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Generally, discount apparel is not very attractive industry to compete in mainly because of the fierce competition. There are several equally balanced big players such as Nike, Lotuswear, Under Armour, The Gap Inc., and Adidas that compete for the market share. As indicated in the case, in soft retail environment, many chains are closing stores and refrain from opening new ones. Therefore, Lululemon rocketing stock price and steadily increasing market is a unique phenomenon. The company’s internal resources and capabilities such as effective brand connection with customers, its own distribution and high quality products enabled the company to offset a high threat of substitutes and intense rivalry among competing firms. Even though, the threat of substitute products is quite moderate because customers do not face great switching cost and substitute products are lower in price, the quality performance capability of substitute products is not greater. Lululemon managed to offset the attractiveness of substitute products by offering high-quality product combined with unique and superior customer experience that is highly valued by its target group. This resulted in extremely loyal customer base and brand popularity. Other positive factors of the industry include low threat of new entrants, low bargaining power of suppliers, and low bargaining power of buyers.
Threat of New Entrants is fairly low because of high barriers of entry. The industry is characterized by large capital requirements, access to distribution channels, large economies of scale and product differentiation. Therefore, new entrants will require spending a lot of money and time to enter the market, gain cost advantage, and build loyal customer base.
Bargaining Power of Suppliers is also fairly low, because the supplier segment is quite fragmented and less concentrated than the clothing retail industry. There is lot of choice for supplier substitution and buyers typically represent a significant...
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