Porter’s Five Forces a Competitor Analysis tool
In 1979, Michael Porter founded that the five forces models are a tool for analyzing competition of a business. It would be included five determinants, which is the threat of new entrants, the threat of substitutes, bargaining power of customers, bargaining power of suppliers and competitive rivalry. Profitability would be related to the threat of entry into the fast fashion. The unstable turnover would occur under more new entrant in the industry. For example, the total revenue of the market is $50 million, but 50 companies would be shared with the whole market. Each company turnover would be increased instead of 5,000 competitors. Therefore, if the market has set up less source of entry barriers, the market would have a lot of competitors. Differentiation of product of a company can lead themselves becoming unique from other competitors which obtain a certain amount of loyal customers. Due to the economic growth, most of the people are willing to spend not for necessity, but also for stylish lift style. If the company want to increases customers’ loyalty, the uniqueness of the product would be one of the methods, the company also can get the most advantage. Higher differentiation of product would be one of the entry barriers. In the fast industry, assess channels of supply and distribution is very important. Thousands of suppliers of the fast fashion can be found in the rapid interest development. It means that the fast fashion does not have any entry barriers to finding the suppliers.
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Some retailers tend to search some suppliers, who can provide the best quality of material with the lowest cost, in order to build up the comparative advantage. However, the sizable company would build be build up a closed relationship with suppliers easily because of the sizable volume of orders and reputation of the company. The above action would increase the entry barriers in this market. H&M, one of the major retailer in the fast-fashion industry, she worked with 747 suppliers in which 150 of them are long-term strategic partners. Therefore, H&M built up a strong relationship with their suppliers, it is difficult for the potential for the potential entrants to compete. In the fast fashion industry, economies of scale are one of the important determents of entry barriers. If the company is a sizable company, it can achieve the easier the level of efficiency. In addition, the maximum volume of production keeps increasing for factories because of the technology improvement. Mass production by large firms enables them to fully utilize their production capacity where small stores cannot.