Porters Five Forces PDF

Preview

Summary

Porters Five Forces...

Description

Porters Five Forces

Topshop is a British fashion retailer with a net worth of £6.2 billion that provides trendy goods to both female and male consumers, these goods consist of pieces such as, clothing, shoes, makeup and accessories. This brand has 500 shops in total worldwide. Topshop is a brand that is known for collaborating with very wellrecognised brands and public figures, just a number of their collaborations include, IVY PARK (Beyoncé, see figure A & B), Kendall & Kylie swim (Kendall and Kylie Jenner), and Calvin Klein and more. Topshop operates in monopolistic competition. Monopolistic competition when there is a market where there is some form of imperfect competition therefore there is some restriction on competition between different businesses. This type of competition exists when a large number of relatively small firms compete in an industry, there a few barriers of entry enabling other growing businesses to easily set up and enter these join these markets. An advantage of operating in monopolistic competition in the fashion sector is that empowers different businesses in the same market to be able to brand their company by differentiating their products through price, style and promotion allowing customers to be able to identify the brand. Due to the large number of firms in the retail clothing industry, advertising is crucial for Topshop to gain consumer demand and superiority over comparable brands.

Figure A: Image of Actor, Karrueche Tran purchasing some pieces from Beyonces line

Figure B: IVY PARK, Beyonce’s clothing line under Topshop Rivalry among competitions Porter argues that competitive rivalry is the main force that affects the ability to influence the market. As Topshop is a fashion retailing company and the clothing retail market operates within the monopolistic structure, this means that they have numerous well established rivals, not only nationally, but also globally through the online shopping system. The direct competitors include, River Island, H&M, Missguided, Zara and more. Unfortunately, Topshop is not the market leader within the fashion retail market, the top 3 worldwide market leaders are; Nike with a market share of almost $105 billion, Spanish fast fashion (Zara, Pull & Bear, Stradivarius and more) with a market share of nearly $104 close to Nike and Louis Vuitton Moët Hennessy, a French luxury conglomerate that operates a chain of independent stores such as, Fendi, Dior, Louis Vuitton and more with a total current value of $87 billion [1]. One way Topshop differentiates itself from other business in its market is through the collaborations that they frequently do with famous celebrities such as, Beyonce and Kate Moss. This gives them a unique selling point as some of these collaborations are exclusive and must be purchased before a certain time. This can be a form of promotion as celebrities would essentially introduce their fans to business that they are working with by publicly wearing the clothes that their supporter would want which allows Topshop to gain more customers and have an increase in sales. There are many ways that Topshop competes with its competitors, in the 90’s Topshop decided to not just compete on price but to also compete on style and fashion. This was done in order to create fashion authority within the business so that consumers know that they are getting good quality products, due to this, Topshop has built brand awareness that consumers associate with the affordable luxury category as well as competitive price[2]. The Fashion retail market has always been a leading industry therefore cost gradually increase for factors such as, production, employment and packaging, especially now that the UK has exited the European union, these costs

would increase much more rapidly than normal due to fast fluctuations in exchange rate, decreasing the worth of the British currency. For example, As soon as the Brexit occurred, the owner of Topshop, Sir Philip Green lost around £365 million (see figure C) [3].

Figure C; A news headline on the Telegraph about what tookplace of Brexit Friday The threat of new entrants The number of business in a market may not always be a useful guide to competition in that market. This may also depend on the ability of businesses to enter markets. If it is easy for the business to enter the markets then the competition is likely to be greater. This will restrict the ability of a business to influence the market. It is possible that may be prevented or deterred from entering markets due to barriers o entry.Although, fashion retail industry has few barriers to entry ( production, packaging and employment) and it may seem fairly easy to set up within these markets, it can be difficult to gain customer recognition when a new business joins the market. This is because there are many well established brands and distribution channels, because of this customer tend to stay loyal to existing, well known brands, therefore in order to become successful as a new business in the fashion retail market, a gap must be filled in order to attract customers to build brand awareness and a unique selling point to attract new customers to the business. However, it may be beneficial for new businesses to enter the market as China is bringing in low cost shoes in the market which would allow businesses to receive more revenue due to the increase in demandforcing the entrants to mass produce due to high demand. Compared to industries such as manufacturing that you may need to invest millions before any revenue is made, there are very few barriers of entry in the fashion retailing market that include, brand identification and production differentiation also plays the significant role, Economies of size - The need for a large volume of production and sales to reach the cost level per unit of production for profitability. There are also few barriers to exit which include, specialized skills by industry participants that cannot be utilized in other industries tend to be an impediment to leaving the industry, high fixed costs - high levels of dedicated fixed costs tend to be an barrier to leaving an industry[4].

The threat of substitute products This depends upon the extent to which businesses can differentiate their products from those of their competitors. A business which struggles to differentiate its products is likely to face intense competition. Zara is the closest competitor to topshop in terms of similar price and products, therefore their products meet similar needs. In order for Topshop to gain more sales they must adjust its price for maintaining its customers and profits because if the prices are not adapted to customer demands, they will find another that could provide them with the same thing but at a cheaper price. Due to Topshop being a well established brand, regardless of some of the expensive pricing, customers would may not be able to receive the best quality of that clothing piece if they go to a cheaper retailer. For example both Bershka and Topshop sell a similar looking puffer jacket. Topshop retails it for £110 [5] (see figure D) but Bershka retails it for £39.99 [6] (see figure E). Customers would automatically want to make the most logical and economical decision and purchase the one from Bershka. However as it was before, they may be missing out on a better quality product from Topshop and a loyal consumers may be aware of this and buy from the coat from topshop due to the brand awareness that topshop has built.

Expensive compared to Bershka.

Hoodie, - USP, product differentiation.

Figure D: Puffer coat from Topshop

Collar, No Hoodie – product differentiation

Cheaper price compared to Topshop.

Figure E: Puffer jacket from Bershka The bargaining power of customers Where customers are strong there is likely to be more competition between producers and their influence and their influence may be weak. The factors affecting the power of customers may be; the number of customers, whether they act together, their importance, their stability to switch products, Regularity of purchases e.g. consumers on holiday are one of purchasers prepared to pay a higher price. Customers are not always in a position to influence the pricing of the products sold due to high quality and fixed costs. Buyer is fragmented globally and they are large in numbers therefore bargaining powers of customers becomes low regarding concentration. Switching cost is high as Topshop provides good quality at ‘cheaper’ prices. The customers are in a position as to where they are able to influence the variety and type of products sold because Topshop has a target market of young fashion conscious people between the ages of 18 and 35. Topshop takes inspiration from current trends that the youth gravitate to at certain periods of time through social media sites such as, Instagram then their own twist is made to it to build brand differentiation. If Topshop receives a large amount of sales from a specific product, they may order in more of the product or discount the product. The bargaining power of suppliers Power suppliers can increase the costs of a business and decrease the extent to which itcan control its operations. The power of suppliers is likely to depend upon the number of suppliers able to supply a business and the importance in the production process of the product being supplied. The Arcadia group has strong relationships with their network of international suppliers that supply for Topshop/Topman, Burton menswear, Evans, Dorothy Perkins, Wallis and Outfit. Arcadia groups are manufactured in approximately 985 factories through 766 suppliers. The top five countries that raw materials are sourced from are; China, Turkey, Romania, India and Bangladesh [7]. The suppliers may have an influence on the variety that is supplied because clothes from the Arcadia group are commonly produced in less economically developed countries therefore; it is cheaper for owners to pay the factory workers due to drastic differences in the exchange rate. This allows more to be supplied as a result of the chea prices which would then lead to a rise in revenue as the demand would increase as a result of products being at a cheaper price.

Figure F: Factory worker sewing clothes for to supply to the Arcadia group

Bibliography:

1

https://fashionunited.com/global-fashion-industry-statistics

2

http://www.slideshare.net/julienperez/case-studies-topshopnyu

3

http://www.telegraph.co.uk/business/2016/06/25/topshoptycoon-sir-philip-green-loses-around-365m-after-brexit-v/

4

https://www.extension.iastate.edu/agdm/wholefarm/html/c5200.html

5

http://www.topshop.com/en/tsuk/product/clothing427/jackets-coats-2390889/the-puffball-by-boutique5843766?bi=180&ps=20

6

http://www.bershka.com/gb/woman/new-collection/coatsand-jackets/'puffy'-cropped-quilted-jacketc1010052079p100552001.html

7

https://www.arcadiagroup.co.uk/fashionfootprint/ourproducts/Ethical%20Trading...