Fashion Industry Analysis - Assignment Example

Fashion Industry Analysis Contents Contents 2 Industry Analysis 3 Segmentation 3 Competition 4 Key Success Factors 4 Porters Five forces Model 5 PESTEL Analysis 7 Opportunities and Threats 9 Conclusion 10 Reference List 11 Bibliography 13 Industry Analysis France has been considered as the hub of fashion historically. Italy and the UK are other two prominent countries upholding fashion. These countries along with the US hosts a number of coveted fashion events every year, which are internationally recognised. The US fashion industry has shown a decent growth of 4% in 2011 with total sales of $199 billion (Yueh, 2014). The industry generates an employment of over 4 million. In the US, men, children and women apparel sales increased by 4%, 6% and 3% respectively (KPMG, 2012). Even the online fashion market is raging in the US and most of the sales are driven by women. Fashion weeks held in the US brings in huge amount of money into the country’s reserve. On the other hand, the UK fashion industry is worth £26 billion (Pithers, 2014). Even in the UK, this industry accounts for high number of jobs. Report states that during the London Fashion Week, more than £100 million of orders are placed. Segmentation In fashion industry, the market is segmented according to brands, which is generally concerned with creativity involved in the product design and another as per market, which again is determined by price of the product that the consumer is willing to pay. The clothing that are made in factory setting and not by hand are referred as ready-to-wear (RTW). They are also sold in the market in standard sizes (D’Aveni, 2010). These cloths are manufactured so that consumers can wear them without excessive alteration owing to the standard sizes. On the other hand, diffusion line is created by high-end fashion brands or fashion designers. These are secondary merchandises, which are available in the market at lower prices. This helps in increasing sales volume as the customer base becomes wider with lowering of the price. By leveraging desirability of the premium ranges, designers successfully tap the market through a halo effect (D’Aveni, 2010). Buyers’ Needs and Wants In case of RTW clothes, the buyers’ needs are taken care of as sizes offered are standardised in nature and fit properly to majority of individuals. These clothes hardly require any alteration, which means the product is available to consumers at the desired time. Generally, this is followed by all fashion brands at present. The diffusion, on the contrary, is to increase the consumer base as brands start a secondary merchandise line, which is sold at lower prices than the primary one. There are takers for fashionable merchandises if available at affordable price. The brands are aware of the same, which is why they have taken the path of diffusion line. Buyers desire a sophisticated shopping environment, which includes appealing decor of the store and its location. The service of the employees in the store should correspond with the brand image. These are the aspects that attract a consumer (Melissa, 2012). Products The products in case of RTW clothes are standardised and require less altering, which render the product available to the consumers in a short time. In case of diffusion line, products are the ones, which are worn by eminent personnel and influence general public to own the same. They can only purchase the same merchandise if those are available in the market in affordable range. The brands have planned to start a secondary merchandise line in order to tap this market. The consumers expect that the products to be assorted for their benefit. The visual merchandising of the product has to be proper (Melissa, 2012). Competition The competition in the industry exists mainly because of creativity and price. RTW is generally adapted by companies in case of mass production of clothing, which lack in creativity. In present market scenario, people are more inclined towards creative clothing, so diffusion becomes important and more big brands are gradually shifting to the diffusion strategy so as to increase sales. Therefore competition among the bigger brands are in rise as they are universally opting for a price cut to sell their products, thereby providing adequate choices to the shoppers. Key Success Factors Government Support The critical success factors of the UK fashion industry are immense support from the government in terms of grants and formulation of policies so as to encourage its growth. The policies framed by the government have helped in establishing a good market condition, which provides value to the consumers. Even the US fashion market has been boosted by government policies and grants. The government of the US has also been open to holding a number of internationally recognised fashion events in order to shape the industry. Customer Awareness The customers in the UK are made aware of new designs and creations by the designers or brands through events like, London Fashion Week and Paris Fashion Week. The same is done in the US fashion industry, where updated creations are showcased in events like, New York Fashion Week. The emergence of these fashion events has made it possible for the designers to display their creations and appeal to customers in order to generate sales. Ability to bring in continuous innovation The big brands both in the US and the UK are heavily equipped with effective R&D structures, which enable them to be aware of changing tastes and preferences of the consumers and accordingly formulate and bring in products. As a result, this ability of brands like, Next and Arcadia, in the UK as well as GAP and Urban Outfitters in the US, has helped them to sustain in the highly competitive market by ensuring consumer satisfaction over years. Porters Five forces Model According to Michael Porter’s framework, an industry is influenced by five external forces. Strategic business managers who are trying to have an edge over the competitors and place themselves in a better position need to carefully analyse the market through this tool. Bargaining Power of Suppliers (HIGH in the UK & MODERATE in the US) The suppliers of raw materials like, cotton and other textiles, in the UK are generally limited owing to high cost of textiles in the UK fashion market. The traditional practices of suppliers further raise the cost of final products. The high cost of real estate also adds to product price. Hence, the bargaining power of suppliers in the UK is high. The bigger brands have started outsourcing their manufacturing department in the emerging countries, where cheap labour is easily available, which help to keep the product prices affordable. In the US, the number of suppliers is high with less degree of uniqueness in the material; but the switching time is high, which may lead to loss for the company. In the US, the supplier’s bargaining power is low to moderate (Gould, 2014). Bargaining Power of Consumers (HIGH) In the UK, the bargaining power of consumers is very high as its fashion market comprises a number of big brands, which provides numerous options to the consumers to make a choice. Almost all brands offer creative product lines in order to win more number of consumers. Along with creativity in designs, they also offer value added services, which provides with a unique service edge over their competitors. The bargaining power of consumers is also high in the US due to presence of high number of affordable options and no switching cost. The American consumers are price sensitive so the competing brands are in a price war. Competition from Existing Players (HIGH) The competition from existing players in the UK fashion industry has of late seen a phenomenal rise. With the consumers having more power to switch, they are growing more demanding and less loyal to brands. The big brands based in the UK like, Next, Arcadia, BHS and Matalan, are all trying to gain an advantage in the market by investing heavily in the R&D in order to understand consumer’s change in preferences and accordingly produce creative products that appeal to most consumers. Similarly in the US market, the brands like, American Apparel, GAP, American eagle and Urban Outfitters, are engaged in severe competition. These brands are also trying to win customers and retain them by producing creative products as per consumers’ needs, which they try to comprehend through extensive research. The price is also an important factor in the US fashion market (Gould, 2014). Threat of New Entrants (LOW) In the UK, threat from new entrants is minimal. This is due to presence of brands that are highly established, which deters new players to venture into this market. At the same time, the cost of establishing in the UK market is significantly high and the market is also saturated with big brands that de-motivate the new entrants from venturing therein. Similar is the case with the US fashion market, which also boasts of huge brand names and is saturated with very less scope for the new entrants. Threat of Substitute (LOW) In the UK fashion market, the substitutes do not pose any considerable threat. This is because the market comprises huge brand names. The consumers are brand conscious and are not ready to purchase merchandises from any retailer who offers products at less price, but do not have a huge brand value. The customer base of these big brands belongs to the niche category, which is why it is highly unlikely for them to switch over to lower priced substitutes. The consumers are equally brand conscious in the American fashion market and are also less likely to opt for substitutes of the brands. From the above analysis, it has been found out that consumers of the UK fashion market are more inclined towards better creativity and design of the product. Price is a less important factor in this market; whereas in the US fashion market, consumers are also attracted by designs, but price plays an important factor in their purchasing decision. PESTEL Analysis Through PESTEL, macro-economical factors affecting the industry are analysed. Every company must undergo this analysis in order to formulate measures for minimizing imminent problems. Political The critical political concern of the UK fashion industry is that of exploiting cheap labour in developing countries since globalisation. The price war in between competitors and the competition in between countries for foreign earnings are exerting great pressure on the labour chain. This is because of strict regulations, which have been formulated for companies to abide by while employing labours from the concerned country. Though the government policies in the US are not as stringent as in the UK, yet rights of labours are well-protected in the former so that they are not exploited by the companies. Economic Recently, the UK economy has been going through recession when domestically manufactured products were more expensive than the imported ones. Though some of the bigger brands like, Marks & Spencer and John Lewis, have started promotional campaigns to encourage consumers to be patriotic while purchasing, yet they had fallen short of achieving success; given that studies have proven that the average spending of consumers have declined and the market is deflated. The US fashion industry has also been through bad times during the global meltdown. The industry was performing poorly until 2009, following which the market has appeared to recover substantially (Barrie, 2012). Social With globalisation, the outlook of consumers has changed and social factors are greatly contributing in markets of the US and the UK. The consumption is encouraged in fashion industry by creating different societal dress codes. This also helps the retailers to figure out the actual wants of consumers in order to formulate and bring forward the required range of apparels. Continuous promotion of updated product lines also boosts consumer awareness, which leads to broadening of the consumer base (Barrie, 2012). Technology Technology has been one of the most important macro-economic aspects determining the fashion industry. Improved technology has led to increase in production of the apparels and creation of artificial materials that are as good as the real materials. Therefore, advancement of technology has helped the companies to put a check on the excessive use of natural reserves. The big brands have online presence through which they can figure out present trends and tastes of the target markets. Environment The fabrics used by manufacturers reflect different environmental concerns. Nylon and polyester are non-biodegradable and have negative environmental effects. Cotton requires large amount of pesticides, which are quite detrimental for the environment. In order to curb the use of such pesticides, technology should be used to prepare substitute materials, which will help to manufacture the products without causing any environmental hazard (Barrie, 2014). Legal The legal constraint of fashion industry is that the creation of a brand can easily be copied by another brand and there are no regulations to prevent the same by illegal labels. This is a problem that depletes the potential customer base of a particular product as the similar fashion is imitated by another brand and brought to market in a faster manner at a lower price than the original one (Suk and Hemphill, n.d.). Opportunities and Threats Every industry has strengths and weaknesses, which in turn provide them with opportunities as well as the prospective threats that it might face in future (Williams, 2014). Opportunities: The fashion companies invest substantially in designing and creativity. These help in adding value to the product. As user driven innovation has become one of the driving forces of this industry, several opportunities are rising in the field of innovation (Gould, 2014). These would lead to enhanced creativity and a proper collaboration of the fashion industry. The European Technology Platforms should be encouraged for enhancement of knowledge transfer. The opportunity also lies for the brands to venture in the emerging markets with high per capita income of consumers, which is necessary in order to expand market share (Gail Research, 2009). Threats: No adequate regulation for the purpose of curbing the tendency to imitate designs by competing brands is a primary threat to brands operating in the industry. The threat of buyers switching to the competing brand, if they get products of equal value in lesser price, is also existent in this industry. Conclusion The opportunities stated would lead to set up of special institutes, which can prepare creative personnel through proper training. The creativity index would rise with consumers being able to obtain good value for the money that they spend (Ravasio, 2013). The governments of the US and the UK must devise certain legal measures in order to bring down the imitation of creations by competing brands. In this manner, it would create a fair market for fashion products, wherein the brands with better skilled personnel in the creativity department can have an edge over the others. This would also lead other brands to increase their resource of creative personnel (Ravasio, 2013). Reference List Barrie, L., 2012. Just-style management briefing: Apparel industry challenges in 2012. [online] Available at: < http://www.just-style.com/management-briefing/apparel-industry-challenges-in-2012_id113370.aspx> [Accessed 25 June 2014]. Barrie, L., 2014. Just-style: Outlook 2014: Apparel industry challenges. [online] Available at: [Accessed 25 June 2014]. D’Aveni, R., 2010. Fashion conscious: Lessons in commoditization from the fashion industry. [online] Available at: [Accessed 25 June 2014]. Gail Research, 2009. The global fashion industry – Growth in emerging markets. [pdf] Gail Research. Available at: [Accessed 25 June 2014]. Gould, H., 2014. Returning fashion manufacturing to the UK - opportunities and challenges. The guardian. 10 June. KPMG, 2012. Retail Industry Outlook Survey: Modest gains keep cautious optimism in style. [pdf] KPMG. Available at: [Accessed 25 June 2014]. Melissa, 2012. Issues facing the UK fashion industry and trade mark “hijacking” in China.[online] Available at: [Accessed 25 June 2014]. Pithers, E., 2014. London Fashion Week: Fashion industry worth £26 billion to UK economy. Telegraph, 14 February. Ravasio, P., 2013. Fashion Industry 2043: Risk mitigation and long-term competitive strategy through scenario work. [online] Available at: [Accessed 25 June 2014]. Suk, J. and Hemphill, C., no date. The Law, culture and economics of fashion. [pdf] Harvard. Available at: [Accessed 25 June 2014]. Williams, J., 2014. SWOT Analysis for the Fashion Industry. [online] Available at: [Accessed 25 June 2014]. Yueh, L., 2014. The fashion business. BBC News, 19 February. Bibliography Aaker, D. A. and McLoughlin, D., 2007. Strategic market management, European perspective. New York: Wiley and Sons. Cravens, D. and Piercy, N. F., 2008. Strategic marketing, 9th edition. New York: McGraw-Hill. Doyle, P. and Stern, P., 2006. Marketing management and strategy, 4th edition. New Jersey: FT Prentice Hall. Drummond, G., Ensor, J. and Ashford, R., 2008. Strategic marketing: Planning and control, 3rd edition. Oxford: Butterworth-Heinemann Ltd. Hooley, G. J., Saunders, J., Piercy, N. and Nicouland, B., 2011. Marketing strategy and competitive positioning, 5th edition. New Jersey: FT Prentice Hall. Jobber, D., 2009. Principles and practice of marketing, 6th edition. New York: McGraw-Hill. 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