How is the industry structured?
The industry could be defined a specialty retailer chain store which concentrates to a certain type of customer or carries certain type of goods. Sectors
Discounted mass merchandisers: big chains , Multitier department stores: offering a large variety of goods, including clothing. Specialty store chains: those catering to a certain type of customer or carrying a certain type of good.
Market Size and Growth The National Retail Federation reported that the retail niches showing the greater growth were department stores, stores catering to the teenage children of baby boomers, and apparel chains aimed to women over 35. The industry retail industry is big but the specialty retailer is small. $45.9 billion of total $108.7 billion women’s clothing purchases in 2009. Major firms are reporting down sales during the past quarters.
Economic of Scale Fouth firms dominated the industry, which indicate that large firms have an advantage and economic of scales are present. To enjoy economic of scales specialty retail stores create use brand extension to appeal to different segments (production) ad brand expansion (marketing)
Vertical Integration Some of the bigger fashion companies are vertically integrated with their line of production so as to be able to shorten production cycle and be able to adapt to the current demand as well as customer satisfaction. Integrated manufacturing, distribution and retail together, with every step of the process done in-house and not replying on outsourcing. From designing and marketing, fabric storage to warehouse distribution and retail,
Degree of Product Differentiation Unlike department stores that sell many different types of products for many types of customers, specialty retailers focus on one type of product item and offer many varieties of that item. Always looking for new segments which can create a branding problem. The product differentiation is low because the product can be produce by other firms. Companies need to compete in price.
These dominant economic traits indicate that the structure of this industry is difficult to earn a positive income because is a small industry segment and is dominated by large firms.
What kinds of competitive forces are at work?
Threat of new entrants - low
* Is easy to enter in the retail industry but hard in specialty retail. Majority of stores are chain stores. Their vertical structure and centralized buying gives chain stores a competitive advantage over independent retailers. If a company has a patent for a product is difficult to enter to the industry.
Bargaining power of buyers - moderate
* The industry sells directly to customers, consumes are free to shop anywhere but there a few alternatives. This makes the industry more attractive.
Bargaining power of suppliers - low
* Specialty retail stores are segmented and suppliers can influence price, quality, and terms. Is a small part of a whole industry, if supplies decided that the segment does not represent a significant fraction of its sales they can exert power. Apparel stores are known to have a higher quality standard, if suppliers don’t meet this standard they could get dropped from their line.
Threat of substitutes – low
* Clothing is common known as the basic need for human life. It is a kind of necessity and is hard to find substitutes to replace the function. Basically, apparel products are no major different in nature, but the main differentiation may come from the brands. So, the treat of substitutes seems not an important factor.
Intensity of rivalry - high
* There are a lot of brands existing in the market. They try to differentiate themselves in order to find their niche and decrease competition, but nonetheless in every niche there are 3-5 direct competitors of different size, but in some locations there are only 1-2 firms and so these locations are quite attractive to the new entrants....
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