Today, we are going to analyse level of competition within the denim industry and its business strategy development through Porter Five Forces analysis.
This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market.
Let’s see together which are the five forces and their degree.
The threat of new entrants: HIGH
The denim market has changed considerably since the 1990s and Levis, who had a virtual monopoly on the jeans market, now is facing a much stronger competition. Indeed, today the barriers to entry the jeans market are lower and lower. In almost all the countries, there is no specific government policy to protect denim brands from others when new brands enter into the market. Moreover, companies can take advantage of the presence of several jeans distribution channels in the world.
In order to save time and money, companies can also choose to sell directly their products on the internet. This method enables competitors to respond even faster to the customers’ changing demand.
Threat of substitution: HIGH
One of the main factors determining the intensity of competition in the denim market is the presence of substitutes. A substitute product is defined as a different product from the target product, but can satisfy the same need.
We can see that sales of blue jeans fell during the past year. This decline is mainly due to a change in the women life style. Indeed, women are more often wearing leggings, yoga pants, sweatpants and other athletic pants instead of traditional denim. This new trend is called “athleisure”.
The “athleisure” trend seems to be the biggest threat facing jeans because it reflects a fundamental lifestyle change. In order to tackle this new trend, denim brands have to create new versions of classic denim that are more “stretchy” and with the same comfort as sweatpants or leggings.
Climatic conditions have also an impact on purchasing decision of customers. They are likely to switch to other products considering the climate conditions (winter or summer).
The bargaining power of customers: HIGH
The bargaining power of customers means in the analysis of Michael Porter the ability of customers to accept products offered by companies. The bargaining power of customers actually means the purchasing power possessed by customers in the denim market.
Today competition is strong in the denim market and jeans are a common product that we can buy in any clothes shop at almost the same price. However, customers are more and more exigent regarding denim design because they want to be fashion. Sales of jeans fell during the last year because of a lack of new designs. Jeans are become a mainstream product. So the role of the denim brands is to succeed in transforming a common product into a fashionable product with a strong identity.
The bargaining power of customers is a major force in determining the competition in the jeans industry and the strong competitive pressure increases the communication efforts of denim brands to inform customers.
The bargaining power of suppliers: MEDIUM
In a highly competitive environment, bargaining power of suppliers takes into account the ability for companies to source within the market. It is indeed for denim companies to ensure the availability of raw materials needed to manufacture their products.
Today, the competition between suppliers in the denim market is more important than before. It is because suppliers are more dispersed than before that their bargaining power is less important. Indeed, we can note that new emerging suppliers are among the main suppliers of denim brands. The China monopoly is no longer current in the denim industry because of the entry of new suppliers like Bangladesh, Vietnam, Pakistan, Ethiopia or Turkey. In this way, if suppliers increase their costs, jeans companies can easily find another factory.
However, Jeans companies have no power on raw materials cost and if there is a rise of cotton cost, it will have repercussions on jeans prices.
Industry rivalry: HIGH
Nowadays, competition is strong on the denim market. Levi’s is threatened by competition, because barriers of entry are relatively low in the jeans market. So there is a wide range of brands in the denim market: Levi’s, Diesel, Lee Cooper, Calvin Klein, Tommy Hilfiger etc.
In this way, consumers can easily switch to another brand especially since they are less brand loyal. Moreover, the level of product differentiation is weak because jeans are become a common product with a similar production method and almost the same price.
A new fashion trend has also an impact on the degree of competition with the production of new products like leggings. Indeed, the competition that jeans are facing from other product categories is intensified by the disappointment of consumers about changes in the quality of fabric and the lack of new designs. All these aspects increase the intensity of competitive rivalry in the denim industry.