Rivalry: The Fashion Retail Industry In Spain

Rivalry among existing firms

In Spain there is a strong tradition in fashion, with many popular brands such as Inditex, Blanco, Adolfo Dominguez, Camper, Cortefiel or Pronovias. All of them compete successfully on a global scale, which has entailed to a high level of competition between rivals. They can compete aggressively on prices, quality, design, innovation or marketing.

Due to the economic situation that the crisis has left in our country, the Spanish fashion retail industry has suffered a drop in demand, and therefore profit margins have diminished too. This situation has made the industry less attractive and profitable for competitors.

The intensity of this rivalry depends on a series of factors, such as:

- Numerous or equally balance

This circumstance increases rivalry.

Threat of new entrants

Potential entrants are those firms wishing to enter an industry. These new entrants are conditioned by the existence of economies of scale, distribution channels and the reaction of established competitors. Entry barriers. The following entry barriers are considered relative entry barriers, as they can be overcome, each one within its level of difficulty. o Economies of scale: This is considered a barrier as firms that decide to enter this industry must make a great investment, exposing to a possible violent reaction from the firms that already are in this sector, the other option is doing it by a smaller inversion accepting a disadvantage in terms of costs. Another barrier found by potential competitors is the “experience effect”, tending to the minimizing of costs, as consolidated firms have a huge volume accumulated that allows them to reduce the average cost.

- Distribution channels: Distribution channels which are limited and negotiated by existent companies may suppose a problem to the new entrants because many companies have high capital requirements to offer high volumes of products, well-located facilities,

In many cases, textile companies are vertically integrated and most of the production process is made in their own factories, in other words, the same manufacturers also make their products, so they only need suppliers in counted occasions.

To suppliers, distribution chains, department stores and hypermarkets are important clients because of the turnover of orders that they can demand. The products sold by suppliers are storable and non-perishable – except when we consider trends- in their majority. Because of this, suppliers are not considered an important threat.

Bargaining power of customers

Customers may have bargaining power and impose their conditions when they are very concentrated, associated in big groups or when they buy important amounts of products or services in a company.

In this case, customers are quite numerous but they are not organised to stand up for their interests. The volume of their purchases is small, and as they are the final consumers, there is no real threat of backward integration.

In general, we cannot say that customers have much power in the fashion retail