Published by MBA Skool Team, Last Updated: February 16, 2022
Porter’s Five Forces Analysis of Uniqlo covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry.
Uniqlo Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.
Let us start the Uniqlo Porter Five Forces Analysis:
The threat of new entrants in the Uniqlo Porter Five Forces Analysis can be explained as follows:
Fashion trends are continuously changing in the clothing segment. People are getting more aware and hence seek more variety and options. Uniqlo has captured a specific set of customers who prefer comfort and casual wear over this trendy drift. Uniqlo currently operates in more than 2250 stores and has focused on improving its research and development. It is coming up with improved designs and in-house fabrics, and maintaining a low cost, making it very difficult for any new entrant to copy. It gives the company a unique value proposition. If any new brand wishes to enter the market, it will have to spend a lot on innovation and achieving economies of scale. Small companies might have to face fewer hindrances. Still, the global ones will have to draft out the entire costs for online selling, distribution channels, store set up price, standardization, etc., making it a cost extensive project. However, if a company does cross all these barriers and establishes a brand name in the market, then Uniqlo will have to compete by differentiating its product from them. All these factors show that threats from new entrants are moderate, and the company should keep on innovating more to stay high on the competition ladder.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Uniqlo:
Uniqlo has this brand image of selling high-quality products at an affordable rate where the main focus is towards comfort and casual.
In contrast, its substitutes focus more on the latest fashion and keep up with the ongoing trends. Because the switching costs are low, any change in the preferences and choice of customers can make the consumer base shift to substitute products. Due to the opening of malls and extensive urbanization, it has become convenient for any shopper to access the substitute products if they are not satisfied with Uniqlo. The clothing industry is highly erratic, and hence Uniqlo must focus on providing a comprehensive experience to its customers and employees. Recently, due to increased awareness regarding the environment, there has been a shift towards sustainable fashion. Many clothing brands are coming up with eco-friendly options that will attract customer attention. Due to these inevitable fluctuations in the industry, the threat of substitutes can be considered high.
Bargaining Power of Customers:
In the Uniqlo Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Being a customer-centric company, Uniqlo has constantly tried to improve its customer experience by evaluating each touchpoint and addressing their demands and expectations from the company. They have a superior store with a highly trained staff who make the customers feel comfortable and welcomed. Despite these efforts, the customers have a moderate to high bargaining power over the company. Firstly, an innumerable number of substitutes and competitors are available at a negligible switching cost for customers of Uniqlo. The income of customers keeps on fluctuating. It directly impacts sales as an increased disposable income means the consumer is willing to improve on their standard of living and maintain a status in society, which might shift the consumer base to high-priced clothes. But because a large part of the population belongs to the middle class, there is brand loyalty that the company can expect from those with a limited budget.
Customers these days are becoming more and more aware of the products and services being offered in the market, which increases their bargaining power.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Uniqlo:
Uniqlo deals in restricted variety of fabrics, and the product planning is done one year in advance. Because of this, they can estimate the demand for raw material beforehand and engage in bulk purchases. This reduces the cost of raw materials, and they have plenty of time to procure them. Because of the brand reputation that Uniqlo holds, they are able to attract suppliers and maintain long-term relationships with them. They have a highly qualified research & development and innovation team focused on the in-house development of fabrics like HeatTech, LifeWear, AIRism, etc., which helps them reduce their dependence on suppliers. There is less scope for forward integration, and at the same time, the raw materials have a limited range. Moreover, labor is available in large numbers, reducing the cost and increasing the hold on them. All these factors work in favor of the company, and thus, the suppliers have low bargaining power.
The impact of key competitors in the Uniqlo Porter Five Forces Analysis is as follows:
The company's primary strategy is to help people leave fashion behind and inspire them to adopt casual dressing. After competing with big players like Zara, H&M, Forever 21, etc., Uniqlo has gained a specific recognition in the market which puts it third in the line after Zara and H&M. They also have competitors like GAP American Eagle, who have been in the industry for very long, have a significant market share, and are using the benefits of economies of scale. There are numerous global players and local players in every region, which give stiff competition to the company. Uniqlo takes an advantage over many others by selling clothes for all age groups, making it a one-stop store for all. Because the industry growth is slow and the switching costs are low, it becomes even more challenging to keep the customers engaged in the company. Therefore, every company is focused on improving its strategy and customer experience to capture as much attention as possible. Considering that every company has a particular style, it is possible to get brand loyalty from the customers who feel related to the products.
Yet, the competitive rivalry in the industry is intense.
To conclude, the above Uniqlo Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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