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Gap Inc Presented by

• Jay Atkins
• Monopolistic Competition
• Consumer Choices
• Katie Groznik
• Specialization
• Principal agent problems
• Kelly Herman
• History
• Resources
• Elasticity

• Sheana Malyszka
• Labor Demand
• Variable and Fixed costs
• Mike Ridenour
• Supply and Demand
• Stock and Bonds

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History

• Founded in 1969
• by Don and Doris Fisher
• In 1976 Gap goes public
• 1983 Gap Inc. buys Banana Republic
• 1987 Gap goes international
• 1994 Gap Inc. introduces Old Navy
• 2002 Millard Drexler retires concluding 19 years
  at Gap Inc.

www.gapinc.com
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Resources

• Land
• Labor
• Capital

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Landthe physical space where production occurs
Gap has over 3000 factories in 50 different
countries
Guatemala Italy Malaysia Turkey United
States
www.gapinc.com
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Laborthe time workers spend producing goods and
services

• Employee Protection
• Code of Vendor Conduct
• Zero means Zero Policy
• Equal Opportunity Employer
• Union and Non-Union Factories

www.gapinc.com
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Capital Consists of the tools people use to
produce goods and services

• Gaps physical capital
• the 3000 factories located around the world
• Gaps human capital
• Sourcing production and compliance teams
  around the world that work to find the best
  factories.
• Training required to work at Gap

www.gapinc.com
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Supply and DemandCeteris Paribus factors of
Supply and Demand

• Input Prices
• Number of sellers
• Expectations of sellers
• Prices of alternate goods
• Technology

• Income
• Number of consumers
• Expectations of consumers
• Prices of Substitute Goods
• Tastes

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Examples of Ceteris Paribus Factors of Demand

• The Gap operates on the Demand Curve D1, meaning
  consumers are willing and able to buy the
  quantity related to the Price P.
• Lets say the Income of Consumers rises by 20
  percent. The Demand Curve will then shift up to
  D2
• If American Eagle reduces their average price,
  then the demand curve will shift down to D3.

P
D2
D1
D3
Q
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Labor Supply
Individuals as Wage Takers -in a competitive
market, each seller is a wage taker he or she
takes the market wage rate as given
Reservation Wages -The lowest wage rate at
which an individual would supply labor to a
particular labor market.
Market Labor Supply -As wage rate in market
rises, it will exceed more individuals
reservation wages, so more people will offer
their labor in that market.
www.gapinc.com
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Incentives For Working At The GAP
Health Wellness
Peace Of Mind
Helping Hand
Life Outside The Gap
Merchandise Discounts
www.gapinc.com
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Costs of Production
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Explicit Costs vs. Implicit Costs
Explicit Costs Money actually paid out for
the use of inputs
Implicit Costs The cost of inputs for which
there is no direct money payment
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Costs in the Short Run
Fixed Cost Cost of fixed inputs
Variable Costs Cost of Variable inputs.
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Variable and Fixed Costs

• Fixed Costs
• Rent
• Jan. 250,737
• Capital
• Jan. 303,284
• Utilities

• Variable Costs
• Labor
• Working Capital 3,013,151
• Employees
• Natural Resources

www.gapinc.com
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Monopolistic Competition Market--part perfect
competition and part monopoly--

• Monopoly
• Heterogeneous products
• Firms have downward sloping demand curve
• Marginal Revenue is below the demand curve

• Perfect competition
• Large number of firms
• Relatively easy to enter or exit the market

P
D
MR
Q
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Examples of other firms in the Monopolistically
Competitive clothing market

• Pacific Sunwear
• Target
• Talbots
• J.C. Penney
• Abercrombie and Fitch

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The Many Preferences for the Gap

• Old Navy (842 stores)
• 
  The Gap (2,948 stores)
• Banana Republic (440 stores)

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Points about Consumer Preferences

• Consumers always want to maximize their utility
• Consumers want the maximum amount of a good or
  service which they can afford
• As a consumers income increases, they want to
  buy goods which give them greater utility and
  they want more of them

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Average Price of Womens Jeans at Stores Owned by
The Gap

• Banana Republic
• The Gap
• Old Navy

72.00
80
50.00
60
32.00
40
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Old Navy
The Gap
Banana Republic
www.gapinc.com www.oldnavy.com www.bananarepublic.
com
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Price Elasticity Gap vs. American Eagle
Express

• Gap
• Womens Jeans
• 49.50-68.00
• Mens Jeans
• 39.50-49.50

• American Eagle
• Womens Jeans
• 29.50-54.00
• Mens Jeans
• 29.50-44.00
• Express
• Womens Jeans
• 49.50-58.00
• Mens Jeans
• 49.50-78.00

www.gapinc.com www.americaneagle.com
www.express.com
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Specialization

• Gap

GapKids
babyGap
GapBody
4 Specialized Stores
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The Advantagesof Specialization
It allows each employee to sharpen his/her
focus in order to better serve customers and
answer their questions
Specialization is time efficient it minimizes
downtime
It also enhances production
Specialization makes a business more manageable
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The Principal-Agent Problem
Principal A person or group that hires someone
to do a job
Agent A person hired to do a job
PrincipalAgent Problem Arises when an agent
has 1. Interests that conflict with the
principals, and 2. The ability to pursue those
interests
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Main Conflicts in Gap Inc.
Improper financial interests in any supplier,
vendor, distributor, landlord or competitor of
the Company
Hiring or doing Company business with parties
such as relatives, friends, spouses or life
partners without keeping the Company's interests
a top priority in those interactions
Pursuing a personal relationships that negatively
impact job performance, ability to supervise
others, or the work environment
Favoritism or making business decisions based on
emotions or friendships rather than the best
interests of the company
Accepting gifts or entertainment when doing so
might compromise the objectivity of business
decisions
www.gapinc.com
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Code of Business Conduct
What is it?
It was created to promote and ensure a
responsible and ethical work environment for all
Gap Inc. employees and directors
It contains guidelines on proper behavior in
the workplace and who should be contacted if
there are specific questions or concerns
regarding the company and its policies



Who enforces it?
Supervisors and managers are responsible for
reviewing the Code with their employees and
also by

• Leading by example
• Encouraging employees to raise questions and
  concerns
• Providing education and counseling
• Initiating periodic compliance reviews with
  employees, and
• Taking prompt and effective action where
  appropriate

www.gapinc.com
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Gap Code

• Does not allow workplace violence
• Labor laws and recordkeeping must be monitored

• Zero tolerance for alcohol and/or drugs

• Must cooperate with Government proceedings and
  requests for information

• Must abide by Anti-boycott Policies
• May not take any parts in bribes or improper
  payments

• Must abide by anti-trust laws and selling
  practices
• Must practice fair dealing and value product
  integrity

• Must respect intellectual property rights
• Must respect the environment and take health and
  safety seriously

www.gapinc.com
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Financial Markets

• Financial Markets are the trading of financial
  assets. They have no monetary value, except that
  of a promise to pay future income to the owner.

- Stock Market
-Bond Market

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Stock Market

• The Gaps number of stocks distributed has
  increased consistently as is shown in the graph.

Source http//biz.yahoo.com/e/030401/gps10-k.html
SEC 10 K filing
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Stock Market

• However, the Earnings Per Share has fluctuated
  quite a great amount throughout the time of the
  Gap.

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Bond Market

• 3 outstanding bonds at the current time.
• 1. Due September 2007, at 6.9. Issued
  500,000,000 on September 15 1997
• 2. Due December 2005 at 8.15. 200,000,000
  issued on November 16, 2001
• 3. Due December 2008 at 8.8. 500,000,000 issued
  December 15 2001.

Source http//www.debttraders.com/Details.cfm?Sec
_ID29766
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What we have learned

• History of the Gap
• Resources
• Supply Demand
• Labor Supply
• Short Run Costs
• Costs of the Gap

• Monopolistic Competition
• Gap Preferences
• Price Elasticity
• Specialization
• Principal Agent Problem
• Financial Markets

Any Questions?