What three barriers might a new entrant have to overcome when entering the retail apparel industry? Explain why they could be barriers. Three barriers that a new entrant might have to over come when entering the retail apparel industry are resource ownership, government restrictions, and start-up cost. Identifying new entrants is important because they can threaten the market share of existing competitors. One reason new entrants pose such a threat is that they bring additional production capacity.
Unless the demand for a good service is increasing, additional capacity holds consumers’ cost down, resulting in less revenue and lower returns for competing firms. (Hitt, Ireland, Hoskisson, 2007) One of the most fundamental barriers to entry is resource ownership, the ownership and control over a critical input used in the production of a good. Limiting ownership of this input effectively limits entry into the corresponding. To enter this industry, the owner must acquire ownership over apparel resources.
It could purchase existing resources from any business currently in the industry. While this is an easy option, if the companies are unwilling to sell, then the business faces a sizeable entry barrier. Next you have government restrictions. The government is the entity that establishes the rules of the game. It literally has the power to determine who can or cannot participate in a given market. The government frequently erects barriers to entry by legally limiting the number of participants in a market.
Other legal restrictions, such as licenses or charters, are generally intended to pursue other goals, but create barriers to entry nonetheless. Only governments ultimately have the power to prevent free competition. The last barrier for the retail industry would be start-up cost. Three types of start-up cost comprise another important class of barriers. One is the cost of acquiring productive capital. Many industries use a large amount of expensive capital, such as a factory. To be competitive a new entrant needs this capital.
A related start-up cost is initial operating losses generated by high average cost. If plant size and the large quantity of capital generate significant long-run economies of scale and/or short-run decreasing average total of cost, then the existing firms with larger production quantities incur lower average cost than newer firms with smaller initial production quantities. The new entrant is likely to incur significant operating losses until it is established enough and produces enough to benefit from lower average cost. Another start-up cost involves advertising and brand name recognition.
An industry with several well-established brand names forces a new entrant to spend a great deal on advertising just to reach an equal footing. What three factors would you have to know about your customers when entering the retail apparel market? Explain why these three factors are important. The following are three factors that you must know about your customers when entering the retail apparel market: who they are, what they do, and why they buy. “You need to believe in your product. Nevertheless it is easier to import, or to bring to market, goods that the customers want to buy” (Hinkelman, 2004).
Who they are: If you sell directly to individuals, find out your customers’ gender, age and occupation. If you sell to other businesses, find out what size and kind of business they are. What they do: If you sell directly to individuals, it’s worth knowing their occupations and interests. If you sell to other businesses, it helps to have an understanding of what their business is trying to achieve. Why they buy: If you know why customers buy a product or service, it’s easier to match their needs to the benefits your business can offer. It is also well worth keeping an eye on future developments in your customers’ markets and lives.
Knowing the trends that are going to influence your customers helps you to anticipate what they are going to need. It also affords you the opportunity to offer it to them as soon as they need it. Give examples of at least three popular retailers who have understood their market and been successful. Three retailers who have understood their market and been successful are Macys, J. C. Penney, and Wal-Mart. These retailers want to be located where there are many shoppers but only if that shopper meets the definition of their target market.
Also these retailers meet the needs of their consumers by providing goods such as clothing for men, women, and children, cosmetics, fragrances, household items, sporting goods, tools, appliances and furniture. These companies continue to be successful because they are able to meet the needs of consumers from any social and economic background. Give examples of at least three retailers that misjudged their market and failed. Three retailers that misjudged their market and failed are Linens ‘N Things, Circuit City, and CompUSA.
These companies were unable to compete with other competitors such as Bed, Bath & Beyond and Best Buy whom both offer their customers more affordable prices, less stringent return policies, and the option to purchase extended warranties. Furthermore, the more successful companies had better marketing strategies such as coupons, Internet specials, and television commercials. In some areas, these stores were located within a one-mile radius of each other, making it easier for consumers to get to the retailer with the best deals. In these cases, location played a major part in the retail company’s success.