Forever 21 Porter Five Forces Analysis
Five Forces analysis of Forever 21 covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Forever 21 is a leading fashion retail chain based out the USA. The cost of switching from one retail brand to another is very low in the minds of the customer. This is the reason for high competition and increased threat of new entrants. A customer can seek new designs and clothing at lower prices by simply going to the next store in the mall. Entering the high-end apparel market would require new and innovative clothing designs as well as a great quality material to trigger a purchase from the customer. The new entrant will have to meet all the basic parameters and present a point of differentiation to be a threat to Forever 21. Considering all the above factors, the threat of new entrants is moderately high.
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This concludes the threat of new entrants in the Forever 21 Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Forever 21:
Forever 21 and other leading apparel brands have been in business for a significant time and have a well established customer base. Customers have developed this affinity or allegiance towards these brands over a period of time due to several reasons including credibility, quality of the product, pricing, trendiness, in-store experience, delivery, availability of the brand and customer service experience in the past.
Any new entrant will have to work with the disadvantage as the competing companies will have brand recognition and an advantage of advertising & publicity. The learning curve of these older brands will also reduce the threat of substitution. Overall, the threat of substitution is low.
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Bargaining Power of Customers:
In the Forever 21 Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The fashion industry is dynamic with ever changing styles, designs, and trends. The Forever 21 company can gain a competitive advantage by accurately predicting customer needs in-terms of styling, materials, and apparels in trend. However, any inaccuracy while making these judgements about customer demand and willingness to pay would result in surplus stocks and reduction in overall profitability of the firm. The company needs to have an expertise in recognizing the marketing strategy relevant to its customer base to retain and onboard new clients. Any misjudgment in gauging the consumers inclination towards a particular style/trend may lead to inaccurate demand prediction and have negative impact on sales. The customers could easily switch to another brand offering better and innovative products at a cheaper price.
Thus, the bargaining power of the customers in moderately high.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Forever 21:
Forever 21 saves tremendously on production expenses by outsourcing their material and labor requirements from Asia at competitive and extremely low prizes. The dealers usually have a low bargaining power due to the easy availability of substitutes at low prices. A problem with outsourcing its production is that it is difficult to ensure that all regulations are followed by the independent firms. Any breach in labor regulation and performance standards can negatively impact Forever 21 business and reputation as a brand. A downside of engaging in contracts with independent firms to monitor the manufacturing locations is that despite company’s efforts to keep track of operations and policy regulations, it is extremely difficult to ensure that lawful and ethical labor practices are followed in the business environment. Also, altering the perception of the public is a tedious task. All these efforts are futile if they cannot guarantee suitable actions on the contractor’s part. Motivated to operate in their self-interest, contractors of the company do not work under the directions of the company. Overall, the bargaining power of the suppliers is moderately low.
Competitive Rivalry:
The impact of key competitors in the Forever 21 Porter Five Forces Analysis is as follows:
The apparel market and the fashion industry in general is highly competitive. Forever 21 faces stiff competition on only from the large players in retail and clothing business but also from newer platforms like eCommerce, Direct to customer portals, retailers of speciality shops, off-price sellers etc. Forever 21 faces competition in procurement of raw material at low prices, labor & skilled craftsmen, economical production outsourcing, retail space and most importantly market share. The continuous outflow of customers to newer brands and changing trends require Forever 21 to continuously bring in new customers that have no brand affinity to any brand as they have entered a new market. The competition to attract these new potential customers is very stiff with rival brands aiming to target the same customers. Overlapping target customers and demographics further increases competitive rivalry.
Moving forward, Forever 21 needs to focus superior quality products and sell them at a price the customers are willing to pay as it faces severe competition from larger players with better finances, distribution networks and thus their overall operations.
To conclude, the above Forever 21 Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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