February 25, 2010
Porter’s Six Forces Analysis
General Retail: Merchandise/Department Stores
The department store industry will be analyzed taking department stores as players, individual consumers as buyers, and manufacturers and distributors as the key suppliers.
The Rivalry among existing firms High
The period from the end of the 20th century up until now has been marked by the consolidation trend in the department store industry, characterized by major acquisitions by a few larger, powerful competitors, greatly intensifying the rivalry among ...view middle of the document...
11 Since department stores normally sell a wide range of products, their customer base is large which causes a decrease in the bargaining power of buyers.3 On the other hand, the purchased product (branded apparel, jewelry, or footwear) may represent a considerable percentage of buyers’ income thus prompting them to shop around for a lower price. This fact increases buyers’ power to affect retailers through their ability to push prices down especially during the tough economic times experienced globally.12
Another factor that contributes to strengthening of the bargaining power of buyers is non-existent switching costs and the fact that alternative suppliers are just around the corner.11 This fact may force luxury retailers to turn their temporary discounts into permanent ones since customers are expecting to satisfy their needs on a regular basis.7, 16
The Relative Power of Other Stakeholders Medium
Other stakeholders in department store industry are represented by government agencies on the one hand and trade associations, such as American Apparel and Footwear Association, on the other. While government agencies are raising protectionist barriers, AAFA protests saying that such measures would restrict trade, and slow down economic recovery 1, 4
Credit card companies represent another important stakeholder in department stores sector. As economy is lagging, retailers are looking for ways to cut costs, credit card fees being one of them. Retailers claim these interchange fees represent one of the largest store-level expenses, behind payroll and health insurance, bringing another legislative battle.2
The Bargaining Power of Suppliers Medium
The bargaining power of suppliers is weakened to an extent due to the fact that a few major players buy from a large number of suppliers and switching costs for retailers are not very high.3 The power of suppliers is weakened even further due to retailers’ ability to source goods manufactured in low-wage countries.3
The recession has brought a new outlook on tough relationships between retailers and apparel suppliers. While vendors are looking for better deals from suffering retailers, they, in turn, seek vendors to bear some of the profits that were lost through discounting by providing allowances or credits.14, 8
The Threat of Substitutes Medium
Substitutes satisfy the same need as another product, but appear to be different. In case of department stores there is a possibility of substitution in form of specialty stores. Even though specialty stores have a wide range of items within a product category, customers of department stores have an advantage of shopping for different products in one location, which considerably weakens the threat of substitutes.11
The Threat of New...