The Gap 2007 Annual Report Download - page 11

On February 26, 2007, we announced that we would not move forward with the roll-out of our Forth & Towne
brand. While we were encouraged by the initial performance of Forth & Towne, a thorough analysis revealed that
the concept was not demonstrating enough potential to deliver an acceptable long-term return on investment. We
closed all 19 Forth & Towne stores located in 10 U.S. markets by the end of June 2007.
Certain financial information about international operations is set forth under the heading “Segment Information” in
Note 16 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
Our stores offer a shopper-friendly environment with an assortment of casual apparel and accessories that
emphasize style, quality and good value. The range of merchandise displayed in each store varies depending on
the selling season and the size and location of the store.
Our stores generally are open seven days per week (where permitted by law) and most holidays. All sales are
tendered for cash, personal checks, debit cards, or credit cards. We also issue and redeem gift cards through our
brands.
Gap, Banana Republic, and Old Navy each has a private label credit card program and a co-branded credit card
program through which frequent customers receive benefits. Private label and co-branded credit cards are
underwritten by a third-party financing company.
Merchandise Vendors
We purchase merchandise from approximately 790 vendors with facilities in approximately 60 countries. No
vendor accounted for more than 3 percent of the dollar amount of our total fiscal 2007 purchases. Of our
merchandise sold during fiscal 2007, approximately 3 percent of all units (representing approximately 3 percent of
total cost) were produced domestically while the remaining 97 percent of all units (representing approximately 97
percent of total cost) were produced outside the United States. Approximately 22 percent of our total merchandise
units (representing approximately 24 percent of total cost) were produced in China, with the remainder coming
from approximately 60 other countries. Any event causing disruption of imports from China or other foreign
countries, including the imposition of additional import restrictions, could have an adverse effect on our
operations. Substantially all of our foreign purchases of merchandise are negotiated and paid for in U.S. dollars.
Also see the section entitled “Risk Factors—Trade matters may disrupt our supply chain” in Item 1A of this
Form 10-K.
Seasonal Business
Our business follows a seasonal pattern, with sales peaking over a total of about 13 weeks during the
back-to-school (August) and holiday (November through December) periods. During fiscal 2007, these periods
accounted for approximately 32 percent of our net sales.
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, virtually all aspects of brand development from
product design and distribution, to marketing, merchandising and shopping environments are controlled by us.
With respect to Piperlime, we control all aspects of brand development except for product design. We continue to
invest in our brands and enhance the customer experience through the 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. We
PART I
Item 1. Business
General
The Gap, Inc. (the “Company,” “we” and “our”) was incorporated in the State of California in July 1969 and was
reincorporated under the laws of the State of Delaware in May 1988.
We are a global specialty retailer operating retail and online stores selling casual apparel, accessories, and
personal care products for men, women and children under the Gap, Old Navy, Banana Republic, and Piperlime
brands. We operate stores in the United States, Canada, the United Kingdom, France, Ireland, and Japan. We
also have franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in Asia,
Europe and the Middle East. Under these agreements, third parties operate or will operate stores that sell
apparel, purchased from us, under our brand names. In addition, our U.S. customers may shop online at
www.gap.com, www.bananarepublic.com, www.oldnavy.com, and www.piperlime.com.
We design most of our products, which are manufactured by independent sources, and sell them under our
brands:
Gap. Founded in 1969, Gap stores offer an extensive selection of classically styled, high quality, casual
apparel at moderate price points. Products range from wardrobe basics such as denim, khakis and T-shirts to
fashion apparel, accessories, personal care products for men and women, ages teen through adult, and
maternity apparel. We entered the children’s apparel market with the introduction of GapKids in 1986 and
babyGap in 1989. These stores offer casual apparel and accessories in the tradition of Gap style and quality
for children, ages newborn through pre-teen. We launched GapBody in 1998 offering women’s underwear,
sleepwear, loungewear, yoga gear, and personal care products. We also operate Gap Outlet stores, which
carry a similar line of products.
Old Navy. We launched Old Navy in 1994 to address the market for value-priced family apparel. Old Navy
offers broad selections of apparel, shoes and accessories for adults, children and infants as well as other
items, including personal care products, in an innovative, exciting shopping environment. Old Navy also
offers a line of maternity wear.
Banana Republic. Acquired in 1983 with two stores, Banana Republic now offers sophisticated, fashionable
collections of dress-casual and tailored apparel, shoes and accessories for men and women at higher price
points than Gap. Banana Republic products range from apparel, including intimate apparel, to personal care
products. We also operate Banana Republic Factory Stores, which carry a similar line of products.
We also offer products that are designed and manufactured by branded third parties in our online shoe store:
Piperlime. We launched Piperlime in October 2006. Piperlime offers customers an assortment of the leading
brands in footwear for women, men and kids, as well as tips, trends and advice from leading style authorities.
As of February 2, 2008, we operated a total of 3,167 store locations. For more information on the number of
stores by brand and region, see the table in our “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” included as Part II, Item 7 of this Form 10-K.
We introduced Gap Online, a web-based store located at www.gap.com, in 1997. Products comparable to those
carried in Gap, GapKids, babyGap and GapBody stores can be purchased online, as well as a petite line not
found in stores. We introduced Banana Republic Online, a web-based store located at www.bananarepublic.com,
in 1999, which offers products comparable to those carried in the store collections, as well as a plus size line not
found in stores. In 2000, we established Old Navy Online, a web-based store located at www.oldnavy.com. Old
Navy Online also offers apparel and accessories comparable to those carried in the store collections, as well as a
plus size line not found in stores.
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