The Gap 2009 Annual Report Download - page 24

the factors influencing consumer spending include fluctuating interest rates and credit availability, fluctuating fuel
and other energy costs, fluctuating commodity prices, higher levels of unemployment, higher consumer debt
levels, reductions in net worth based on market declines, home foreclosures and reductions in home values, and
general uncertainty regarding the overall future economic environment. Consumer purchases of discretionary
items, including our merchandise, generally decline during periods when disposable income is adversely affected
or there is economic uncertainty, and such conditions could adversely impact our results of operations.
Our business is highly competitive.
The global specialty apparel retail industry is highly competitive. We compete with local, national, and global
department stores, specialty and discount store chains, independent retail stores, and online businesses that
market similar lines of merchandise. We face a variety of competitive challenges including:
• attracting consumer traffic;
• sourcing merchandise efficiently;
• competitively pricing our products and achieving customer perception of value;
• anticipating and quickly responding to changing fashion trends and consumer demands;
• maintaining favorable brand recognition and effectively marketing our products to consumers in several diverse
market segments;
• developing innovative, high-quality products in sizes, colors, and styles that appeal to consumers of varying age
groups and tastes; and
• providing strong and effective marketing support.
In addition, our franchisees face significant competition in the markets in which they operate. If we or our
franchisees are not able to compete successfully in the United States or internationally, our results of operations
could be adversely affected.
The market for prime real estate is competitive.
Our ability to effectively obtain real estate to open new stores nationally and internationally depends on the
availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics,
demographics, and other factors, including our ability to negotiate terms that meet our financial targets. We also
must be able to effectively renew our existing store leases. In addition, we recently have been seeking to downsize,
consolidate, reposition, or close some of our real estate locations, which in some cases requires a modification of
an existing store lease. Failure to secure adequate new locations or successfully modify existing locations, or failure
to effectively manage the profitability of our existing fleet of stores, could have a material adverse effect on our
results of operations.
Additionally, the current economic environment may make it difficult to determine the fair market rent of retail
real estate properties within the United States and internationally. This could impact the quality of our decisions to
exercise lease options at previously negotiated rents and the quality of our decisions to renew expiring leases at
negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate
locations adequate to meet annual targets or efficiently manage the profitability of our existing fleet of stores and
could have a material adverse effect on our results of operations.
We must successfully gauge fashion trends and changing consumer preferences to succeed.
Our success is largely dependent upon our ability to gauge the fashion tastes of our customers and to provide
merchandise that satisfies customer demand in a timely manner. The global specialty retail business fluctuates
according to changes in consumer preferences, dictated in part by fashion and season. To the extent we misjudge
the market for our merchandise or the products suitable for local markets, our sales will be adversely affected, and
8Gap Inc. Form 10-K