Question

Using your own research only, perform a 5 forces analysis on the shoe industry. Be specific with regard to strength. This is to be about an industry, not a specific company.

1.Risk of Entry by Potential Competitors:

2. Rivalry Among Established Companies:

3. Bargaining Power of Buyers:

4. Bargaining power of suppliers:

5. Substitute Products:

Answer 1

Five force analysis is used to assess the industry competition and determine the industry attractiveness. The Five force analysis of the shoe industry is as follows

The threat of New Entrants – High

Brand loyalty forms a major threat to new entrants in the shoe industry due to pioneers and market leaders operating with attaining economies of scope and scale. This loyalty aspect limits the opportunities for new entrants into the industry. Intellectual property rights, patents and other copyright restrict new entrants in the shoe industry. Distribution channels are dominated by market leaders with agreements with athletes, retailers and sports teams restricting the new entrants considerably. The shoe industry is capital intensive and dominated by brands. The access to raw materials is easy but gaining popularity is hard in the shoe industry

Buyer power – Low

The bargaining power of buyers or consumers is low in the shoe industry making it difficult for the new entrants. The shoe industry is driven by brand and image with market leaders setting the product price and large retail stores offer seasonal sales promotion discounts as incentives for buyers to capitalize on the price sensitivity aspect – buyer volume is low and less concentrated reducing the buyer power considerably in the shoe industry

Supplier power – Low

The supplier power is low and mostly constitutes suppliers of rubber, cotton and foam. Any supplier meeting the quality standards can supply the commodity goods. Also, the supplier switching is frequent in the shoe industry due to the decrease in the quality of the raw material supplied. Hence the power of suppliers is low

Rivalry – High

The rivalry among the existing players in the shoe industry is high. Companies compete on brand image and product range to expand into new markets. Mergers and acquisitions are made in the shoe industry to capture more market share. Competition is huge in advertising and sports event sponsors among the dominant players in the market

Substitutes – Moderate

Generally, sandals, flip-flops, boots are the substitutes. Switching costs are low in the shoe industry with a low level of product differentiation. Hence this force is considered moderate

As a result of the five-force analysis, the shoe industry is attractive and profitable as the buyer and supplier power is low and also the substitute’s power is weak. There are significant barriers for new entrants into the industry as the threat of new entrants is high due to brand loyalty in the shoe industry making it hard for new firms to enter and sustain in the industry