Industry Analysis Project - Specialty Retail Industry

2232 Words Feb 2nd, 2012 9 Pages
Industry Analysis Project

Specialty Retail Industry

Introduction

The industry I have chosen for my paper is the Specialty retail industry or the clothing industry which has the SIC code of 5651. This industry consists of companies that are primarily in the business of clothing and accessories for men, women and children. These companies include unisex clothing stores and jeans stores for all ages instead of stores aimed at a particular age group or sex.

Industry Environment
The clothing industry in the US entails more than 100,000 stores with combined revenues of over 150 billions dollars a year. The giants within this industry include Abercrombie & Fitch, GAP, Urban Outfitters, and TJX Companies, which I shall be concentrating on
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However, there are numerous economies of scale. Large retailers own most of the market share and power this industry. As mentioned previously the 50 largest companies own 65% of the market share. The main reasons for this is that there are several economies of scale and absolute cost advantages for the larger firms. This is one of the reasons there have been numerous mergers and acquisitions in the past two decades, which have formed large conglomerates.
According to studies by the National Retail Federation, the majority of family clothing retailers are chain stores, and around 20% of them are operated as part of larger franchises.
The largest companies within this industry have chains of stores around the country. They usually operate their clothing distribution channels through distribution centers usually located centrally. These distribution centers receive the merchandise and then send it out to stores across the country that orders them. Unlike typical warehouses, these distribution centers don’t store merchandise for a long time because of the dynamic nature of the industry. Fashion trends keep changing and products are taken off the shelves when they do not move fast.
Operating such dynamic distribution centers is usually very expensive and allows possibilities of product wastage. The high capital requirement to run such large distribution centers produces a natural barrier to entry and smaller firms frizzle out if they try and compete with the larger firms.
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