Porters Five Forces of the Retail Industry I.
Supplier Power The bargaining power of Suppliers is relatively low. There is a high competition between suppliers which means that their ability to raise prices or reduce quantity is very low. Suppliers include both domestic and international manufacturers and because many retail products are standardized, retailers have low switching costs which make the supplier power low.
Larger retailers have power over their suppliers because they can threaten suppliers to change to a different suppliers which would significantly hurt the suppliers because of their great market share. Furthermore larger retailers can vertically integrate with suppliers they are having trouble cooperating with. II. Bargaining Power of Buyers The bargaining power of buyers is relatively low.
This is because since there are so many customers, no one customer will have bargaining leverage. Therefore bargaining must be done in massive groups which are hard to organize.If consumers choose not to shop at a retail outlet they most likely miss out on value or price as well as convenience of shopping retail.
III. Competitive Rivalry Competitive rivalry is medium to high. There are numerous competitors as well as many E-retailers that are entering the market rapidly. Several Rivals are highly dedicated to being industry leaders. Furthermore there are diverse approaches and differing goals between competitors. These are all factors that lead to a high force but because exit barriers are low.Therefore weak firms are more likely to leave the market which in turn, increases profits for remaining firms which weakens the power of competitive rivalry. IV.
Threat of Substitutes Threat of substitutes is low because there are not many substitutes that offer low prices and convenience to consumers. The goal of retailers it provide a wide variety of products at one location and in many cases create a one stop shopping location which leaves little room for alternatives. V.
Threat of New CompetitorsThreat of new competitors is low because customers are very loyal to existing brands and retail stores. The companies that are most likely to enter the retail market are grocery stores. However, it takes a lot of time and money to build a good brand image and then get consumers to you store. Because of this, new entrants will spending money on building a brand when establishing which leaves them less money that can be used to give themselves a competitive advantage in the market. Secondly strong distribution networks are required to keep a retail store stocked.Weak distribution networks result in more expense in moving goods around.
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