The Gap 2006 Annual Report Download - page 22

Brand Building
Our ability to develop and evolve our existing brands is a key to our success. We believe our distinct brands
are among our most important assets. With the exception of Piperlime, all aspects of brand development from
product design and distribution, to marketing, merchandising and shopping environments are controlled by us.
We continue to invest in our brands and enhance the customer experience through the expansion and remodeling
of existing stores, the closure of under-performing stores, and a focus on customer service.
Advertising
We place print ads in major metropolitan newspapers and their Sunday magazines, major news weeklies and
magazine categories such as lifestyle and fashion. Our ads also appear in various outdoor venues, such as mass
transit posters, exterior bus panels, bus shelters and billboards, and indoor venues, such as in-mall kiosks. In
addition, we advertise online. We run TV ads for Gap and Old Navy, and radio ads for Old Navy. We plan to
continue our investments in advertising and marketing in fiscal 2007. There can be no assurances that these
investments will result in increased sales or profitability.
Trademarks and Service Marks
Gap, GapKids, babyGap, GapBody, Banana Republic, Old Navy, Forth & Towne, and Piperlime trademarks
and service marks, and certain other trademarks, have been registered, or are the subject of pending trademark
applications with the United States Patent and Trademark Office and with the registries of many foreign
countries and/or are protected by common law.
Franchising
We have franchise agreements with unaffiliated franchisees to operate Gap or Gap and Banana Republic
stores in Singapore, Malaysia, United Arab Emirates, Kuwait, Qatar, Bahrain, Oman, Indonesia, and Korea.
Under these agreements, third parties operate or will operate stores that sell apparel, purchased from us, under
our brand names. While we expect that this will be a small part of our business in the near future, we plan to
continue to increase the number of countries in which we enter into these types of arrangements over time as part
of our efforts to expand internationally. For additional information on risks related to our franchise business, see
the section entitled “Risk Factors—Our efforts to expand internationally through franchising and similar
arrangements may not be successful and could impair the value of our brands” below in Item 1A.
Inventory
The cyclical nature of the retail business requires us to carry a significant amount of inventory, especially
prior to peak selling seasons when we and other retailers generally build up our inventory levels. We review our
inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock
in a sufficient range of sizes) and use markdowns to clear merchandise. Because we do not carry much
replenishment inventory in our stores, much of our inventory is maintained in distribution centers. Also see the
section entitled “Risk Factors—We must successfully gauge fashion trends and changing consumer preferences
to succeed” below in Item 1A.
Competitors
The global specialty apparel industry is highly competitive. We compete with national and local department
stores, specialty and discount store chains, independent retail stores and internet businesses that market similar
lines of merchandise. We are also faced with competition in European, Japanese and Canadian markets from
established regional and national chains. Also see the section entitled “Risk Factors—Our business is highly
competitive and depends on consumer spending patterns” below in Item 1A.
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