Many businesses nowadays are required to change constantly. Positive change is directly associated with succeeding in overcoming new challenges. However, sometimes businesses are required to change quickly and dramatically. When a company demonstrates consistent underperformance, it indicates the need for corporate renewal. This is where the concept of a turnaround emerges. When a company “turns around,” it undertakes serious and profound modification of its operation, internal structure, and strategies to adequately respond to the new circumstances of the market. Turnarounds are difficult, especially to big, long-standing businesses because their previously established complicated internal systems normally resist to changes (Shein 65). Gap Inc., which was a highly popular and successful brand in the 1990s, experienced a decline in the early 2000s, and then returned to high-performance rates, can be regarded as an example of a turnaround.
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Gap Inc. had earned popularity and a solid reputation as an “American style” brand in the 1990s (Joslin et al. 3). It launched a series of new lines of products that demonstrated improvements in financial performance every time. However, the decline was even sharper than the rise. According to analysts, customers rapidly became much less interested in Gap Inc.’s products. This situation required the corporation’s leaders and senior managers to consider turnaround strategies. Paul Pressler, the new CEO appointed in 2002, as well as the one appointed after him in 2007, was determined to implement turnaround strategies (Shein 84). One of the first turnaround activities undertaken in the framework of these strategies was to improve online communication. Gap Inc. rebuilt its websites (for Gap, Banana Republic, and Old Navy) and pursued more than serving its clients with simplicity, increased speed, and improved comfort (which are normally the goals of rethinking corporate online communication): it pursued enhancing the online presence, which means enhancing visibility.
Other elements of the turnaround strategy were widening the target audience (opening a store primarily aimed at women older than 35) and broadening the choice of products that the brand offered (opening an online shoe store). Gap Inc. was striving to reach out to more people. The extensively facilitated growth brought by Pressler can be considered the tipping point of the corporation’s turnaround. Another aspect of the turnaround was the effort made to develop the company internationally. Gap Inc. was trying to increase its visibility and promote its American style clothes to foreign target audiences, which was a turnaround, too, from traditional domestic distribution.
Criteria that can be considered in determining whether the company, in fact, performed a turnaround, include financial performance and perception at the market. In terms of finances, Gap Inc.’s sales went from 400 million USD to 14 billion USD in the early 2000s (Shein 84). The growth was due to improving and widening distribution channels, strengthening customer loyalty, and attracting various new audiences. The second indicator, however, is even more important. The company managed to build an efficient system of internal interaction and cooperation by emphasizing the importance of corporate values. Persistent promotion of these values allowed Gap Inc. to be recognized as one of the world’s most ethical corporations. Also, the company’s achievements in corporate responsibility were acknowledged in the industry. Gap Inc.’s dedication to corporate citizenship, charity, and employee relations earned the company a good reputation. These two factors—significantly improved financial performance and solidly built reputation—show that the corporation had undertaken a successful turnaround.
Joslin, Richard, et al. “Gap, Inc.: Has the Retailer Lost Its Style?” Understanding Business Strategy: Concepts and Cases, vol. 5 no. 8, 2011, pp. 1-18.
Shein, James. Reversing the Slide: A Strategic Guide to Turnarounds and Corporate Renewal. John Wiley & Sons, 2011.