When it comes to jeans, Old Navy is my “go to” store. I shop at Old Navy because I like the fit of their jeans and I love the price! The negative is that the jeans don’t last as long, or keep their shape and color (for me) as more expensive jeans I’ve had in the past. 

If you’ve shopped at Old Navy you know there is a difference in quality between their clothes and those found in their sister stores Gap and (especially) Banana Republic. Yet, Old Navy has recently been more successful financially than Banana Republic and especially Gap. Through Q2 2018 sales at Old Navy stores increased by 5%; sales increased at Banana Republic by 2%; while sales at Gap decreased by 5%.* The poor performance of Gap stores resulted in an 11% decrease in Gap Inc. stock

What is wrong at the Gap?

I think Gap stores have performed poorly because they don’t have a sustainable business strategy. Why is this important for you? Because for your company to succeed you need a sustainable business strategy and it requires you to make a choice. Let me explain further…

There are three basic elements of business: price, service and quality. In my experience for a business to succeed it needs to choose two of the three to compete in, but it cannot choose all three, or the business will not succeed in the long term. Why? Let’s look at the Old Navy/Gap example I began this post with…

Old Navy has chosen a strategy based on price and service. They sell lots of cheaply made stuff cheap! What they lose in margin per item they make up in volume.Their stores are well laid out and things are easy to find (for the most part) and their staff is typically friendly and helpful. If Old Navy tried to sell low priced items of high quality and with Nordstrom-style service they would eventually lose money as you typically can’t do all three well consistently and stay in business because it would be economically unsustainable. 

Banana Republic has chosen to compete on quality and service. Their clothing is higher quality and fashionable, but is also at a higher price point. Why they lose in volume they make up for in the margin which is higher per unit than that of Old Navy. If Banana Republic tried to sell it’s higher quality clothing at a low price point and still offer good service, that wouldn’t be sustainable. 

The problem with Gap is that it doesn’t know where to compete! In many ways it’s trying to be all things to all people. It’s not a low price nor high price retailer. They don’t sell enough volume at a high enough margin to make money and their product doesn't feel quality enough to justify the higher prices. It feels like Gap is in this weird middle ground where it doesn’t do anything outstandingly well enough to stand out from the competition. 

How do you compete??

Whether you’re on the property management side of things or a vendor, to succeed you’ll need to pick your business strategy, and make sure that your plan and operations are in line with your strategy. Remember, you probably can’t do all three and make it sustainable! So if you had to choose one area to “give on” which one would it be?

You may be wondering, “But Rommel I don’t own the company; I’m not a manager; why should I care??” 

You should care because your company has probably made this choice and it would be good to know what it is! Plus when you’re helping your customers find a new home you will want to determine which of the big three is most important to them. Then your role is to effectively manage their expectations and provide them with the information they need to make an educated choice, based on what’s important to them. 

In addition if your stated strategy doesn’t match what you actually offer, that disconnect will turn off your customer, making it harder for you to make the sale. How many of you have seen a sign for “luxury apartments” that were NOWHERE near luxurious?? My point exactly. 

Am I saying that choosing only two of three means you can completely suck in the third category. No. I am saying you need to be strategic about where you choose to compete and what your strategy will be so that you can create the profit you need to survive and thrive. I know some of you may also be thinking that you can do all three...and if you can, great! My experience has just shown me that over time something has to give to make a sustainable profit. 

I’d love to hear from you on your business strategy. How do you compete? And how have you made the choice in what areas to compete and in what areas did you give up something?

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If you like this blog please subscribe in the link below! And join me next week as I unpack this idea further with specific examples in multifamily. 

Source: https://www.forbes.com/sites/greatspeculations/2018/08/24/gap-brand-continues-to-remain-a-drag-on-the-company/#5f33d9d82845