Threat of entry NEXT
The threat of entry into an industry depends on the barriers of entry that are present with the reaction from existing competitors that the entrant can expect. Next hold a strong piece of the market share even though it’s not a large amount. It would be difficult for a new competitor to enter the retail clothing industry in Dublin as there are already a number of key players such as Next, River Island, Topman, Penneys and Dunne’s Stores. There are six major sources of barriers to entry, looking at three in detail.
Economies of scale refer to declines in unit costs when producing a product. Economies of scale deter entry by forcing the entrant to come in at large scale and risk strong reaction from existing firms, which is Next in this case. They can also enter the industry in a small scale operation and accept the cost disadvantage to Next but this is undesirable as they must struggle to compete with lower profit margins. Next can use their strong economies of scale to their advantage as they have been dealing with their suppliers for a long period of time and have formed good relationships with them. This gives them the upper hand on all new entrants as their products can be produced a lot cheaper and easier.
Another barrier of entry for new entrants in the clothing retail industry is product differentiation. This means that established firms such as Next have brand identification and customer loyalties as a result from past advertising, customer service and product differences. It may take the new entrant a lot of time and money to overcome the existing customer loyalties with Next. A new competitor entering the clothing retail industry in Dublin must overcome another important barrier of entry which is capital requirement. To do well and reduce chances of failure a reasonably large amount of financial investment would be necessary. To compete with Next who have shops in the Jervis shopping centre and on Grafton Street, can afford to invest in these sorts
Economies of scale refer to declines in unit costs when producing a product. Economies of scale deter entry by forcing the entrant to come in at large scale and risk strong reaction from existing firms, which is Next in this case. They can also enter the industry in a small scale operation and accept the cost disadvantage to Next but this is undesirable as they must struggle to compete with lower profit margins. Next can use their strong economies of scale to their advantage as they have been dealing with their suppliers for a long period of time and have formed good relationships with them. This gives them the upper hand on all new entrants as their products can be produced a lot cheaper and easier.
Another barrier of entry for new entrants in the clothing retail industry is product differentiation. This means that established firms such as Next have brand identification and customer loyalties as a result from past advertising, customer service and product differences. It may take the new entrant a lot of time and money to overcome the existing customer loyalties with Next. A new competitor entering the clothing retail industry in Dublin must overcome another important barrier of entry which is capital requirement. To do well and reduce chances of failure a reasonably large amount of financial investment would be necessary. To compete with Next who have shops in the Jervis shopping centre and on Grafton Street, can afford to invest in these sorts
Bibliography: and references Porter.M (1980) Competitive strategy, Free Press, New York, 1980, P7-11.