Strategy in Practice – Australasian Clothing and Footwear Specialist Retailers Industry External analysis:
Industry Profile: Australasian Clothing and Footwear Specialist Retailers Industry (ACFSRI) is mature, with over 16,000 outlets and combined 2010 value sales of NZ$20.1 billion (using current exchange rate). The ACFSRI supplies a wide range of clothing and footwear to end-consumers through outlets and tradeshows; the quality, target pricing, and both economies of scale and scope amongst competitors differ greatly, and therefore large variations exist in terms of cost-structure and profitability. The industry is highly competitive with hundreds of players, and shows lack of dominance; the largest market share held by Just Group Ltd in Australia (5.4%) and Hallenstein Glasson Holdings Ltd in New Zealand (6.1%). Both industries have fewer than 10 companies each that hold over 1% market share, with the of majority share held by small companies who each hold less than 0.1%. The Australian industry is over six times larger than New Zealand industry, attributing to almost 86% of the ACFSR total value sales. The combined annual growth rate (CAGR) between 2005-2010 show Australia (3.2%) considerably lower than New Zealand (4.9%), suggesting the Australian industry is a more mature industry. Easy of entry and exit is greatly reduced by the store leasing and external manufacturing options. Evidence of horizontal integration, such as mergers, exist as a way of gaining market share. Porters Five Forces: Threat of New Entrants is low to moderate. Low entry barriers exist due to relatively low capital requirements, resulting from leasing options and manufacturing and storage outsourcing; these options also decreases required know-how. Economies of scale and scope are only somewhat important to certain segments of the industry. However, well-established reputable brands greatly reduce this threat by heavily limiting the potential new entrants capturing market share. Bargaining power of buyers is moderate. High price sensitivity from consumers’ limited budgets, low switching costs and the large number of competitors are somewhat balanced from the low availability of substitutes. Bargaining power of suppliers is low resulting from low switching costs and extreme rivalry amongst suppliers with almost undifferentiated offerings (similar skills, capabilities, and quality standards). Similarly, threat of substitutes is also low simply because the only alternatives to the industry are either consumers sewing their own garments, requiring considerable skill, or purchasing outside of the Australasian industry, which is time consuming and more risky. Conversely, degree of Rivalry is moderate to high. Although exit barriers are low to moderate, large numbers of competitors, seasonal lumpy demand due to regular sales, and limited growth amongst tough market all increase the level of Rivalry. Overall, industry attractiveness and profitability is low to moderate; however, large variations within the industry do exist and this is more an industry average rather than an accurate measure. Driving Forces: The global financial crisis saw large decreases in consumer discretionary spending across both countries. Similarly, Australia’s reserve bank pushed interest rates up, and increased trend of mixed retail stores saw competitive discounting increasing. In New Zealand, companies cost structures are rising due to increasing rental expenses on outlets, as well as government policies that saw both minimum wage and GST increase. Consumer demand for a more holistic sustainable approach is forcing companies to ensure both sufficient work standards for manufacturing employees, and supply chains that reduce carbon footprint. Key Success Factors (KSF): KSF within the industry include companies achieving differentiation through combinations of aspects such as price, quality, brand essence, design, and customer service. Companies must also respond quickly to...
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