Porter’s Five Forces Analysis of Shein

Porter’s Five Forces Analysis of Shein

Shein has become one of the largest fashion brands in the world and one of the market leaders in the fast-fashion industry alongside giants such as Zara and H&M. It has built its business around its core strengths that include the fast-fashion business model, penetration pricing, small-batch production, and novel digital marketing tactics. This paper analyzes its industry and competitive positions using the Five Forces model of Michael E. Porter.

An Analysis of Shein Based on Porter’s Five Forces Framework: Understanding Its Industry and Competitive Positions

1. Industry or Competitive Rivalry

The fast-fashion market is intense. Competitive rivalry is a strong force because of the presence of product alternatives from other fast-fashion companies and other fashion brands with traditional business models. The presence of substitute products also threatens the sales and earning potential of fast-fashion companies.

Shein manages this force through its fast-fashion business model and a strategic focus on electronic commerce and digital marketing to lower its operational costs and reach as many customers as possible. However, despite these strategies and tactics, the competition remains intense because of the following factors:

• High Number of Firms and Low Market Growth: Remember that Shein competes with other fast-fashion brands such as Zara and H&M. It also competes with traditional clothing and apparel brands with established global brand images or localized market presence. The abundance of competitors means there is a limited opportunity for the company to grow and expand its market share.

• Low Loyalty for Brands Across the Market: Fast-fashion companies target mass consumers from the low-income to the middle-income segments. Most of these consumers have budget constraints and high bargaining power. They are usually less loyal to a particular brand and do not mind exploring and switching.

• High Level of Differentiation of Other Brands: Shein has been accused of copyright infringement or unoriginal and uninspired designs. Zara is more of a formalwear brand while H&M is a casualwear brand. There are also brands with dedicated specializations such as sportswear brands including Nike and Adidas.

• High Level of Marketing and Strategic Activities: Some of the largest players in the overall market for clothing and apparel spend hundreds of millions if not billions of dollars each year in marketing. Others also spend huge resources to develop and implement strategies that would give them a competitive advantage.

2. Threat of Substitutes

Remember that clothing and apparel products are essential goods. However, because of the differentiation strategies of different brands, they can also become wants rather than necessities. Some products such as those from sportswear brands are intended for a particular use case. The threat of substitutes is a moderate force for Shein.

The company keeps the aforesaid force under control by catering to the casualwear, sportswear, and formalwear market segments. Nevertheless, in considering product diversification as part of its product strategy and overall business strategy, the following are the factors indicating the moderateness of the threat from substitute products and brands:

• High Degree of Diversification and Differentiation: The company caters to men, women, and children. It has different clothing and apparel products for different uses or occasions. These include dedicated collections for casual and outdoor scenarios, an activewear category, accessories, and even products for weddings.

• Moderate Switching Cost to Choose Substitute Brands: Choosing brands catering to dedicate market segments can incur high to moderate switching costs. For example, compared with Nike and Adidas, sportswear products from Shein are 50 to 75 percent cheaper. Purchasing a Nike is technically more expensive.

• High Availability of and Access to Market Information: The availability of information for substitute products is high. Shein positions itself as a substitute for dedicated clothing and apparel brands. It makes information about its products as accessible as possible through digital marketing tactics.

3. Threat of New Entrants

Putting up a clothing and apparel business or entering the fashion retail market has become easier over the years due to the availability of manufacturing outsourcing, online platforms for marketing and sales, ease of doing business, and relative inexpensiveness of production and operation. The threat of new entrants to clothing and apparel businesses is high.

Shein tries to keep this threat in check by sticking to its fast-fashion business model while also capitalizing on its electronic commerce capabilities and digital marketing proficiencies to make its products inexpensive and accessible. The following are the specific factors:

• High Level of Marketing Activities But Low Loyalty: The intensity of marketing activities creates a barrier to entry. However, because most consumers are not loyal to a single brand, there is always an opportunity for a new entrant to both enter and become a top competitor in the clothing and apparel market.

• Low Production Cost and High Ease of Starting: Outsourcing production capabilities can keep production costs low. Entrants can also start as drop-shippers, resellers, or rebranded sellers of wholesale products. Note that Shein started with a drop shipping business model without its own products.

• High Availability of Novel Distribution Channels: Another factor that increases the threat of new entrants further is the availability of new and inexpensive distribution channels. These include the use of third-party and even company-owned e-commerce platforms and third-party logistics services.

4. Bargaining Power of Buyers

Consumers in the clothing and apparel market tend to have a high bargaining power because of the presence of alternative and substitute brands and products. There is an abundance of firms operating in the market ranging from global companies to local brands.

Shein manages this force by focusing on its proposition centered on being an online fashion retailer selling affordable clothing and apparel products. However, considering the presence of other fast-fashion brands, this force remains strong due to the following:

• High Availability of Alternative and Substitute Products: Consumers have a range of options to choose from. There are other alternative fast-fashion and casualwear brands. There are also substitute brands specializing in designing, manufacturing, and selling specific kinds of clothing and apparel.

• Low Switching Cost and High Availability of Information: Switching between alternatives and substitutes is straightforward. Consumers can go to physical stores and even online stores. Market information about prices and quality is readily available for an easier comparison of different brands and their products.

• High Price Sensitivity of Clothing and Apparel Consumers: A large segment of the clothing and apparel market is composed of consumers that are sensitive to price. These individuals would not purchase fast-fashion brands due to budget constraints or would resort to choosing cheaper alternatives from other retailers.

5. Bargaining Power of Suppliers

One of the strengths of Shein is its proximity to suppliers and outsourced manufacturers in China. The expanding market reach of the company also makes it an attractive business partner. The bargaining power of suppliers is a weak force.

The company continues to build stronger relationships with these suppliers while also optimizing its supply chain through forward integration and backward integration. The following are the specific factors that weaken the bargaining power of its suppliers:

• High Number of Suppliers in China and Elsewhere: There is an abundance of suppliers in the clothing and apparel industry that provide production inputs and outsourced manufacturing capabilities. Most of these firms operate in China but there are also emerging hubs in other countries in Southeast and South Asia.

• Low Degree of Differentiation Across Production Inputs: It is also important to note that the production inputs for clothing and apparel products are almost the same and standardized. Examples include cotton and other types of fabric, threads, textile dyes, machinery, and packaging materials, among others.

• Low Cost of Switching From One Supplier to Another: Companies like Shein have an abundance of options when it comes to suppliers due to the presence of several suppliers offering almost the same materials and services. Large firms benefit from negotiating lower costs in exchange for high order volumes.

• High Forward Integration or Direct Transactions: Large companies also tend to remove mediators both from their supply chain and distribution chain. This allows them to build more solid relationships with their partners while also removing unnecessary processes for a more optimized and cost-efficient value chain.

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