Porters 5 Forces Industry Analysis: Designer Luxury Handbag Industry
For my Porter’s 5-Forces Industry Analysis, I have chosen to analyze the “Designer Luxury Handbag Industry.” I will analyze the following 3 forces: Threat of new entrants, rivalry among industry firms, and threat of substitutes.
Regarding “threat of new entrants” this industry has many barriers that favor the current luxury bag designer firms. The industry has both scale and scope economies. Economies of scale allow this industry to make many designer bags with increasingly lower fixed costs per unit. In addition, this industry shows economies of scope by having a line of different models and bag sizes utilizing the same materials. Capital requirements to be a luxury brand are high due advertising costs, other brand imagery and high overhead costs of the brick-and-mortar locations of stores in expensive areas around the world. Another strength is the product differentiation that have created deep rooted loyalty to existing products and brands. Many women, who the frequent buyers of the goods, associate the designer bags as an essential necessity and economic status symbol. The brands have been able to create emotional attachments and illicit strong emotional reactions from consumers that drive demand.
Regarding “rivalry among industry firms” this industry has many advantages that promote low rivalry intensity. Industry concentration is high, there a few numbers of players in this industry, with high market share. Names like Chanel, Gucci, Louis Vuitton, and Kate Spade to name a few. Product and design differentiation is high with each brand having some signature insignias, stitching variations, and overall trademark designs. I imagine fixed and storage costs are low. The bags are usually made of leather and do not have any perishable or time sensitive materials. Over-capacity is low and limited on purpose to keep supply low and limited to drive prices higher throughout the industry. Low exit barriers for current industry members can also decrease rivalry among industry firms.
Regarding “threat of substitutes” this industry has many protections. In the US, it is illegal to sell knock off designer backs due to the federal trademark law, Langham Act, and Stop Counterfeiting in Manufactured Goods Act. However, there is a known “knock off’ luxury bag black market. This black market makes replicas of many designer bags, however to the trained eye of the sellers and many devout consumers, the knock-off bags miss minute details placed by industry leaders. Intricate details including authenticity certificates, traceable serials numbers, and hidden designs and specific stitching that help to prevent imposters from making and exact replicas of the luxury bag designs. Protecting the resale value to consumers and protecting the industry sellers to maintain their market share in their target populations.
This industry is extremely attractive and profitable. In 2018, the “luxury handbag market size was valued at $58.3 billion.” Projections show that it is expected to reach “$89.9 billion by 2026.” The compounded annual growth rate for “2019 to 2026” is 5.6%. Future projections show positive trend in both revenues and growth for the future of the industry. Brands sell, and luxury brands especially sell.
Luxury Handbag Market by Type (Handbag, Backpack, Wallet, and Others), and Distribution Channel (Duty-Free Stores, Online Stores, Discount Stores, Hypermarkets, And Specialty Stores): Global Opportunity Analysis and Industry Forecast, 2019–2026
The beekeeping industry plays a crucial role in agriculture. The USA’s agriculture has gone through significant changes over the past 30 years, focusing more on monoculture and expanding the arable land dedicated to this. Even though this practice has many advantages for farmers, it has negative consequences for the beekeeping industry. The farming and beekeeping industry are interdependent and need each other to survive. Crops need pollination, and beekeepers make honey during this process. There is a problem with this equation: the beekeeping industry suffers an average of 40 % annual losses due to various environmental factors, predatory pests, pesticides and herbicides used in farming. Beekeepers struggle to keep bees alive, and this phenomenon affects the industry’s honey production. Honey is present in many sectors, such as food, baking, beverage, cosmetics, and alternative medicine. The demand for honey has been increasing over the years, and the USA can’t produce enough to keep up with the demand.
Honey imports are a common practice in the USA, opening the door to the first force of the five forces framework: the threat of new entrants. For the industry, this is a weak force that produces a leak and allows competition. Good quality honey imported from large honey producer countries penetrates the market and competes in quantity and quality. The supply increases, adding pressure on domestic producers to lower the price to a very costly commodity. This threat is a pivotal force that the industry needs to mitigate to maintain profitability.
Another force that puts pressure is rivalry from dishonest honey exporters. Adulterated honey is a big problem for the industry. The industry has been fighting this for many years to prevent consumers from losing faith in the product. There are barriers to protect this, such as government regulations and strict quality control measures to make it harder for impostors to enter the market. It is a costly system that requires new technology and processes to detect fraudulent honey imports.
Honey substitutes are also another force the industry needs to pay close attention to. When it comes to consumer preference and awareness, honey is the number one natural sweetener preferred, and substitutes such as plant syrups and sweeteners are gaining market share especially among vegetarian and vegan consumers.
This is a profitable industry, but because costs increased over the years due to the high losses, more beekeepers sell their business and exit the industry. To mitigate its losses, the industry invests a large amount of money in implementing new measures to keep hives alive in the winter. They built temperature-controlled warehouses to overwinter hives at the times when they are most vulnerable. The results look promising, hive losses declined, and if the number of colonies to produce honey can increase, it will rely less upon honey imports and regain profitability.
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