The Gap 2013 Annual Report Download - page 29

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Item 1A. Risk Factors.
Our past performance may not be a reliable indicator of future performance because actual future results and
trends may differ materially depending on a variety of factors, including but not limited to the risks and
uncertainties discussed below. In addition, historical trends should not be used to anticipate results or trends in
future periods.
Global economic conditions and the impact on consumer spending patterns could adversely impact our
results of operations.
The Company’s performance is subject to global economic conditions and their impact on levels of consumer
spending worldwide. Some of the factors influencing consumer spending include high levels of unemployment,
higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home
foreclosures and reductions in home values, fluctuating interest rates and credit availability, government austerity
measures, fluctuating fuel and other energy costs, fluctuating commodity prices, 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.
Adverse economic changes in any of the regions in which we and our franchisees sell our products could reduce
consumer confidence, and thereby could negatively affect earnings and have a material adverse effect on our
results of operations. In challenging and uncertain economic environments, we cannot predict whether or when
such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our
business, results of operations, cash flows, and financial position.
Our business is highly competitive.
The global apparel retail industry is highly competitive. We and our franchisees 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:
• anticipating and quickly responding to changing apparel trends and customer demands;
• attracting customer traffic both in stores and online;
• competitively pricing our products and achieving customer perception of value;
• maintaining favorable brand recognition and effectively marketing our products to customers in several diverse
market segments and geographic locations;
• developing innovative, high-quality products in sizes, colors, and styles that appeal to customers of varying age
groups and tastes; and
• sourcing merchandise efficiently.
If we or our franchisees are not able to compete successfully in the United States or internationally, our results of
operations would be adversely affected.
We must successfully gauge apparel trends and changing consumer preferences to succeed.
Our success is largely dependent upon our ability to gauge the tastes of our customers and to provide
merchandise that satisfies customer demand in a timely manner. However, lead times for many of our design and
purchasing decisions may be long, which makes it more difficult for us to respond rapidly to new or changing
apparel trends or consumer acceptance of our products. The global apparel retail business fluctuates according to
changes in consumer preferences, dictated in part by apparel trends and season. To the extent we misjudge the
market for our merchandise or the products suitable for local markets or fail to execute trends and deliver product
to market as timely as our competitors, our sales will be adversely affected, and the markdowns required to move
the resulting excess inventory will adversely affect our operating results.