Footwear Industry Analysis Essay

Custom Student Mr. Teacher ENG 1001-04 22 May 2016

Footwear Industry Analysis

When you wake up and get dressed every morning, one of the first decisions you make is what shoes you will wear that day. Depending on the weather and the level of professionalism you are perceived to demonstrate, you make your decision. The footwear industry is a large and ever changing industry that caters to the needs of everyone. Although in some parts of the world people are lucky to have one pair of shoes, many people, including myself, have somewhere around 50-100 pairs, each serving a unique purpose. Recently, market trends have shown that the global footwear industry has grown at an average rate of 4.4%, and is expected to continue this growth well into the future. The footwear industry is segmented into four different geographic regions, Americas, Europe, Asia-Pacific and Middle East & Africa. The Americas account for 38.2% of the industry, Europe 38.1%, Asia-Pacific 19.7, and Middle East & Africa only 4% combined. This shows that the majority of the revenue for the market is generated in the Americas and Europe combined. The market distribution ranges from clothing, footwear and sportswear retailers, department stores, hypermarket, supermarket and discounters as well as other channels.

The five forces driving competition in the global footwear industry are buyer power, supplier power, new entrants, substitutes, and the degree of rivalry. Although the industry is very large, it is dominated by intense rivalry between large retail groups. Since footwear is considered a necessity among most humans, the overall sales volumes are generally high, reducing buyer power. The majority of the footwear industry is manufactured in low-cost areas (usually South-East Asia); many other manufacturers can compete effectively within the market. Since the fixed costs for retail operations are low, the threat of new entrants are rather high, however many existing firms have significant economies of scale therefore threatening the growth of any new entrants. An important driving force of the footwear industry is buyer power. Although the high volume of sales in the footwear industry reduce buyer power by a large volume, buyers still have some power. Mainly buyer independence, low-cost switching, price sensitivity, and tendency to switch, product dispensability, and undifferentiated products drive buyer power.

There is a high degree of differentiation within the market since footwear ranges from fashion, athletic, and fully functional industries. This allows each sub-industry to target each individual on a different level, which therefore reduces buyer-switching power between brands, since each brand holds different features from one another. Altogether, buyer power is considered moderate in the footwear industry. On the other hand, supplier power of the footwear industry is a major driving force as well. Major factors of the supplier power include differentiated input, importance of quality/cost, no substitute inputs, player independence, supplier size and switching costs. Since the majority of the footwear industry is manufactured in low-cost locations, many other locations are unable to compete in the market. Therefore causing these locations to offer highly differentiated products (high end designers and specialty products). Due to the high number of low-cost manufacturers, switching is increased and therefore supplier power decreases.

Forward integration is also diminished since there are many well established brands within the industry. Altogether supplier power is also considered moderate in the footwear industry as well. Since fixed costs are low, the threat of new entrants is fairly high. However, since there are many well-established retail groups that have significant economies of scale, new entrants can rarely expand. The expansion of the online selling community can serve as a threat to new entrants due to the lack of knowledge the customer has about the company or product, on the other hand this is a great opportunity for growth and expansion of larger more well known companies. Other than a few specialty products, brand recognition in the overall industry is relatively low, which enhances the strength of new entrants. Combined with the low cost of manufacturing, the threat of new entrants in the footwear industry is considered strong. Another force that drives the footwear industry is the threat of substitutes. A few factors that influence the threat of substitutes in the industry are beneficial alternatives, cheap alternatives and most importantly the low cost switching rate. Since footwear is considered a necessity, the threat of substitutes is relatively low.

In less developed regions, such as the Middle East & Africa, consumers are likely to wear secondhand shoes and repair ones that they already own, therefore restrict sales in certain areas. Between the sub-industries there is a fair amount of substitutions, but the overall industry cannot necessarily be substituted. The final driving force considered in the footwear industry is the degree of rivalry. Rivalry amongst competitors in the industry is driven by competitor size, ease of expansion, high exit barriers, lack of diversity, low switching costs, low fixed costs, the number of players as well as the similarity of these players, storage costs, undifferentiated products and zero sum game. Once again, the footwear industry is mainly composed of large retail groups of which posses a strong sense of rivalry. The low fixed costs allow smaller companies to exists within the industry and allows for expansion of output. In general, the rivalry between footwear retailers is considered moderate.

In conclusion, the five driving forces of the footwear industry do not have a significant power to overtake the industry itself, since in the end the industry is considered a necessity. The footwear industry is showing upwards trends of growth and expansion in the global perspective, and does not show signs of slowing down anytime soon. Although the threat of new entrants is fairly high, the expansion of the online community has supported the growth of established and well-known brands that exist today. There is not a real threat of substitutes for the industry since it is in fact a necessity, so the industry will always be there. Since many consumers have different preferences, the industry will continue to differentiate itself to better fit each target market. There will always be room for growth in this industry and overall it is a well-established and important industry to the global economy.

Works Cited

“Global Footwear Industry Profile.” Footwear Industry Profile: Global (2014): 1-29. Business Source Complete. Web. 29 Sept. 2014. Schmitz, Hubert. “Learning And Earning In Global Garment And Footwear Chains.” European Journal Of Development Research 18.4 (2006): 546-571. Academic Search Complete. Web. 29 Sept. 2014.

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