Through a Five Force analysis and sufficient research, I have determined several factors that influence the performance and profitability of the specialty apparel industry. This industry is defined to include firms that profit from manufacturing and selling apparel goods, including accessories and clothing, at premium prices.
Through my findings, I have concluded that this industry has a low threat of entry, which is the strongest force in keeping the industry profitable. For any outside firm to achieve similar global brand exclusivity, capital investment, and access to global distribution as any of the firms within the industry is extremely difficult.
Supplier power, buyer power, and threat of substitutes are relatively neutral due to various factors. Though there are a significantly high number of suppliers of luxury raw materials, they are also highly concentrated in certain areas, especially Europe, giving them some power in return. They have the ability to control prices, but are also dependant on the firms, who are not hesitant to charge higher prices to consumers. With buyers, though high prices shy away a huge segment of potential customers, both corporate and consumer, firms still have some power in charging premium prices to the other segments of customers, who will pay because of the value and continued brand loyalty. The threat of substitutes, too, is controlled by the industry as much as it is susceptible to it. At this level of spending, the temptation of other, non-apparel specialty goods could hurt profits of this industry, yet these same consumers will always find value in this industry. Overall, the current players in the industry have relatively low rivalry; key players are highly differentiated and offer unique product in terms of branding, but work collectively to create the exclusivity that makes products in the industry so desireable.
I focused on Hermes Paris, a company whose profit margin far exceeds the already healthy industry average. I found that, even though the firm is in an industry that is favorable and almost always guarenteed to have high profits, it manages to leverage the unfavorable parts (relative power of suppliers, buyers, and substitutes) by charging unimagineable prices on select specialty products, and building so much desire for those products through marketing, that it can offset costs of its lower operations, which are closer in line with the rest of the industry.
