February 25, 2010

Assignment 2
Porter’s Six Forces Analysis
General Retail: Merchandise/Department Stores
Prepared by:
Yulia Petukhova

ID# A30
The department store industry will be analyzed taking department stores as players, individual consumers as buyers, and manufacturers and distributors as the key suppliers.
The Rivalry among existing firms High
The period from the end of the 20th century up until now has been marked by the consolidation trend in the department store industry, characterized by major acquisitions by a few larger, powerful competitors, greatly intensifying the rivalry among them.9, 13 Since there are only a few of them in the industry, they tend to match each other’s steps in some way or another. After JC Penny introduced itself to Manhattan just a block away from Macy’s, it is only a matter of short time before Kohl’s will finally announce its move into Manhattan as well.10 Slowdown in the industry growth coupled with reduced consumer spending and low switching costs intensifies rivalry even further prompting the market players to differentiate their products by introducing exclusive brands and increasing innovation.3, 15, 17, 19, JC Penny contracted Cindy Crawford to extend her jewelry brand exclusively at their stores, while Macy’s has signed a strategic alliance agreement to become an exclusive retailer of Ellen Tracy branded women’s sportswear in spring 2010.18, 21
Yet there is another effect of the economic downturn on the rivalry among existing firms. As some retailers are closing stores, others take advantage of high vacancies in the real estate market and bargain for lower prices trying to increase their capacity in order to get market share and be at the lead when the market picks up.5, 6, 20
The Bargaining Power of Buyers