Teaching Outline and Analysis
1. What does a five-forces analysis reveal about the strength of competition in the U.S. family clothing stores industry? In leading the class discussion of the five-forces analysis, we encourage you to direct the attention of students to Figures 3.3, 3.4, 3.5, 3.6, 3.7, and 3.8 in Chapter 3 to support their analysis.
Case 11 Teaching Note Gap Inc. in 2010: Is the Turnaround Strategy Working?
Rivalry among Retailers—Very strong competitive force Competitive rivalry is the strongest of the five forces because of the following factors: • • Buyer demand was declining. Revenue for the U.S. family clothing store sector had decreased 3.2% in 2008 and 2.8% in 2009. Consumers had low switching costs among the clothing retailers. Consumers could purchase apparel not only from other family clothing stores but also from sellers in the department store industry, big-box store industry, men‘s clothing store industry, women‘s clothing store industry, and children‘s and infant‘s clothing store industry. The apparel offerings of family clothing store rivals are weakly differentiated. There are a large number of competitors. Although the four largest national chains accounted for about 39.4% of total market share in 2009, the industry was fragmented, consisting of thousands of small local or regional retailers that individually held very small market shares
The primary weapons of competition are price, special sales promotions, extensive advertising, and convenient retail locations. Competitive Threat of New Entry— Weak to moderate competitive force While entry at the national level is not very strong, new entrants in local markets is very common. Entry barriers on a national scale include: stagnant industry sales, established competitors with well-known reputations, existing brand loyalty, and capital requirements necessary to establish a network of retail locations. New entry at the local level can take the form of small, niche, boutique retail outlets. Competition from Substitute Products—Moderate to strong competitive force Students should be challenged to define the nature of a substitute product. The definition of what is a substitute offering in the U.S. clothing store industry clearly determines the strength of this force. If the U.S. family clothing store sector is defined as the industry, there are numerous substitutes--sellers in the department store industry, big-box store industry, men‘s clothing store industry, women‘s clothing store industry, and children‘s and infant‘s clothing store industry. Substitutes are readily available at convenient locations and are attractively priced, are viewed as of comparable quality, and there are low switching costs. However, if the U.S. clothing store industry is defined as the industry, students may conclude there are few available substitutes for clothing. Bargaining Power of Suppliers— Weak to moderate competitive force The suppliers to the U.S. family clothing store industry exerted a weak to moderate leverage based on several factors. Purchases of clothing from offshore contract manufacturers made up approximately 68.9% of industry revenues. The purchases of clothing were affected by exchange-rate fluctuations and trade restrictions. Trade agreements such as the MFA (Multi-Fiber Arrangement), implemented in 1974 and ended in 2005, affected the sourcing from several overseas countries. The MFA created a system of quotas that limited the amount of textiles and apparel that could be exported from developing countries to developed ones. The unintended outcome of these restrictions was a practice known as ―chasing quota,‖ in which clothing buyers would satisfy their production needs by scattering orders over several countries. The extensive use of off-shore sourcing had another unintended consequence the growing bargaining power of low-cost foreign...