Porters 5 Force Analysis of Retail Sporting Goods Industry and it’s Strategic Implications

(I) THREAT OF NEW ENTRANTS

The market attractiveness in the retail sporting goods industry is high which makes new entrants a viable competitive force. The cost of entry is high especially if the new company intends to compete with a chain store the capital required to enter the retail industry is high due to costs involved with purchasing/leasing land, product procurement channels, marketing, and advertising, customer switching, etc. Also, achieving supply-side economies of scale is challenging. The competition in the industry is fierce which can dissuade new entrants. Evidently, there has been a decrease in the number of independent retailers.

(II) THREAT OF SUBSTITUTE PRODUCTS OR SERVICES

There are not any direct substitutes for sporting goods products. However, there is strong competition between companies, and the products are not highly differentiated which means you can find the same products at different retailers. Also, similar industries such as department stores, used goods stores, e-commerce and online auctions, shoe stores, bicycle dealership and repair, motorcycle dealership and repair, recreational vehicle dealers, and mail order play a substitute role.

(III) BARGAINING POWER OF CUSTOMERS

Customers are generally price-sensitive and there is a lot of competition in the industry. Though the customers have little bargaining power against large retailers, however, they can demand better quality and more services while forcing the prices down by comparing or playing the competitors against one another to achieve their desired result. Creating a strong brand name is vital to reduce the customer’s bargaining power to some extent, this can be done by partnering with various established brands, proving excellent service, etc.

(IV) BARGAINING POWER OF SUPPLIERS

There is a wide range of different suppliers that companies in the retail industry deal with. Therefore, the supplier’s bargaining power is very low. Also, they are in competition with each other which means it’s difficult for them to increase prices or reduce quantity which gives the company more power to negotiate. If the supplier wants to do an in-store promotion or wants the retailer to push its product’s sales, the company can bargain better contracts and prices for the products. Successful retailers have a lot of power over suppliers which means they can dictate terms and conditions regarding price, quality standards with ease.

(V) INTENSITY OF COMPETITIVE RIVALRY

There is always cut-throat competition in the retail industry. The growth in the market is slow, hence the retailers need to compete with one another to gain market share. With the rise of e-commerce, the competition has gone to another level since there are so many mediums to lure the customer to another retailer. Retailers are trying to provide customers convenience by making their stores one-stop shopping locations.

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STRATEGIC IMPLICATIONS

A company has to incorporate industry conditions into the strategy. After analyzing the forces, it is apparent that competition is the most significant aspect of the industry environment. The corresponding strategic and structural decisions that the company takes must be based on fighting the competition. Companies have to continuously exploit industry changes, the emergence of e-commerce is an example of such a change the companies which were able to assess this trend stayed ahead of their competitors. It has become imperative for the long term survival of any company and to compete in the cut-throat market to closely analyze their industry changes continuously. Since the products are standard, price competition is rampant. The companies will have to continuously cope with the direct competition for market share. This has led to a drastic improvement in customer services so it’s harder for a customer to leave the company for a rival. Companies are investing heavily in building brand image and hence brand loyalty to retaining and growing their customer base. Achieving economies of scale is crucial as well.

There is no direct substitute for sporting goods. Due to the high cost involved, the new entrants to the industry are also low. Bargaining power with the suppliers and the customer is also low. Direct competition is the competitive force that shapes the strategy of any company in the industry.

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