UK Footwear Industry

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Porter 5 Forces Analysis of UK Footwear Industry

Barrier to entry

Entry into the UK footwear industry is highly minimized through high entry barriers. According to research by KO Et Al. (2012), even though access to inputs in the industry remains easy, access to the distribution of these footwear remains limited since the top brands including Nike and Puma are already recognized in the market. These organizations enjoy economy of scale not allowing others to make entry. On the other hand, entry to this industry is barred by the large production cost escalating from high research and development costs needed for innovation as well as the extremely large capital investment needed to operate in this industry. Larger recognized companies such as Adidas and Nike have already invested huge chunks of capital making entry a bottle neck to other smaller companies interested in venturing into this industry.

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Subsequently, switching costs are very low thus restricting customers from trying newer products that mighty be provided by new entrants in the industry.  Amatulli, Mileti, Speciale, and Guido (2016) in their sportswear industry market analysis reveals that patenting as well as the acquisition of intellectual properties is the other blocks playing an effective role in limiting entry. It is not easy to acquire intellectual property in starting such ventures. Nonetheless, startup capital in this industry is very costly as it is both labor intensive and capital intensive.  However, the UK government policies are quite favorable to the newer establishment in any industry. It is less costly to obtain a license, and its acquisition is not strict.

Bargaining Power of Customers

The bargaining power of the customers is relatively high in the UK footwear industry. Compared to the number of few firms that sells footwear in the market, the industry has a large number of buyers that significantly improves their bargaining. According to reports by Ko et al. (2012), UK has a greater number of football teams that purchases footwear thus improving their bargaining towards better deals regarding price and quality of products.  Due to this, the companies that perform well in this industry has strategically positioned themselves with high-end identity brands with price points that thrive for customer loyalty. Substitutes are always available, and this tends to improve the buyer bargaining power in the market.  Again products differentiation in the industry is quite low which again gives customer more power (Ko et al. 2012). Buyer’s incentives are also low with customer offered seasonal offers by reputed brands and well-known stores. However, the buyer concentration compared to the industry is quite low thus to some extent lowering their bargaining power though they are very price sensitive and always demand good price offers from the footwear companies. They also don’t buy well in large quantities.

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Based on the relatively high customer bargaining power, it, therefore, requires participants in this industry to continuously market their products and differentiate them from those of the competing brands in the market (Dolgin 2015). This can be enhanced through shifting to online sales that have emerged in the recent past. Ideally, this will enhance the product accessibility and intimacy among the customers due to convenience achieved.

Supplier Bargaining Power

The supplier bargaining power tends to be quite low. According to marketing research by Ko et al. (2012), the major companies that are the key players in the industry are able to switch suppliers faster without any worry of a significant decrease in quality. This makes it very difficult for the suppliers to raise prices or bargain for better offers provided to them by the manufacturers. On the other hand, this industry is concentrated with a huge number of suppliers who are willing to partner with the firms at any time. The abundant number has significantly decreased their bargaining power in light of the firms. In fact, there is little differentiation among them making their bargaining power quite low. The raw materials supplied to this industry are quite limited including leather, cotton, plastic and rubber that are available in larger volumes (Dolgin 2015).

The suppliers in this industry are also affected by the threat of forward integration. Due to the level of high barrier entry into the industry, there are no new entrants that can boost their bargaining power. They are again fragmented making it easy for any supplier that meets the required standard of the footwear firm to supply the commodities. The footwear companies usually take advantage of the supplier through standardization of their raw material (input) procedures, logistics, labor force and services in order to survive in the industry. In realm, due to the global networks of cheap labor and availability of raw materials in different continents have made it easier for the footwear firms to switch between the suppliers as fast and easy as possible.

Threats of substitutes

The threat of substitutes remains relatively low in the UK footwear industry. This is due to the fact that, there are already very minimal substitute products for the footwear since they are specific to the performance of the shoe customized for basketball, tennis, baseball and soccer. Due to the little opportunity for the customers to switch between the footwear products their propensity to substitute is quite low. It is only the athletic shoes that can be substituted by the normal sandals. However, the switching costs remains moderate, and the customers may not even consider switching (Ko et al. 2012).

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The possible substitutes may be for sportswear could be sandals, boots, dress shoe, bear feet that cannot substitute sportswear in today’s world. Just to say that there is no real substitute for the sportswear in the UK markets. This, therefore, requires companies that may want to edge their competitive advantage in this industry to be constantly innovative and adaptive in providing consumers according to new trends and their changing needs (Dolgin 2015). This is what can decrease the treat of substitute products in this industry. For instance, the participants may design the footwear to achieve comfort and personal safety during movements by the consumer.

Competitive Rivalry within the UK Footwear Industry

Competition in the UK footwear industry is very high. According to a research report by Ko et al. (2012), there are a countless number of competitors in the shoe and sportswear arena. All the competitors have strong power to compete for one another in terms of brand image. The main competitors in this market include the world giants such as Nike, Puma, Joma, Brooks, and Adidas. Nike and Adidas sponsor most of the teams in the UK thus improving their competitive advantage in the industry.

However, it is important to note that, the competition in this industry is not based on price but quality and innovation. Puma, Adidas, and Nike are not entirely price rivals in the industry but compete in terms of value achieved to the consumers. For instance, the Nike footwear are usually customized to meet client comfort and safety in times of increased movements. Amatulli, Mileti, Speciale, and Guido (2016) noted that companies usually tends to increase the range of their products to ensure the consumers are getting the best in the market. On the other hand, corporate image and brand loyalty are quite high in the UK footwear industry; this leads to high competition in advertising of branding. However, other companies are competing through the acquisition of other companies.

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Nike’s Internal Analysis

Capability Assessment

Nike enjoys a broad range of organizational resources that significantly impacts on its general performance in the market. Its intangible resources are not only limited to brand equity but also that of a long line patented technology that is quite vital in differentiating its products in the market. Since its inception, the company acquired an exclusive worldwide license to produce and market footwear products using patented ‘Air’ technology (Ageron, Gunasekaran, & Spalanzani 2012). This entails the use of pressurized gas.

On the other hand, Nike enjoys a broader base diverse workforce that is both talented and motivated towards achieving its organizational goals. The Nike employees are skilled, judgmental, innovative, possess high levels of experience and core competencies that enhance their performance to Nike. They have transformational leaders who work hand in hand with the broader base of about 30,000 employees to achieve their full potentiality. The employees’ works in effective teams that further drives innovation and business performance towards utilizing the available opportunities to the organization.

Nike also enjoys huge base capital resource availability. It has high debt capacity and wider credit lines that effectively avails the required equity stock needed to spearhead the operations of the organization. MoranSendra, Nilmeier, Liem, and Perkowski (2015) report that, even though the 2009 global economic slowdown might have affected the sale and consumption of its products, the company’s revenue growth have constantly grown by about 5% annually in the previous past. Footwear segment is the largest product category for Nike representing about 54% of the company’s total revenue. The huge revenue base assists the company in expertise marketing and promotional campaigns that achieve value to the organization.

The company is again reliant on its wider range of product offerings that constantly improves its market share in the industry. The company has series shoe lines that are loved by their consumers thus creating huge revenue to the organization. The apparel product category also achieves about 27% of the company’s revenue.

Nonetheless, Nike’s core competencies are developed by its habit of combining resources to create a dynamic set of value-added practices that achieve brand loyalty. Each of Nike’s offering shares the same question which is aimed towards obtaining greater performance results. The same question asked ensures the company differentiate its offering to those of the competitors and achieves higher value to the customers. Each of the resources is used to answer the question asked and a core competency is created. Compared to the competitors, Nike utilizes its resources and capabilities to gain core competencies in competing for other firms in the industry.

Value Chain Analysis

According to reports by Ageron, Gunasekaran, and Spalanzani (2012), Nike core competency strengths relies on strong inbound and outbound logistics.  The company ships its products to 143 destinations across the world. Products are shipped from factory origin to Nike’s distribution channels that are the receiving docks to avail the products to the consumers. Though being considered as a complex logistics operations, Nike’s logistics ensures low inventory levels that achieve both values to customers and the organization itself. Its distribution channel is constituted of three different product lines including that of apparel, equipment, and footwear.

To distribute these products effectively, Nike has four regions managing orders in the company’s logistics service provider network. In a collaborative setting of network distributors between regions, Nike’s corporate logistics group aims to build team work with its ocean carriers, global curriers, and airfreight forwarders (Mahdi, Abbas, Mazar, & George 2015). This has significantly resulted in reduced costs of distribution of the company’s line of products. In fact, the firm partners with consolidators to ensure constant flow or supply of goods throughout the globe at capped costs. It has usually used the Maersk Logistics and APL Logistics to handle cargo from the factory and distribute them to a different location across the world. This kind of in-house logistics is quite effective in reducing production costs and achieving value to the customers. The lack of intermediaries in this supply chain management ensures the customer’s orders are treated with urgency and efficiency. The company has an established online ordering system that ensures products are primarily distributed directly to clients. This achieves conveniences that would not be provided by the middlemen in its supply chain management.

Nike’s value chain is also enhanced by its infrastructure. Over the previous past, the company has created a top-flight information system, logistics and a superior supply chain management system that enhances value. The company enjoys a right balance in a newfound financial system that drives growth capability of the firm. Its overhauled computed system is customized in such a way that it gets a right number of customers in more places in the world at a quicker pace. Through research and development of markets, Nike has become the cash cow of Europe as it taps into newer market segments each time. This is further reinforced with a beefed up management team that manages its chain of brands in the market.

On the other side, Nike’s inbound logistics is quite effective since it also reflects the moral climate anticipated in the current trending market. The company engages in corporate social responsibilities towards maintaining the current sustainable environmental requirements. With the corporate social environment, the customers have become aware that Nike has reevaluated its supply chain towards achieving value to them.

Nike SWOT Analysis

Strengths

  • Strong brand image

According to strategic market plan reports by Broh et al. (2016), Nike is a worldwide recognized brand in the sportswear industry, especially in Europe. The firm sponsors several teams across the globe thereby imparting a very strong brand perception to the customers across the world. For instance, during the recent Rio Olympics the company sponsored several teams with sporting kits and shoes thereby creating a strong impression when the top participants win. Being household name gives the company competitive advantage against other competitors in the industry

  • Lean Operations and Manufacturing Techniques

Nike has no factories but rather utilizes the services of contracted companies to do the work which enhances its cost leadership. The company has over 700 contracted shops globally that are in 45 different countries to distribute the Nike products (Broh et al. 2016).

  • Investment in Research and Development

The company spends in research and development that has always led to the innovation of new products and strategies on how to compete strategically in the intense competitive footwear industry. They innovate a wide range of products.

  • High-quality brands at lowest possible prices

Nike produces best quality brands in the sportswear industry that achieves the aspiration and needs of consumers. These range of quality products are offered at affordable prices to the consumers that improve their consumption margins.

  • Strong Campaigns in the Market

The firm has a strong stream of marketing campaigns that boost its sales through sponsorship programs such as that of athlete sponsorship.

Weaknesses

Despite the fact that, Nike has diversified its range of products in the sportswear industry, its revenue or income is highly dependent on the footwear market. This makes the firm very vulnerable incase its market share in the industry may erode. On the other hand, Nikes products are relatively expensive compared to those of the competitors, yet the retail sector in this industry remains quite price sensitive. Shank and Lyberger (2014) reveal that other competitors in this industry offers very less expensive and cheaper products to the consumers that may turn consumers away from Nike. Subsequently, Nike employees have always complained of the poor work conditions including the minimum wage rates due to the emergence cheap labor overseas.  As such, the workers may be demoralized to achieve their full potentiality to the organization.

Opportunities

The Organization has existing opportunities to exploit. According to reports by Mahdi, Abbas, Mazar, and George (2015), Nike can utilize the ever emerging trends in fashion to expand and increase its sales volume. Most of the firm’s consumers believe in its fashion and derive this experience rather than participate in sports. They just love to be seen with the evolving products of Nike. In this sense, Nike is a fashion brand that must be utilized for future trends otherwise consumers may shift to other trendy products.

Besides, there exist a broader untapped markets that the organization should venture into. There are many international regions that the company have not extended its branches and being an internationally recognized brand, it can initiate many markets in those locations.

Threats

Even though Nike has a strong competitive edge in the sportswear industry, the company faces a threat of very strong competition in the market. Consumers are constantly shopping around for the best offers and Nike’s pricing may make them switch to the competitors. On the other hand, the textile industry faces the challenge of the eco-friendly and sustainability issue that has become the talk of the current world. A change of customer attitude due to environmental concerns may significantly affect consumption of Nike range of textile products.

Recommended Sustainable Competitive Advantage

As sportswear and footwear industries continue to face very stiff competition there is a need for Nike to shift to Sustainable Competitive Advantage. The company should adopt a cost leadership strategy that will ensure its products are considered valuable and cheap to the price sensitive customers who are the majority in the footwear industry. On the other hand, the organization should focus on green strategy through use eco-friendly raw materials that will ensure consumers loves its products due to environmental conservation (Broh et al. 2016).

Conclusion

The UK footwear industry is a competitive, intensive industry with key players that constantly compete for this market. The entry to the industry is highly barred by several barriers that make it very difficult for new entrants. These ranges from the capital requirement to very low switching costs involved in this industry. The buyer bargaining power remains relatively high as the industry remains less concentrated with firms. The supplier bargaining command is quite low since they are numerous and over concentrated in this industry. On the other side, there are no real substitutes for footwear, and this makes the industry quite promising. However, there are high competition levels in this industry with major players such as Puma, Adidas, and Nike majorly concentrated in the UK markets.

Nike is one of the key players in the footwear industry with 54% of its revenue generated here. The company has strategically positioned itself well in this market through integrated value chain supply that enhances both values to the customers as well as to the organization itself. It produces highly recognized brands that have achieved high consumer loyalty.

However, due to the increasing level of competition in the current economic and ecological environment, there is a need for the company to shift to sustainable competitive advantage. Creation of sustainable competitive advantage is the main concern of most players in the industry. The company needs to develop core competencies in its supply chain through environmental consciousness to further gain brand loyalty and product acceptability among the current consumers who are more concerned about the impacts of products on the environment.

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  1. Ageron, B., Gunasekaran, A. and Spalanzani, A., 2012. Sustainable supply management: An empirical study. International Journal of Production Economics140(1), pp.168-182.
  2. Amatulli, C., Mileti, A., Speciale, V. and Guido, G., 2016. The Relationship between Fast Fashion and Luxury Brands: An Exploratory Study in the UK Market. Global Marketing Strategies for the Promotion of Luxury Goods, p.244.
  3. Brohi, H., Khubchandani, R., Prithiani, J., Abbas, Z., Bhutto, A.H. and Chawla, S.K., 2016. Strategic Marketing Plan of Nike.
  4. Dolgin, E., 2015. Textiles: Fabrics of life. Nature519(7544), pp.S10-S11.
  5. Ko, E., Taylor, C.R., Sung, H., Lee, J., Wagner, U., Navarro, D.M.C. and Wang, F., 2012. Global marketing segmentation usefulness in the sportswear industry. Journal of Business Research65(11), pp.1565-1575.
  6. Mahdi, H.A.A., Abbas, M., Mazar, T.I. and George, S., 2015. A Comparative Analysis of Strategies and Business Models of Nike, Inc. and Adidas Group with special reference to Competitive Advantage in the context of a Dynamic and Competitive Environment. International Journal of Business Managemetn and Economic Research6(3), pp.167-77.
  7. MoranSendra, M., Nilmeier, T., Liem, T. and Perkowski, T., 2015. Nike Inc.
  8. Shank, M.D. and Lyberger, M.R., 2014. Sports marketing: A strategic perspective. Routledge.
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