Revising

Industry: Footwear Industry (Fashion Industry)

Porter’s 5 Forces:

1. Rivalry among Existing Competitors

In the past couple of years the footwear industry has blown up. Specifically, high-end sneakers from brands like Yeezys (an offshoot of Adidas), Supreme, and Jordan have revolutionized the sneaker resale market. For example, the sneaker resale market just hit 1 Billion dollars in revenue this year. The unbelievable resale power in a sneaker makes them collector items. Adidas’ Stan Smiths debuted in 1971 and now all the street style bloggers and celebrities have flocked to this shoe again. The classic lines make it a hit. Furthermore, Yeezy’s working with Adidas has revolutionized Adidas as a high-end brand. Puma has partnered with mega star Rihanna to create a collaborative collection that premiered at Paris Fashion Week called Fenty. These kind of partnerships feed into the rivalry between competitors and because of the high capital investment to create shoes that are not only stylish but also made to play soccer/various sports needs to be considered. In addition, the capital investment needed to promote and building the following and celebrity status both Puma and Adidas currently hold in the market. This in turn makes the barriers to new entry quite high because the industry has two strongholds, Adidas and Puma. In addition, there are high barriers to exit as well because the cost of leaving the business can also prove costly. The good thing for the rivalry among the existing competitors is that the government regulation is always very low when it comes to clothing and footwear, they pretty much leave it alone and allow it to essentially regulate itself. In addition, due to the strong rivalry between Adidas and Puma they are prices at around the same price across their various shoe offerings. The only exempt items from the price similarity would be the Yeezys (Line with Kanye West for Adidas) and Fenty (Line with Rihanna for Puma).

2. Threat of New Entrants

The barriers to enter the footwear industry is considered moderately high. Although the cost of entry is free to the market, but it's very difficult to survive in that market and to gain market leadership.Entering the market is very costly due to the need of capital investment and labor cost. For a new company to enter this market and succeed against the big players in the market such as Adidas, Puma, and Nike it'll be very costly since it needs to invest on capital, marketing and advertising, R&D, endorsement of very well known athletes that have not signed with any other brand yet, and being able to produce by outsourcing or in house. Opportunities for distribution access is limited due to the high top brands that are already very well recognized in the market. There are no laws, barriers and government regulations. Also, in terms of switching cost, its low and there is ease in the access of inputs. For Adidas and Puma, threat of new entrants is weak this is because of the brand development high costs which makes it not easy for new entrants to be successful against these companies. Moreover, the high economies of scale which makes it hard considering the international distribution network. Last is the cost of doing business which is considered moderate where it limits new entrants from distributing in the industry environment.

3. Threat of Substitutes

Puma and Adidas both capture a good portion of the high end, premium athletic footwear industry. Each company is able to remain innovative and fresh when competing in the market against their competitors and possible product substitutes. Other footwear is the biggest threat to Puma and Adidas, the casual footwear industry is the biggest threat by offering lower prices and easier accessibility to many products and an array of different distribution methods. The threat of a substitute is the option of a consumer to purchase a product outside of the athletic footwear industry that meets the same needs as the products within the athletic footwear industry. Though, many of the substitute products offer similar benefits they do not offer the same quality or brand recognition as Puma or Adidas. Consumers that are wanting to spend money on a high end pair of sports shoes are going to look for quality and aesthetic over bargain. It is important to note that alternative options to Puma and Adidas, such as an off brand Payless or Off Broadway sports shoe can be seen as a high threat due to the consumers switching costs being low, the latter options are more affordable than the Puma or Adidas shoes, however; the substitutes quality is inferior and the brand value is perceived as low. Therefore, the The threat of Substitutes for Puma and Adidas are low in the current market place. While they still have solid competition between each other and Nike, the Threat for Substitutes will still be low until a new brand is able to create the same value and loyalty as these current brands.

4. Bargaining Power of Buyers

Current buyers in the premium athletic footwear industry are wholesalers and individual consumers. The bargaining power for wholesalers has been fairly high in the past, but with recent closures of big Athletic stores like Sports Authority and Sports Chalet this power has gone down. With these closures, the e-market has become an invaluable source in the industry and keeps the bargaining power for wholesalers relatively low. In the past, wholesalers have had significant bargaining power due to the fact that they can replace brands like Puma or Adidas with competing brands that have the same or even better brand recognition. Factors like brand recognition also influence the volume each wholesaler is willing to purchase, if Puma or Adidas lose their consumer base stores like Dicks Sporting Goods or Foot Locker are less likely to hold their products.

Individual consumers however have high power within the premium athletic footwear industry as they are the ones who drive sales and require each company to innovate. Whenever we look at a “premium” anything industry consumer loyalty is heavily relied on. Consumers are always looking for the best price but also the best quality and within a premium industry that may not always be the case causing consumers to change their brand. Within athletic footwear, consumers look for a custom fit, a shoe that fits their athletic needs. This is where brands like Puma and Adidas really shine as they offer a variety of shoes that can be tailored or customized to each consumer. There are other brands that offer this same customization for consumers which gives buyers more power to choose their brand.

The overall bargaining power for buyers within this industry remains at a medium as for wholesalers it is relatively low and for individual consumers being relatively high.

5. Bargaining Power of Suppliers

The bargaining power for suppliers in the premium athletic footwear industry is relatively low, this is due to the fact that there are a lot of suppliers not just within the footwear industry but within fashion. The majority of suppliers are international primarily in Asia and have little to no differentiation in their market. The raw materials involved in making athletic footwear are primarily leather, cotton, and rubber which are abundant in the marketplace and relatively cheap to purchase/manufacture. Suppliers often rely on the name brands to sustain their factories and have to manipulate labor, material, and shipping costs just to keep names like Puma or Adidas as vendors. Also, since these products and materials are not unique, the businesses do not require special procedures from their suppliers, making them easily indispensable.

Within the industry, many companies have contracts with their supplier factories making them partly or wholly owned by the company. This again, gives suppliers almost little to no bargaining power. Also, it is common for companies to give their suppliers/factories financial aid. For example, Puma gives their suppliers financial incentives if they improve and sustain their environmental, health, safety and social standards. With all this considered, the bargaining power for suppliers in this industry is very low.