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The Risk Of Entry By Potential Competitors Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 1761 words Published: 1st Jan 2015

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According to Porter, “The five forces model” is an analysis focuses on six forces that shape competition within an industry. Within Porter’s model, a strong competitive force can be regarded as a threat because it depressed profits. A weak competitive force can be viewed as an opportunity because it allows a company to earn greater profits [i] “.Following we are going to conduct an analysis of Clothing Store Industry and explain what factors in the industry have its performance affected most.

The risk of entry by potential competitors

The risks of new entrants to the industry market leaders in the clothing industry are relatively low due to the barriers to entry. The industry is concentrated, and 50 largest firms account for approximately 65 percent of industry revenue [ii] .

These largest companies have strengths, such as economies of scale, attractive contracts with suppliers, establish great supply / distribution chains, inventory management; reputable brand names, product development capability and experience curve allow from skills derived from experience. Furthermore, these companies have advantages in purchasing, marketing, and distribution.

Clothing store industry has a large number of independent retailers, which in recent years has been reduced by the inability to compete with the vertical structure and centralized largest companies, which gives competitive advantage chain stores over independent retailers. All this makes for new entrants very difficult to compete with the large size of these competitors. The result of all this is that new companies decide to compete in the industry make him an offer from differentiating providing higher customer service and distinctive store experience.

The costs to enter and be an important competitor within this industry require significant capital investment [iii] . Costs can be resultant from acquisition and development of appropriate store real estate including availability and selection of appropriate sites in appropriate geographies. Also include costs on management, administrative, publicity & marketing, store operations and distributions.

The industry is subject to different types of law, including consumer protection, advertising and marketing regulations, child protection work and various ordinances that control the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities [iv] . Failure to comply with these regulations can affect the performance of the company.

Bargaining Power of buyers

Porter, define the bargaining power of buyers as “the ability of buyers to bargain down prices charged by companies in the industry, or to raise the costs of companies in the industry by demanding better product quality and service [v] .” The clothing retail industry the buyer’s concentration is medium because the clothing stores fluctuate according to consumer preferences, dictated in part by fashion, season and specific requirements by consumers in terms of size, materials and colors. Particularly, in demand clothing store industry varies according to the tastes of the people, which change extremely fast, taking this to be a highly dynamic sector.

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However, consumers do not see expensive apparel retail as an essential product so, the price elasticity of clothing is greatly high and if a competitor raises prices, consumers can be extremely flexible in choosing products through brands. Moreover, there are many more consumers than there are clothing stores and the quantity spend at clothing store by the average person is not a substantial quantity of that person’s overall costs. Besides with the low probability of customer integration decreases the bargaining power of customers.

The Bargaining Power of Suppliers

“The bargaining power of suppliers refers to the ability of suppliers to raise input prices, or to raise the costs of the industry [vi] .” The mains suppliers in the clothing store industry are independent manufacturers and vendors. Within the apparel industry, a few chains have a manufacturing arm to produce their own brands. Depending on the depth of merchandise selection, companies can deal with hundreds (some, even thousands) of vendors.

In the last decades of the twentieth century, there was a pronounced migration of its mass production from high-wage developed economies to low-cost labor markets in the developing world. In an effort to cut costs and increase revenue, from the mid-1990s through the early 2012s, apparel manufacturers in developed nations continued to seek countries with low-priced labor for production. Developing economies in Asia, Africa, and South America received the bulk of these production contracts [vii] . However, activist campaign intended at shaming firms into raising standards in factories abroad could as a result the companies have been forced to improve standards in the face of such negative publicity; this may lead to reduced sales of the company and thus affect firm’s performance.

In terms of labor, most jobs in clothing stores require few skills and are low paid. The US population is about 315 million people, and people under 20 years of age made up over a quarter of the U.S. population (27.3%) (US Census Bureau). In comparison, there are at this moment about 22863 clothing stores in the US and 4 million apparel employees. These four million import-dependent jobs include industry executives, textile mill workers, sourcing managers, wholesalers, retail floor associates, technical designers, and marketing professionals, just to name a few. In fact, compliance jobs are some of the fastest growing positions in our industry. The industry also supports countless other U.S. industries, like the more than 37,000 transportation jobs it requires to move products from the port to the sales floor, and the 235,000 dry cleaning jobs required to maintain and protect the industry’s quality product (AAFA).

Therefore, the overall power of suppliers is high, because 98 percent of the apparel sold in the United States, each year is produced internationally primarily from China, is a critical source of supply for the US apparel market. Vietnam, Indonesia, Bangladesh, and Mexico are also key sources of imported apparel. Furthermore, tariffs, quotas, foreign exchange risk, and other import restrictions can affect the supply and cost of clothing. Purchasing typically requires long lead times, limiting a company’s ability to react quickly to fashion trends [viii] .

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Rivalry among established firms in industry – High

“Rivalry refers to the companies struggle between companies within an industry in order to gain market share from each other. The competitive struggle can be fought using price, product design, advertising, and promotional spending, direct- selling efforts, and- after service and support. Intense rivalry implies low prices or more spending on non-price competitive strategies or both [ix] “

The intensity of rivalry among established companies within apparel industry is largely and functions of two factors: industry competitive structure and demand conditions.

Industry competitive structure: The clothing store industry is concentrated: the 50 largest companies account for about 65 percent of industry revenue [x] . Internationally, the leading emerging markets for apparel retailers are China, the United Arab Emirates, Kuwait, Russia, Saudi Arabia, India, Brazil, Turkey, Vietnam, and Chile, according to A.T. Kearney. China is positioned for the highest growth because of its population size and a growing middle class. The Middle Eastern nations of UAE and Kuwait are attractive to retailers because of shoppers’ high level of fashion savvy and disposable income [xi] .

Additionally, the apparel market is fairly fragmented and is composed of large numbers of similar retailers, many of which are independents. However, there is a still possibility for large numbers of minor players in this market.

Demand conditions: The US apparel retail industry has grown moderately in recent years it has resulted in an increase of rivalry to maintain their respective market share. Consequently, if demand for clothes in this industry decreases, rivalry and competition increase. Attributable to this dependency and the high amount of rivalry in this industry, price wars exist.

Threat of substitutes

The substitute sources for apparel retailers are high-end luxury retailers, discount retailers, department stores, Internet sales, and catalog. A growing number of online fashion stores has arisen in the market, as they look forward to taking benefit of inferior running costs from not having to pay for the costs acquired by running a store.

Home-made and custom-made (couture) clothing is also niche alternatives to retail of ready-made clothes. An additional possibility is acquiring second-hand clothing from charity shops and Internet sites such as eBay. However, the threat of substitutes to apparel retail is assessed as moderate..

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