Nordstrom Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

Here is the Porter’s Five Forces analysis of Nordstrom that covers threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.

Threat of New Entrants:

The threat of new entrants in the Nordstrom Porter Five Forces Analysis can be explained as follows:

Nordstrom is a high-end fashion specialty retailer with a market capitalization of more than $3 billion. Luxury fashion retail business requires heavy investment for its operations and face stiff competition among the existing players thus making it difficult for the new entrants to compete in such industry. In addition to capital investment, other factors such as customer loyalty, and brand recognition are two important factors. Customers participating in high end fashion retail are generally loyal to brands they buy their products from and thus it becomes difficult for new entrants even after huge capital investment to earn trust and loyalty from customers. Hence, it can be said that the threat of new entrants is low.

However, the recent trends of selling products online have disrupted the conventional habits of buying. Today customers' access to brands is easy and brand awareness can be easily created thus making it less difficult for others to onboard new customers. Nordstrom’s strategies against new entrants by innovating and launching new high-quality products and constantly up their game by providing customers what they are looking for.

Image: Wikimedia

Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Nordstrom:

Threats of substitute products are moderate. There are numerous substitutes available in the market at both cheaper or more expensive price ranges that pose a threat to Nordstrom business.

To overcome this challenge, Nordstrom diversified its offerings of products and services and has shifted its orientation from product focus to product-service focus i.e., its emphasis on not just the product but also on enhancing the customer buying experience by improving it pre sales, during sales and post sales service. On the same lines, it must continue its efforts on branding and customer loyalty. To be more competitive, it can further cut prices by taking advantage of economies of scale to avoid customer churn. Additionally exploring new market places to sell its product and services, increasing the distribution channel and marketing the product offering are different business strategies that can be adopted by the company to prevent the increasing threat of new substitutes.

Bargaining Power of Customers:

In the Nordstrom Porter Five Forces Analysis the bargaining power of the customers can be explained as:

Customers bargaining power in the fashion retail industry is low as the market is fragmented and there are various players eyeing to gain market share by attracting more and more customers. Though customer loyalty is higher in the high-end segment but with many options available to customers, it becomes imperative for Nordstrom to innovate and offer unique prices with enhanced quality in order to survive and compete. Customers get some indirect bargaining power in this way. To attract and retain customers, it must follow customer trends and preferences. Nordstrom may engage with a wider spectrum of customers by diversifying its products with fresh design and in new segments, which will assist the company reduce buyer bargaining power. It can prevent consumer defection to competitors and serve their demands with a strong brand proposition and brand loyalty.

The threat of customer’s backward integration is almost negligible.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Nordstrom:

There are a lot of suppliers in this industry while the buyers of raw materials are lower thus weakening the bargaining power of suppliers. Additionally, the retail fashion companies outsource its supplies from multiple vendors at cheaper price thus suppliers have to offer competitive prices to be able to get the sourcing contract. With increasing emphasis on innovation, companies demand new designs, products from suppliers. To be able to remain competitive, suppliers must also innovate their product offering and adhere to quality compliance with best quality product at reasonable prices. Because of high capital investments, the cost of switching between brands is low, and so is the risk of supplier forward integration. Nordstrom goes after its suppliers with a costly supply chain network. It also has alternative substitutes of its raw material, so that it does not have to rely on particular raw material and through this it enjoys higher bargaining power.

Competitive Rivalry:

The impact of key competitors in the Nordstrom Porter Five Forces Analysis is as follows:

Nordstrom is a luxury chain store that offers apparels, jewelry, shoes etc. at premium prices to its elite customers. Major competitors of Nordstrom are Macy's, Gap, Sephora, L Brands, Ross Stores, Ulta Beauty and Kohl's. The industry is worth billions of dollars, growing at a steady pace and this makes it lucrative. The competition is intense in this industry even if the concentration of players is small. To attract and retain customers, it is imperative for all the companies to create brand appeal and also offer high quality products. Branding is an important factor in the high end/premium fashion retail industry. To compete with other players, Nordstrom must invest more into creating brand recognition and establish high brand equity. It should also continue its efforts in diversifying its product offerings and delivering outstanding services and experience for its customers.

Nordstrom should also leverage its online and offline presence to create brand awareness, increase its distribution channel and expand its reach in other market places both online as well as offline.

To conclude, the above Nordstrom 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.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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