Medium Threat Of Entry example essay topic

Porter analysis of Zara Zara fashion chain, with 546 stores in 30 countries today -from which 340 are outside Spain- and EUR 2914, 3 millions of total sales in 2002, is undoubtedly the group's locomotive (Inditex, 2003). In 2002 it represented 33% of the group's total stores, accounted for 72% of the group's total sales and contributed to the holding's total profits for EUR 540.4 millions (Inditex FY 2002 Results Presentation, 2003). Moreover, Zara with 75-90 new stores within 2003 takes the lion's share in group's current year store openings (total openings for 2003: 260-315). The purpose of the Porter analysis is to analyse the competitiveness of the market.

Threat of entry Threat of entry to the apparel industry is medium. Economies of scale play the moderate role (as stated in the case study), capital requirements for entry vary, distribution channels are available, threat of retaliation is medium and government legislation's play only a moderate role. On the other hand market experience and differentiation play the vital role. Threat of substitutes Threat of product-for-product substitution on this market is very high. It comes from other apparel retailers, designer clothes and tailor houses. Substitution by need is unlikely.

Generic substitution can take place as well as "doing without". Power of buyers Power of buyers on the market is moderate because there are many small buyers, retailers differentiate and are of big size, alternative sources of supply available, material cost is low (buyers are rather paying for brands), cost of switching is almost zero and there is not threat of backward integration (apart from large retailers). Power of suppliers Power of suppliers on this market is moderate / high because there is limited amount of suppliers, switching costs are high, suppliers' brands are not usually powerful, there exists the possibility of forward integration and supplier's customers are not fragmented. Competitive rivalry Rivalry is high / moderate because of the several factors: Competitors are of different size (Zara and H&M), market is growing (Mintel), fixed costs are moderate (compared to airline industry), threat of extra-capacity is high (H&M), differentiation is very high and exit barriers are moderate. To summarise global apparel industry shows medium threat of entry, medium threat of substitutes, moderate power of buyers, moderate / high power of suppliers and high / medium rivalry.

Bibliography

Books: Philip Kotler et al (1999) "Principles of Marketing" (2nd European Edition), Prentice Hall Philip Kotler (2003) "Marketing Management" (11th Edition).
Prentice Hall Gerry Johnson and Kevan Scholes (2002) "Exploring Corporate Strategy" (6th Edition) Prentice Hall Robert M.
Grant (2001) "Contemporary Strategy Analysis" Prentice Hall Web Sites web - on-line library web - search engine web - Encyclopaedia Britannica web - Business Search Engine web - On-line journals library web - Industry reports.