Who is GAP?
Established in 1969, Gap Inc emerged as a pioneering multi-channel retailer, growing into a global apparel powerhouse with a diverse portfolio of brands including Gap, Old Navy, and Banana Republic. They got their start selling Levi's jeans, alongside selling vinyl records/tapes, rapidly expanding in popularity and introducing its own private label merchandise, a strategic move to diversify its product offerings beyond third-party brands.
In the 80’s and 90’s, a significant factor in Gap's success was its ability to create an identity of "accessible aspiration." This was not merely about selling clothes; it was about offering "effortless, classic styling that felt both high quality and affordable. Supermodels and celebrities were seen wearing well priced, high quality clothing that created mass appeal and elevated the brand beyond basic apparel, allowing consumers to associate with a desirable lifestyle and perceived quality.
So what went wrong?
More brands + more products + locations = Costly growth
The very strategies that fueled Gap's growth also planted the seeds for future challenges and eventual decline. The rapid expansion, the launch of Old Navy in 1994 and Gap Outlet stores drove significant revenue growth but also laid the groundwork for brand dilution and self cannibalisation.
Customers became increasingly savvy and conditioned to knowing that they could find similar styles at Old Navy or an outlet for less, they would naturally become conditioned to avoid paying full price at the main Gap store. As much as an emerging market of D2C fashion brands and fast fashion powerhouses were around the corner, GAP had already begun cannibalizing it’s own value proposition.
Gap's trajectory shifted dramatically as its reliance on discounts escalated, becoming a primary driver of its decline. By the late 2010s, Gap stores had transformed into a "discount haven," where purchasing clothing at full price became increasingly uncommon. The company frequently ran "30-40% off store-wide promotions year-round," a pervasive strategy that deeply impacted its financial health.
In 2022, the company’s CEO explicitly acknowledged this reliance, stating that "markdowns and discounting" were heavily used to "sell-through reliable styles".
This common retail pitfall suggests that the roots of the later "discount addiction" were not solely external, but an outcome of internal choices made over decades to prioritize scale and short term sales over sustainable brand value.
Gap Inc. built a substantial retail empire through strategic brand diversification and an early embrace of multi-channel retail. However, the rapidly changing consumer landscape and intensified competition, particularly from agile, price-competitive entrants, set the stage for significant challenges. These challenges were particularly pronounced in the realm of pricing strategies, as the company grappled with maintaining its market position amidst a growing consumer expectation for discounts.
The pervasive "discount addiction" created additional financial pressure, as products were often designed with the expectation that they would sell at 30-50% off their original price. This necessitated keeping the Cost of Goods Sold (COGS) extremely low, which in turn resulted in products that appeared cheap even at their full Manufacturer's Suggested Retail Price (MSRP). This cycle made it increasingly difficult for Gap to justify premium pricing compared to mass-market retailers or fast-fashion competitors like Zara & H&M.
This created a race-to-the-bottom type of competition where a destructive cycle took hold: more promotions → over-ordering to secure margins → excess inventory → more markdowns.
The loyalty misfire.
Gap attempted to build retention through implementing a loyalty program called "Gap Cash," which often could not be combined with other discounts, leading to confusion and dissatisfaction among loyal shoppers. Discounts heaped upon discounts, with greater offers unlocked by buying more.
Overcommunication around discounts taught GAP customers behavioural habits that expect discounts rather than experiencing value. Customer loyalty also deteriorated significantly. Consumers became conditioned to wait for sales, leading to substantial revenue drops during full-price periods. Research indicates that shoppers whose first purchase was induced by a discount were 50% less likely to make a second purchase, severely weakening Customer Lifetime Value (CLTV).
Loyalty shifted from an emotional connection to a purely transactional one, where customers were driven by price rather than brand affinity. The confusing and inconsistent discount system further frustrated loyal customers, at times turning them away from shopping altogether.
Most businesses get this part of loyalty completely wrong. A customer that continually buys from you might look like loyalty, but if they’re digging for discounts and are only shopping with you due to price alone, then they will disappear to the next low price vendor that offers the same or similar service.
Gap Inc. has openly acknowledged the critical need to move away from constant promotions. GAP reduced its inventory by 21% year-over-year, surpassing its targets to focus on quality-over-quantity and being responsive to consumer trends and sentiments. This was accompanied by higher average prices and lower inventory levels, suggesting successful inventory management and a positive customer response to these pricing adjustments. They also recognised the importance of fostering deeper customer relationships beyond transactional discounts and lay focus on designing and implementing "innovative loyalty constructs and strategies that prioritize customers experience over price.
Instead, GAP is having a u-turn by leaning more into its customer base and understanding their needs, ensuring smaller selections but higher quality, whilst being reserved in how they run promotional strategies and usage of discounts. This signals a maturing strategy that may yet restore consumer trust and value.
4 Key takeaways
1. Be conscious of your discounting strategy
There is always someone willing to undercut you to steal your business. Look to build your customer base on fundamentals that tie users to your brand and service.
2. Focus on the customers you have
Increasing existing Customer Lifetime Value (CLTV) is often more efficient than chasing new customers .
2. Look over your interactions
Is a discount or an upsell the only thing that you communicate to your customers? Depending on how you’re interacting with your customer, your well crafted emails could be on a one way ticket to a spam folder. Communicate clearly as to what your emails are providing your customers and look to ways in which you can personalise them. If you want to sell them products, make those emails clear (and with an opt-out) so that you only engage with the ones that want to buy.
3. Invest in Value-Driven loyalty
Value doesn’t need to be discount led. It can be exclusive access, partnership offers,first looks, test sessions. All of which tie the user closer to the brand.
4..Use points as a reward, not as a transactional milestone
Reward your customers for the interaction that they have with you. If you herd your customers into only earning points every time they shop, the value of those points progressively erode. (E.g. reviews, referrals, feedback)
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