Zara Porter's Force

1173 Words5 Pages
Threat Of New Entrants Business Essay The porter’s analysis through its five forces model is an illustrious tool to get an insight of both the fashion apparel industry as a whole and more importantly Zara’s role with various major factors affecting the company itself. We will now take a look at this analytical tool as given below: Threat of New Entrants: The major features involved while determining this aspect of the model are the cost of entry, restrictions through laws of any government and sustainability to name a few. While the cost of entry may not be huge with regard to capital and product cost, the cost ends up being high due to economies of scale. As existing brands competing within the same market that have already acquired a reasonable amount of brand resonance, it is difficult for the new entrant to gallop immediately on the market share (Flandez, 2009). Due to suppressed demand, economies of scale cannot be achieved and the entrant usually faces losses in the beginning. Hence, while capital and technology might be easily available, market experience, product differentiation and brand establishment do act as barriers to entry against new entrants. Even though H&M’s and Zara’s brand values of $12 billion and $9 billion respectively may seem extremely high, we also have to take into account the experience and expertise that have given them those valuations today (Interbrand, 2012). In addition, another major threat that Zara faces is a growth of a new entrant through copying the same business model as that of Zara. However, Zara’s style of operations is so unique that “the Inditex (Zara’s parent company) way is an all-or-nothing proposition that has to be fully embraced to yield results” (Capell, 2008). Despite this reason, new apparel chains are trying to develop this model such as the US based Chico’s which even taps on a trademark Zara strength of
Open Document