Gap's Employee Productivity Lags its Peers

Being the largest of its competitors with the most resources, Gap Inc. (GPS) stores should be able to sustain a steady flow of regular customers. Sales from regular customers should sustain a minimum market share and guarantee less volatility. Due to its size, Gap Inc. also has a huge advantage in economies of scale over all its competitors. Yet, Gap is steadily under performing its competitors.

Adapting Darwin's Principle to the business world: It is not the largest of corporations that survive, nor is it the ones with the best profits and balance sheets, but rather its the corporations that can adapt to the changing economic conditions and market forces in order to perform consistently well.

Since 'statistics never lie', we can look for answers by comparing some of the numbers reported on Yahoo by the Gap and its major competitors (with revenues over $1 Billion):

Company	Revenue ($B)	Full-Time Employees	Employee Productivity	Gross Profit ($B)	Employee Profitability
Abercrombie & Fitch (ANF)	$2.98	6,900	$431,884	$1.85	$268,116
American Eagle (AEOS)	$2.46	5,000	$492,000	$1.07	$214,000
Ann Taylor (ANN)	$2.25	5,900	$381,356	$1.06	$179,661
Chico's (CHS)	$1.53	12,000	$127,500	$0.86	$71,667
Claires (CLE)	$1.40	7,560	$185,185	$0.74	$98,413
Gap (GPS)	$15.84	153,000	$103,529	$5.87	$38,366
Jones (JNY)	$4.80	13,530	$354,767	$1.83	$135,255
Limited (LTD)	$9.96	18,000	$553,333	$3.48	$193,333
Nordstrom (JWN)	$8.02	51,400	$156,031	$2.83	$55,058
Ross (ROST)	$5.25	13,000	$403,846	$1.11	$85,385
Urban Outfitters (URBN)	$1.16	3,525	$329,078	$0.45	$127,660

Gap has the most full-time employees of all its major competitors. With so much resources, the Gap should be outperforming all its competitors. But instead, Gap's employee productivity (revenues per employee) is the lowest of its competitors. Gap also has the lowest employee profitability (gross profit per employee); since outsourcing is already subtracted before calculating profits, this quells any thought that Gap's competitors might outsource more work as an argument for having less full-time employees.

To experienced Industrial Engineers, it is clear from the comparative statistics that Gap has burdened itself with a lot of unnecessary work. Unnecessary work impedes creativity, wastes resources that could be used else where in the company, and leaves employees less time to focus on their customers.

Frederick W. Taylor:
"Productivity of work is not the responsibility of the worker but of the management."

Historically and typically, unnecessary work is created when growing companies just keep adding employees to solve the problems of growth; and they just keep doing more of the same work that they had been doing when there were a smaller company; instead of taking an educated approach of changing and eliminating functions to reduce costs and take advantage of the economies of scale. It seems the Gap had never transitioned to being an efficient larger company.

As stated in several news reports on Gap's history, the Gap had changed CEO and upper management a few times over the years. At other successful companies, one of the first acts of new administrations is to flush out all non-professional middle management. This probably never occurred at the Gap, since over the years, no major layoffs were reported there.

Non-professional middle management lack the knowledge (do not have the appropriate education for their appropriate position) and also lack experience at larger companies. Hence, they are unable be adapt to the changing economic conditions and market forces; they are unable to streamline business processes to eliminate unnecessary work for their employees; instead, they just keep adding more unnecessary work. As a result, the employees are unnecessarily impeded from continuously and consistently producing more creative market-focused designs, having more time to be more customer focused, etc.

Due to the psychology of non-professionals, their goals are usually opposed to the corporate goals of a CEO. CEOs' corporate goals are to increase profits by increasing sales revenues and efficiency while reducing costs. As corporations grow from small to large, they usually become more and more professional in order to assure larger and more astute investors. Swimming against this tide, non-professionals try to justify their importance and positions by increasing their budgets (costs). They do this by increasing the number of employees under them and promoting other non-professionals. This perpetuates more unnecessary work for the corporation, making it less efficient.

Peter F. Drucker:
"But nothing is as dangerous as a decrease in productivities. It makes a shrinking of the economy inevitable."

Product designs, store layouts, customer demographics, etc., are all mere symptoms of the Gap's real problem. Instead of depending on hit or miss luck for its sales, Gap needs needs to take a more scientific and professional approach in order to pro-actively adapt to the changing economic conditions and market forces. Since there is 'no gain without pain', the Gap needs efficiency or business process re-engineering experts to streamline its business processes and eliminate unnecessary work for its employees by first flushing out the root cause of all its problem symptoms -- non-professional middle management.

Comments

[User 18694:]

This assessment couldn't possibly be more wrong, Gap Inc. 's problem is that it has brought in too may over educated-executives and consultants with little or no experience in fashion or specialty retail. While the opinion that the company did not grow correctly from a personnel stand point is somehwhat on point, unfortunately the CEO has brought in so many consultants and strategy people that all creativity and gut instinct has come to a grinding halt. They are so mired down by analysis and science they are paralyzed. Strategy and consultant team members are so focused on trying to figure out how Gap let the customer down 3 months ago they haven't figured out that they need to tell the customer what the need to have 3 months in the future. All the talent has left the company in frustration....this company needs to remember that fashion is an art, that needs to have some science added to it, not a science with some paint by numbers added to it.

2006 Sep 26 03:29 PM

[Paul Meisel:]

I think there are some significant pieces of data missing from this "analysis":

What about part time people, who make up a significant portion of retail sales? What about a comparison of labor costs to revenues and profit? What about the number of outlets, compared to the number of employees and the total payroll?

There may be something wrong, and the previous commenter is on to something from what I have heard from some retail friends... but the statistical comparison in the post is just an interesting beginning. The ratio may say more about the numerator (revenue and margins per store) than the denominator.

My own industrial engineering experience has led me to one understanding: you can't save money fast enough to be profitable in a business where revenue and margins are shrinking.

2006 Sep 26 09:04 PM

[David Smith:]

I have to agree with the two previous comments. And I might add, anyone who has ever worked in a store and calculated in-store payroll costs would know that the higher the volume the store, the more tasks and more time-consumimg the tasks to be scheduled. So, it is no surprise that Gap stores would require more employees at the field-level than most of the lower-volume competitors mentioned in this assessment. And, obviously, given the complexity of its much larger business, it would have more employees at corporate level as well.

From what I understand, Yahoo's full-time employee statistics include all non-temporary employees, thus exlcuding seasonal employees. So, I would think a better measure of productivity would be to calculate sales per store count, or sales per sq foot.

I can quicly and easily find store count with Yahoo. To illustrate my point, let's compare Gap, Inc, with American Eagle Outfitters, and Abercrombie & Fitch.

The most recent data tells us that Gap's sales were 15.84 billions dollars. At about 3200 locations, Gap's average store's sales are 4.95 million dollars.

American Eagle Outfitters' sales were 2.46 billion. At about 900 stores, AEOS' average store's sales are 2.73 billion dollars.

Abercrombie & Fitch's sales were 2.98 billion. At about 850 stores, ANF's average store's sales are 3.50 billion dollars.

Need I say more?

2007 Jan 18 12:47 AM

[Paul Meisel:]

You need say no more, but you could either divide or type a little better. Maybe you mean 350 million per store? If they could sell $3.5 billion per store... wow!

2007 Jan 18 07:04 AM