PORTER INDUSTRY ANALYSIS - Essay Example

In addition, the thirty US retailers have already joined the list of top 250 retail companies worldwide. Farfan (1, 2010) highlighted that the size of US retail industry was between $4 – 4.5 trillion (estimated from sales data) that would surely increase in future when US economy would completely come out of recession. For instance, this industry provides direct and indirect employment to more than 14.5 million US workers. 2. Porter’s Five Forces Model The author would now provide an analysis on Retail Industry of USA by using Porter’s Five Forces model.

Each force will be discussed in detail so that the reader could have a clear insight about the scope and business potential in this industry. 2.1 - Bargaining Power of Buyers The bargaining power of customers is medium because they tend to buy price elastic and inelastic products from US retail chains. Indeed, US large scale retail chains such as Wal-Mart, Aldi, Trader Joe’s etc. attract many customers that purchase grocery, food and other consumer products (basic necessities) that have highly / relatively inelastic demand.

For instance, the customers benefit from these chains because of lower prices in comparison to in-town small retailers. Therefore, the business of US chains will not be affected adversely because they adopt competitive and penetrative pricing strategies. Next, the business of retail companies such as Best Buy, Cost Co, Target, Circuit City etc. selling electronic and computer technology products had declined during 2008 - 2009 due to worst recession that forced the top management to reduce their number of stores and depend heavily on online sales model.

Circuit City now solely depends on online sales instead of establishing retail stores across different neighborhoods. The industry analysts expect that sales volume of US retail chains would increase in 2011 because of expected improvement in economy followed by availability of employment opportunities and better purchasing power. However, if inflation increases then demand for highly price elastic products may reduce significantly, while demand for necessities may remain same or increase amid surge in population (Farfan, 2010) & (Maestri, 2010). 2.2 - Bargaining Power of Suppliers The bargaining power of specific suppliers, especially of food and some electrical / electronic / computer products, is high because the demand for certain necessities and eatables never reduce.

However, the bargaining power of suppliers of relatively price elastic products (such as of perfumes, branded clothes, shoes, electronics etc.) is medium because consumer demand for such products is not high due to rising inflation and purchasing power issues. 2.3 - Potential New Entrants The US economy has been coming out of recession and the evidence of which is increase in aggregate sales of US retail industry in 2010 compared to 2009. Nevertheless, the unemployment rate across USA is still 10% and the prevailing retail environment is not feasible for new investors to enter in tough retail market, where existing firms have already been using various strategies to maintain their current market share.

In short, the threat for new entrants is low because it is not the ideal time to establish a new retail company (Yahoo Report, 2010). 2.4 - Threats of Substitute Products The