Environmental Strategy Analysis: Gap Inc.
Spring Quarter, 2002
Professor Magali Delmas
Gap Inc. (Gap) is a leading international specialty retailer offering clothing,
accessories and personal care products for men, women, children and babies under the
Gap, Banana Republic and Old Navy brand names. Gap operates more than 4,100 stores
in the United States, the United Kingdom, Canada, France, Japan and Germany and
employs nearly 165,000 employees worldwide. Over the past two years, however, the
Gap has gone from one of the largest specialty retail chains in the US with $13.7 billion
in annual sales, to a period of 24 consecutive months with sales declines and considerable
stock depreciation. To respond to these recent difficulties, there are opportunities for the
Gap to increase unit sales and rebuild the brand loyalty they once possessed.
Gap‟s corporate strategy has included major global expansion by increasing retail
space, increasing its portfolio and expanding into diversified markets; in essence Gap‟s
goal is to become a “megabrand” like Coca-Cola or Nike. The Gap‟s strategy also
includes a formal environmental policy, which focuses on “empowering employees to
shape environmental policies, improving production processes, building better stores and
offices and reducing waste.” This paper will focus on the strengths and weaknesses of
Gap‟s corporate strategy for expansion and “megabrand” recognition. In addition we will
examine the effectiveness of Gap‟s environmental policy in terms of implementation and
compliance. Finally, we make recommendations for ways that Gap can enhance its
environmental policy to complement its business strategy.
Background on Gap: Popularizing the Khaki Craze
The Gap‟s story begins in 1969, when a San Francisco real estate developer in
search of a well-stocked, organized jean store decided to open his own. Donald G. Fisher,
along with his wife Doris, named their jeans-only store the Gap, after "the generation
gap," and concentrated on selling Levi's jeans.
Drawing on a strong teenage customer base, the Gap continued rapid expansion
throughout the 1970s, and began vending its own private-label clothing and accessories
in 1974. In 1983, Millard “Mickey” Drexler was hired by the Fisher family and helped
the Gap to make several profitable transitions. When he joined the Gap, it was “an
undistinguished apparel chain” with sales over $480 million1. His vision was a forward-
looking strategy, focusing on the emerging trend of “office casual” clothing.
In 1983, the Gap continued its expansion by purchasing Banana Republic. The
safari-theme had run its course and after the acquisition, Drexler boosted sales, still under
the Banana Republic name, by offering higher-end clothing, including leather products, at
higher prices. The company continued to grow rapidly in the 1980s and 90s with the
further expansion of GapKids in 1985, BabyGap in 1990, and opening its first stores in
Canada and the UK2. The Gap spun-off Old Navy Clothing Co. in 1993 and marketed
the new chain as ultra-hip and low cost clothing. This new expansion brought in $1
billion in less than 4 years – “a first for the industry”3. By the mid-1990s retailers across
the industry were copying Gap's store design and core products. The peak of Gap‟s
success was in 2000, where its shares were selling at a high in February 2000 at $54 and
revenues were also at their peak.
Kaufman, Leslie. “Gap‟s Chief Executive Unexpectedly Calls it Quits.” New York Times. May 22, 2002.
Kaufman, Leslie. “Gap‟s Chief Executive Unexpectedly Calls it Quits.” New York Times. May 22, 2002.
The economic growth and expansion has not been sustained however, as sales
company-wide have fallen consecutively over a 24-month period. The rapid horizontal
diversification within the industry and a refocus on young consumers may have improved
sales and been a “model” of successful expansion, but it appears growth was temporary
and may have been too focused. Due, in large part, to industry competition and its
strategy to differentiate itself from “imitators,” Gap began to sell trendier items like
leather jeans and sequin shirts. The ill-fated attempt to appeal to the younger, trendier,
“Britney Spears and Bugglegum-set”4 led market analysts to criticize the Gap because it
had lost its identity. Last year, the company reported an $8 million loss and Drexler
called 2001 “the most difficult year ever.” May 2, 2002 marked the end of a quarter, with
Gap reporting a 68% drop in earnings and a 9% drop in sales to $2.9 billion5. As of
Tuesday, May 22, 2002, Gap Inc. stock price was down 70% since February 2000 to $16
per share (see Appendix I). The company had estranged its core clientele, the twenty to
thirty-somethings that wanted “California casual” or “the basics”: khakis, jeans, classic
T-shirts, and white shirts6.
After two years of sales decline, high debt, and disappointing earnings, the Gap
has refocused its attention on getting “back to basics” by returning to its more successful,
casual clothing line and a musically-reminiscent advertising campaign. This strategy has
been employed to slow down the rate of sales decline. Drexler, legendary for his talents
as a merchant and still considered by many to be the brains behind Gap's meteoric rise,
was at the helm of Gap for 19 years and chartered the firm into new waters. However, on
May 21, 2002, Drexler announced his plan to resign due to the company‟s recent
struggles. In order for the Gap to reemerge as the successful firm it once was, a new
strategy focusing differentiation methods, including environmental differentiation, should
be employed as a means of luring back their “office casual” clientele.
Gap’s Corporate Strategy
Gap‟s goal is to expand into new markets, particularly international markets.
Their strategy for expansion in the past has focused heavily on advertising to create brand
recognition and loyalty, and market segmentation. Gap is also working to expand into
new product lines and internet business.
In 1998 alone, Gap spent more than $419 million on its ad campaigns. TV ads
featured popular stars ranging from L.L. Cool J to Aerosmith. The success of this
campaign inspired a string of commercials for “Khaki-A-Go-Go”, “Khaki-Country” and
“Khaki-Soul.” Analyst Legg Mason suggests that the “back-to-basics” style of the newest
ads indicate "Gap is well on its way to remedying its „fashion mishap,‟ as we are
beginning to see improved products, with a more basic flair trickling into all divisions.7"
Due to Gap‟s past success in advertising, it is likely that similarly expensive advertising
campaigns will be employed by the company as it attempts to expand into global
Earnest, Leslie. “Drexler to Step Down at Gap.” Los Angeles Times. May 22, 2002.
Earnest, Leslie. “Drexler to Step Down at Gap.” Los Angeles Times. May 22, 2002.
Perhaps even more important than advertising, is the company's market
segmentation strategy. Rather than integrating the various customers, income levels and
lifestyles that the Gap, the higher-end Banana Republic and low-cost Old Navy
collectively target, each has thrived as a distinct entity, while avoiding the constant
rumors of a sell-off. This strategy has allowed for three different sales avenues, three
different growth strategies and three different audiences; putting Gap Inc. in equal
competition with the sophisticated style of Ann Taylor and the bargain clothing at J.C.
Penney. In its first four years of operation, Old Navy topped the charts with $1 billion in
annual sales, an unmatched feat in the history of specialty apparel retailing.8 Another
benefit of market segmentation is risk aversion. For example, Banana Republic and Old
Navy have faired better than Gap in the past few years because customers consider them
wholly different stores.
New Markets & Expansion
In 2000, Gap revealed its new Internet strategy with America Online, Inc. to
expand its reach, diversify its market base, and make shopping easier for consumers. The
company recently announced a three-year marketing and commerce deal with AOL that
will bring Gap, Banana Republic and Old Navy to Shop@AOL‟s enormous marketplace.
Jeanne Jackson, CEO of the Gap Inc. Direct, noted, “This relationship provides a whole
new level of ease and accessibility in online shopping.”9
Gap‟s expansion strategy has had to answer to the criticism that it has opened too
many new stores. It's pulling back substantially -- to 5% to 7% store growth in 2001,
from a previous goal of 17%. The expansion plans have been trimmed back to 170 new
stores from 190, reduced further from an initial goal of 280 new stores. "They've been
taking a look at the big stores and trying to maximize production and downsize their
selling footage," market analyst Marjorie Devaney says. Capital expenditures, mainly
used for new-store growth, have also come down -- to about $1.1 billion this year, from
$1.8 billion last year. Gap projects a $650 million capital-spending budget for 2002. 10
This news indicates that Gap will have to re-think the timeline and even potential for its
goal of becoming a “megabrand.”
The Apparel Industry: Porter’s Five Forces
The apparel and footwear industry consists of four different types of companies:
manufacturers, jobbers, contractors and retailers. Gap Inc. is a retailer, but its business is
very involved with manufacturers, jobbers and contractors. These relationships are of
particular interest in terms of the company‟s policy of social and environmental
Supplier and Buyer Power
Most manufacturers and retailers are heavily dependent on overseas production.
This was further spurred with the passage of NAFTA on January 1, 1994. With NAFTA,
U.S. companies are allowed to ship U.S. made fabric to Mexico for assembly into
clothing and then shipped back to the U.S. without incurring import duties. Overseas
sourcing cuts labor costs because of the high expenses of manufacturing low margin/low
value-added goods within the U.S. Normally, apparel manufacturers have three choices
when producing apparel overseas: they can build a plant (direct investment), establish a
foreign agent, or contract with a foreign companies‟ facilities to produce garments.
Gap is solely a retailer and all of its suppliers are primarily manufacturers that
may employ jobbers and contractors. There are some benefits to domestic outsourcing.
First, it allows a company to be responsive to quick changes in fashion trends. Secondly,
it reduces tariffs, import fees, and transportation fees from overseas. The majority of
Gap‟s suppliers are in Southeast Asia. Retailers, including the Gap, operate from a
powerful position because they order in large quantities and the costs of switching
suppliers are minimal. These two factors give retailers like the Gap enormous leverage
when negotiating price,11therefore supplier power is low.
Because labor is such a significant cost component in apparel manufacturing,
producers in low-wage developing countries enjoy a significant cost advantage over U.S.
producers, creating intense competition amongst suppliers and downward pressure on
Consumers enjoy high buying power in the apparel industry because of the
intense competition. Because of the Gap‟s mid-level prices for the type of clothing it
sells, the Gap‟s strength is in its quality. Still, buyers have power because of the number
of competitors and the ease at which buyers can switch to a different retailer. Shopping-
savvy consumers relish the search for value and will buy more sale merchandise in
department stores. These tendencies have shifted the industry market share somewhat to
discount and factory outlet stores.
Industry Performance and Barriers to Entry
The apparel industry has had sluggish sales for quite some time. In addition,
apparel manufacturers have faced shattered trade conditions following those terrorist
incidents.12 Overall, the apparel industry has challenges for new retailers entering the
market. Although capital expenditures may not be incredibly high (but not low either),
brand loyalty and quality influences many consumers. Loyalty becomes more of a factor
with older, wealthier consumers that may not focus as much attention on price.
Top Competitors & Substitutability
According to Hoover‟s, Gap‟s primary competitors are Abercrombie & Fitch
(A&F), American Eagle Outfitters and J Crew. A&F sells upscale men's, women's, and
kids kids' casual clothes and accessories, but primarily targets college students. J Crew
sells classic-styled jeans, khakis, and other basic items to young professionals through its
catalogs (70 million circulated annually), website, and approximately 175 retail and
factory outlets in the US. American Eagle Outfitters is a mall-based retailer that also sells
casual apparel and accessories (shirts, pants, shorts, sweaters, skirts, footwear, belts, and
bags) aimed at men and women ages 16-34. It operates about 675 American Eagle stores
in the US and Canada with more stores in the works. These three firms provide the
Khoury, Jean-Claude. “The Re-Emergence of Sweatshops”. Business Ethics: A European View. Vol 7,
No. 1, Jan. 1998.
US Business Reporter
primary competition for the Gap, although many other clothiers in the industry can
compete with the Gap. Substitutes are not a factor in the clothing industry.
Non-market forces have had an impact on the Gap‟s daily operations, primarily
from interest groups that have been interested in their practices. Non-government
organizations (NGOs) have targeted the Gap in respects to their environmental
performance and their social welfare practices. Several environmental organizations
called for a boycott of the Gap and its affiliates because of its connections to Mendocino
Redwood Company (MRC) (more below), which was identified as practicing
unsustainable timber management. Also, concerns were raised by human rights groups
regarding the use of sweatshop labor in the manufacturing of Gap clothing. Both of these
claims were acknowledged by the Gap through press releases. In the case of MRC, the
Gap denied any involvement or affiliation with their organization; in the case of the
sweatshop labor claims, the Gap responded by voluntarily abiding by a Vendor Code of
Conduct (more below).
Gap Inc. has developed two basic tenets to their environmental policy (see
Appendix II for full policy):
1. We will operate with respect and sensitivity to the environment wherever we do
2. We will encourage our employees to take individual steps to protect and restore the
environment, and empower them to ensure that Company activity is consistent with our
Through the application of these principles, we feel confidant that our environmental
practice will evolve and mature, and that our ability to manage our own operations -- as
well as our suppliers' -- will improve over time. Our employees are responsible for the
bottom-line results of their decisions. Increasingly, they are also held accountable for the
environmental impact of their work. 13
Gap has established an Environmental Affairs Department, named Gap
Environmental Organization (GEO), and is headed by the Executive Vice President, Gap
Inc., and President, Gap Division. The GEO focuses on supporting the two basic
environmental tenets (above) and on informing company decisions for supplier
management, store construction, purchasing, transportation, energy efficiency, food
services and recycling. This office also oversees Gap‟s Vendor Code of Conduct and
Improving production processes
With environmental concerns higher on the radar scale of activist groups,
politicians, the public, and ultimately consumers, many retailers are attempting to
promote process innovation in order to strengthen their commitment to the environment
while reducing their production costs. Gap Inc. claims to be committed to changing the
“impact that the apparel industry has had on the earth14.” The social responsibility
section of their web page outlines two ways that the company is working with clothing
manufacturers around the world to minimize the negative side effects of their production.
First, their policy aims to educate their vendors about alternatives to harmful
manufacturing practices. Second, Gap encourages the use of products that have been
obtained or manufactured in “environmentally intelligent ways.” For example, Gap is
researching ways to increase use of organic cotton and alternatives to electroplated
Rewarding employees who make a difference
Gap points to its employee reward system to show that they take environmental
performance seriously. Each year, a President's Award, which includes a gift of stock in
the company, is given to the employee who has done the most extraordinary work on
behalf of the community. The purpose it to send the message that Gap rewards employees
for their commitment to finding innovative solutions to community and environmental
Building better stores and offices
Because Gap is one of the fastest-growing clothing retailers in the world, it
frequently updates, expands and redesigns its offices and retail stores. At the
construction and demolition stages, Gap claims to encourage contractors to
recycle wherever they can. In addition, the architects, store designers and building
planners are encouraged to use recycled and low-toxic building materials, wood from
"well-managed" forests, and energy-efficient lighting and mechanical systems to create
environmentally sensitive retail and office spaces wherever feasible. The 901 Cherry
office complex (more below) is an example of the Gap‟s aspirations to build “greener”
Gap acknowledges that “Reams of paper, truckloads of packing material (and)
tons of garbage” are the side effects of big business15. Their policy claims to encourage
“employees and business partners to reduce waste, recycle waste that can't be eliminated
and close the recycling loop by purchasing products that contain high percentages of
post-consumer recycled material.” The policy also claims to empower employees to find
re-uses for fixtures, packing material and paper products, though it is not explicitly clear
how this is achieved. Currently, Gap is working to implement international wastewater
discharge standards for all dye houses and laundries in the company's production
Gap’s Environmental Policy in Action
Three ways that Gap has recently worked to implement its environmental policy
are in “eco”-architectural innovations in its office and retail space, its use and support of
wood from certified forests, and in its use of organic cotton in some of its product lines.
Where we feel that Gap could improve its environmental performance higher up the
value chain, in its factory operations and supplier practices in other parts of the world.
Success 1: 901 Cherry Office Complex (see Figure 1)
901 Cherry is Gap‟s first foray into the world of green buildings and retail space.
It is the address of its newest office space. Some of the features that set this building apart
are grass-covered roofing covered with native grasses and wildflowers, and the expansive
use of glass on exterior walls, which supplies the building with maximum daylight
illumination. A less obvious feature is the under floor ventilation system that delivers 100
percent fresh air directly to employees.
Gap Inc.'s desire to prove its environmental aspirations show in its use certified
“sustainable” wood and energy-efficient engineering strategies. Gap claims that 901
Cherry is “at least 30 percent more energy-efficient than required by strict California
Success 2: Certified Wood Use at Gap Inc.
Gap also aims to prove its commitment to its environmental policy by
encouraging Gap Inc. employees and contractors use their purchasing power to support
sustainable forest practices. To accomplish this, they promote the purchase of wood that
is third-party certified using Forest Stewardship Council (FSC) standards, when feasible.
Gap asks employees and contractors to not only use less wood when feasible, also
encourages its suppliers to find FSC-certified wood sources that meet the company‟s cost
and quality requirements. Gap claims to be “confident that there are significant
opportunities to use certified wood in future applications and will continue to explore
Success 3: Gap’s Use of Organic Cotton
Gap joins Nike and Levi-Strauss in the ranks of large companies (besides
environmentally-oriented firms, like Patagonia) that have begun to blend a small
percentage (typically 1% to 6%) of organic cotton in with the traditional cotton they
use.18 However, Gap is working with Agricola Partners and to learn more about ways to
increase its use of organic cotton. Additionally Agricola will provide Gap with brief case
studies to illustrate how different companies have dealt with various aspects of the
organic cotton business.
Whereas traditional cotton costs 65¢ to 70¢ a pound, organic cotton can cost an
additional 50¢ to 60¢ a pound.19 Unlike companies like Patagonia (that shifted to using
100% organic cotton in 1996), Gap could incur significant added costs by switching
suppliers. Gap also lacks the “earthy image” that Patagonia enjoys and which also acts as
an impetus for eco-innovation. As Jill Vlahos, director of fabric development at
Patagonia, explains, "With us being as vocal as we are about the environment, it would
have been really hard to continue selling conventional cotton.” Gap will have a more
difficult time passing its innovation costs onto its customers. Given the bad publicity that
Gap has received regarding its environmental and labor practices in the past, it would not
Sandra Marquardt, project coordinator of the Organic Fiber Council, in Richmond, Calif
Anderson Warlick, President of Parkdale Mills Corp.
be advisable for Gap to try to use its environmentally friendly innovations as a selling
point for its products. Rather, Gap‟s motivation is likely more to try and combat its
negative social image.
Bad Press: Gap’s Tarnished Social and Environmental Image
While recently Gap has enjoyed positive press in terms of its environmental
image, in the past Gap has been slammed in the media for its alleged use of sweatshop
labor and its association with a logging company.
Though the issue of sweatshop operations is considered a social issue, it tends to
grab a similar audience as environmental issues. Additionally, the idea of “sustainability”
which is a buzzword in industry as much as politics, tends to promote the idea that
environmental, social and economic improvement are tied together and ought to be
pursued equally. For this reason, we will discuss the sweatshop issue as part of Gap‟s
Example 1: The Mendocino Redwood Company
The Fisher family investment group is called the Pisces Group. John Fisher, son
of Gap chair and CEO Don Fisher, is one of three partners in Sansome Forest Partners, a
subsidiary of the Pisces Group. Sansome, in turn, owns Mendocino Redwood Company
(MRC). In July of 1998, MRC bought 235,000 acres of depleted Louisiana Pacific (L-P)
timberland -- nearly a quarter of Mendocino County, including Mendocino's last
unprotected old-growth redwoods. The company also took over L-P's logging plans,
which included clear-cutting, logging old-growth trees, and spraying the toxic herbicide
Local and national environmental groups have mounted an extensive public
campaign against the Gap for its actions in Mendocino. Gap publicly states that it is not
associated with Mendocino Redwood Company, since the logging company is a private
Fisher family investment. However, Bob Fisher, president of the Gap division of Gap,
Inc., has discussed his family's plans regarding their investment in MRC.20 All this aside,
it is clear that Gap suffered a serious blow to its image due to MRC-related publicity,
underscoring the impact that the non-market environment can have on a firm. It can also
be argued that the MRC case is an example of an inconsistency in policy and practice at
Gap. As president of Gap Division, Mr. Fisher is an important employee and
representative of Gap who is supposedly committed to Gap‟s environmental policy
(which includes using sustainably harvested wood), however in practice he may be
supporting unsustainable practices. The result of this is a weakening of the credibility of
Example 2: Operating Globally
As part of its “Vendor Code of Conduct,” factories that wish to work with Gap
must comply with all “applicable” environmental laws and regulations. Gap‟s policy is:
Where such requirements are less stringent than Gap Inc.'s own, factories are encouraged to meet
the standards outlined in Gap Inc.'s statement of environmental principles.
A. The factory has an environmental management system or plan.
B. The factory has procedures for notifying local community authorities in case of accidental
discharge or release or any other environmental emergency21.
In 1996, the company decided to create an organization of compliance officers
that became its first Vendor Compliance Officers (VCOs.) Since 1996, the company has
continued to expand the compliance organization while their monitoring program
evolves. “Our monitors enforce Gap Inc.‟s Code of Vendor Conduct, which includes a
requirement that factories must comply with all applicable local laws,” said Claire
Gwatkin Jones from the Gap‟s Global Affairs department.
However, Leila Salazar, leader of the Global Exchange campaign against Gap,
claims that the company is not focusing on the most important issues. “The fact of the
matter is that they may have the most monitors of any other business, but they‟re not
independent monitors,” Salazar pointed out. “They do have a network of VCOs, but (the
VCOs) are focused on environmental health and safety, not the concerns that are related
to wage issues and unions,” which, she argues, ultimately effect environmental practices
as well. Bad press generated in regards to Gap‟s sweatshop image can also serve to
undermine the credibility of its other social policies. Gap does well to have these policies
in place, and to address them together in one social policy, but the ineffectiveness of one
policy can ultimately overshadow its other noteworthy efforts.
While Gap Inc. is actively, and in most cases, successfully, administering its
environmental policies, it is less clear that the company is effectively integrating its
environmental strategies into its business strategy. We feel that Gap could improve its
practices in two ways. First, we feel that Gap should capitalize on its corporate image as
“youthful, clean, hip and simple,” in expanding its use of organic products, particularly
cotton for clothing items and ingredients in its GapBody line. This could increase its
competitive advantage through innovation and environmental product differentiation. In
doing this the Gap should consider the willingness-to-pay of targeted consumers for this
specialized line, the method used to credibly convey the information that the products
mare made with organic materials (advertising or in store displays), and the acknowledge
the possible barriers to imitation by competitors22. These factors are critical to the success
of the new campaign, considering the current financial status of the company. However,
we feel that before Gap attempts to sell itself as another Patagonia, the company needs to
make more improvements in “greening” its supply chain.
We make two specific recommendations for the company to address regarding its
supply chain: first, Gap should hire an independent vendor auditing team to take the place
of its VOC team. This would ensure a more objective analysis of the firm‟s practices.
Second, Gap should raise the bar in its production operations overseas. Instead of
implementing all of the “easy” aspects of its policy (i.e. certified wood), Gap could up the
“socially responsible ante” by making more difficult improvements, such as wage
increases, improved working conditions and waste stream management.
Reinhardt, Forest L. “Environmental Product Differentiation: Implications for Corporate Strategy”.
California Management Review. Volume 40, No. 4. Summer 1998.
Greening the Supply Chain
Gap would benefit from greening its supply chain by implementing programs that
increase their transparency in environmental and labor practices. Nike has proven that
consumers, investors, and employees respond positively to companies with a reputation
for good environmental performance. We recommend that Gap consider Nike‟s strategy
in its policy. Nike out-competes Gap in the socially responsible arena because it is more
proactive. Nike seeks partnerships with ecologically responsible suppliers who have
made a commitment to sound business practices. Facilities not meeting Nike's
environmental and business standards are offered assistance through Nike Environmental
Action Team (NEAT) representatives.
In addition, Nike is engaged in a program called “Transparency 101,” which
includes a random sampling of recent audit results for 85 contract factories in China,
Taiwan, South Korea and the Philippines. Nike production-related employees regularly
visit contract factories throughout North Asia and conduct internal inspections to ensure
that labor and environmental practices meet the required standards. Inspections are also
conducted by independent auditors. The results are posted for the public‟s view on their
web page. If Gap wishes to differentiate itself based on its environmental performance, it
should consider implementing similar proactive programs.
The apparel industry has been slow to realize its impact on the environment. For
this reason, and given Gap can improve its credibility as a socially responsible company,
we think that there is a potential for Gap to differentiate itself a green company. Besides
the small-scale market that Patagonia captures, the fashion industry is just catching onto
the idea that eco-innovation can increase sales. In a recent interview in “Organic Style”
magazine, Armani exhibited their new all-hemp clothing line and announced a
commitment to environmentally responsible business practices. The potential for the
fashion industry to popularize eco-friendly clothing has not yet been realized.
A new area of research is in the manufacture of 100% cotton rag papers from
recycled textiles. Watson Paper Company is currently working with a number of textile
and apparel manufacturers to produce 100% cotton rag paper for stationery, business
cards and business forms from denim scrap. Papers made from denim are very
recyclable. Their fibers are longer and stronger than wood pulp papers and can be
recycled for reuse many more times. Making 5 pairs of blue jeans produces 1 lb. of scrap.
We recommend that Gap look into recycling its denim scrap. Currently, millions
of pounds of denim scrap go to landfills every year. Watson Paper Company estimates
that recycling 1,000,000 lbs. of this scrap denim would save about 8,000 thirty-year-old
trees and keep those 1,000,000 lbs. of denim scrap out of landfills every year. Instituting
a denim recycling program, and investing in research into textile recycling programs
could help Gap to improve its image because it is an innovative way to green its value
chain at the production level, where it is currently most lacking. In addition, it is possible
that Gap could reap economic benefits from increased efficiency by reducing wastes,
decreased handling expenses, fines, and costly inputs.
These recommendations for environmental product differentiation, production
standards, and “greening the value chain will allow the Gap to reestablish itself as a
leading firm in the apparel industry. In doing so, the Gap will strengthen its
environmental policies, its positive press, its market base, and its corporate strategy.
Gap Inc.’s Financial Information (www.hoovers.com)
Latest High Low
17 May 02 3 Feb 00 16 May 97
16.30 53.75 9.42
Key Measures (05/24/02) Company Snapshot
Latest 12 Months / Most Recent Quarter
Company Industry S&P 500 Plan
P/E NE 27.5 55.4 Last Reported Ex-Dividend
Price/Book 4.05 3.24 3.33 Date
Price/Sales 0.90 0.83 1.55 Dividends Paid per Share NA
Price to Cash Flow 15.1 12.4 (0.2) Shares Out. 05/17/02 866.76
EPS (0.11) 0.75 0.63 Market Cap. (mil) 05/24/02 12,186.64
Dividend Rate 0.09 0.12 0.52 Last Stock Split Factor
3 for 2
ROE NE 12.3 6.6 06/22/99
Debt/Equity 0.65 0.29 1.23
Pricing Momentum for GPS as of 05/24/02
Price Change Last 10 Days (%) (9.30)
This Week's Momentum 111
10 Week Moving Avg. 14.91
This Week's Momentum 111
Prior Week's Momentum 132
Latest Close As of 5 Day Average (%) 95
Latest Close As of 10 Day Average (%) 90
Price Change vs. Market This Week 55
Total Volume Last 10 Days (000s) 103,447
Daily Volume As of 10 Day Ave. Volume (%) 93
Total Volume Last 10 Days (000s) 103,447
20 Day Volume Moving Average (000s) 7,970
Gap Inc.’s Environmental Strategy
At Gap Inc., we believe that business profitability and environmental responsibility are not
mutually exclusive. We strive to keep this in mind in principle and practice. To this end, we have
developed two basic tenets to guide us in our work:
1. We will strive to operate with respect and sensitivity to the environment where we do
2. We will encourage our employees to take individual steps to protect and restore the
environment, and empower them to ensure that company activity is consistent with our
Through the application of these principles, we feel confident that our environmental practice will
evolve and mature, and that our ability to manage our own operations will improve over time.
Empowering Employees to Shape Environmental Policies
Because we believe that environmental considerations should be weighed when making business
decisions, our employees are called on to shape our environmental policies. Our environmental
practice is led by Gap Inc.'s environmental affairs team, which includes representatives from
many areas of the company. This team facilitates company decisions on supplier management,
store construction, purchasing, transportation, energy efficiency, food services and recycling.
Improving Production Processes
Although we do not own mills or factories, we are concerned about our suppliers' impact on the
environment. We work with vendors that produce goods we sell in our stores to minimize the
negative side effects of their production around the world. We educate our vendors about
alternatives to harmful manufacturing practices and encourage the use of products that have
been obtained or manufactured in environmentally sensitive ways.
Building Better Stores and Offices
As Gap Inc. continues to grow, we continue to build stores. We also frequently update, expand
and redesign them. At the construction and demolition stages, we encourage our contractors to
recycle wherever they can. In addition, our architects, store designers and building planners use
recycled and low-toxic building materials, wood from "well-managed" forests, and energy-efficient
lighting and mechanical systems wherever feasible.
Paper, packaging material, garbage — Gap Inc. works hard to reduce these side effects of
business. We encourage our employees and business partners to reduce waste, recycle waste
that can't be eliminated and close the recycling loop by purchasing products that contain
significant percentages of post-consumer recycled material. Over the years, we have organized
recycling programs in our stores, headquarters buildings and distribution centers. Employees are
encouraged to find re-uses for fixtures, packing material and paper products. To further minimize
paper waste, employees at our stores and offices increasingly manage information through on-
Setting Goals, Then Following Through
There is no end to the job of protecting the earth. We understand this, and are committed to
improving our environmental practice over time. To focus our efforts, Gap Inc. develops
environmental action plans for key areas of our operations. In addition, we review the company's
environmental performance periodically to identify opportunities for improvement.