendspotting, design instinct, and merchandising prowess. However, after being one of the first to predict the rise of business casual in the 1990s, Drexler lost his magic touch, as he attempted to inject more fashion into Gap to attract younger shoppers who were migrating to edgier competitors. After eight consecutive quarters of declining sales, Drexler left Gap in 2002. Fashion writers explained: Clothing companies . . . depend upon the vision and taste of just one person. . . . Everything at Gap depends upon Drexler’s eye; it isn’t like making turbine engines. If he’s off the mark . . . if he approves a line of clothes in colors that aren’t just right, sales collapse and so does Gap’s stock price. That is why Gap can never really be like Coca-Cola—there is no Gap formula hidden in some vault; there’s only Mickey Drexler.9 For the exclusive use of M. Harthi, 2022. This document is authorized for use only by Mashor Harthi in BA 590 Marketing Management (Fall 2022) taught by Johnny Chen, Oregon State University from Sep 2022 to Dec 2022. Predicting Consumer Tastes with Big Data at Gap 517-115 3 Two CEOs followed but were unable to restore Gap’s success in what the New York Times called “a remarkable comedown for a chain that once seemed to dictate how America dressed.”10 (See Exhibit 2 for sales and net income since Gap’s IPO in 1976 through 2016.) Every season, Gap produced hundreds of unique products, each offered in a variety of colors and sizes. While the company website typically offered the entire product assortment, each brick-and-mortar store, with an average footprint of 10,000 square feet,11 was somewhat limited due to space constraints and offered a carefully curated subset of the product line. Gap’s assortment in each of its primary categories (women, men, children, and baby) consisted of two types of products: basics with styles that endured across seasons and more fashion-forward items that captured the spirit of a particular season. Creative directors influenced the full product line, but their touch was most heavily felt on the latter group, where more fashion innovation was desired. Digital and Big Data at Gap Inc. As President of Growth, Innovation, and Digital, Art Peck invested heavily in digital capabilities to address consumers’ shift to omnichannel shopping, focusing on dissolving the wall between the physical and digital channels.