Five Forces Analysis

The clothing retail industry in China in 2012 has generated RMB 448 billion revenue, up to 17% growth rate for the year. Over the five year through 2012, the average growth rate has reached to 15%, which higher than the average growth rate of GDP in China 9%. As forecasted, the revenue in this industry in the following 5 years through 2017 will remain 11%. (Clothing stores industry report, 2012) However, the competition is increasing due to the entry of more foreign players. So this report will use Porter’s Five Forces Model to do industry analysis of the clothing retail industry in China. And then the feasibility to enter in to this industry will be evaluated based on five forces analysis combined with the external environment in China.

Porter’s Five Forces Model analysis

Threat of new entrants

The high growth rate seems attractive to new entrants. The capital requirement to entry the clothing retail industry is low because the industry is a kind of labor intensive, shown in the table 1. Also shown in the table 1, the main capital cost is to set up an independent apparel store, which only accounts 6.4% of the total cost and such cost is within the means of many individual in China.

Even though there are strong brand name in China, the industry concentration is low, shown in the table 2. So the threat of suffering price for retaliation for new entrants is low. Product differentiation is high because the products are determined by design which must different themselves for recognition. Overall, the threat of new entrants for clothing retail industry is low.

Threat of substitute products or services

Clothing has the function to be signifier of social status and personal identify, not limited to keep warm. So for the product itself, there is almost no substitute. Counterfeit clothing can be a threat for the revenue of some famous brands not for the whole industry. However, substitutes for clothing retail include purchasing directly from the manufactures, department store and supermarket. The clothing sold in the supermarket is usually the low-end products and the product differentiation is low. So the threat is low. The department store selling is usually for high-end customer, which only occupies a small percentage of customers. The main treat is buying directly from manufacturing which is facilitated by online shop. As a result, the overall threat of substitute or service is low to mediate.

Bargaining power of customers

The fact that main customers in the industry are individual buyers lowers the concentration of buyers relative to suppliers and weakens buyers’ negotiation power. Meanwhile the individual buyers are unable