For this PEST analysis I will be analyzing the apparel manufacturing industry (NAICS code # 315) within the united states. In particular I will be going in-depth on the U.S industry comprised of establishments
PEST ANALYSIS
For this PEST analysis I will be analyzing the apparel manufacturing industry (NAICS code # 315) within the united states. In particular I will be going in-depth on the U.S industry comprised of establishments primarily engaged in manufacturing of men's, women's, boys' and girl's jeans, dungarees, other separate trousers, jean jackets, and shorts from purchased fabric.
POLITCAL ANALYSIS
Political factors can have a direct impact on the way business operates. Decisions made by the government affect our every day lives and can come in the form of policy or legislation. For the United States of America our government and nation is ran under a democracy. In this capitalistic, free market-oriented economy, corporations and other private firms make the vast majority of microeconomic decisions, and governments prefer to take a minimal role in the domestic economy. As a result, the U.S. has a small social safety net, and business firms in the U.S. face considerably less regulation than firms in many other nations (Wikipedia).
Employee rights in the United States have a substantial effect on business. With the apparel industry being labor-intensive, the effect employee laws have are significant. Employee laws to consider are minimum wage, over time, benefits and health and safety regulations.
"With the exception of Arizona, Louisiana, Mississippi, Alabama, Tennessee, and South Carolina all states have a minimum wage requirements. The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments (DOL). Covered nonexempt workers are entitled to a minimum wage of not less than $5.15 an hour. Overtime pay at a rate of not less than one and one-half times their regular rates of pay is required after 40 hours of work in a workweek" (DOL). As well as minimum wage and over-time pay, employees are given the right to benefit plans.
The ERISA, which is the Employee Retirement Income Security Act, sets uniform minimum standards to ensure that employee benefit plans are established and maintained in a fair and financially sound manner. In addition, employers have an obligation to provide promised benefits and satisfy ERISA's requirements for managing and administering private pension and welfare plans (DOL).
In addition to pay regulations there are also health and safety regulations. OSHA, which stands for Occupational Safety and Health Administration helps regulate employee safety standards in all industries of the United States. Workers in the apparel manufacturers are exposed to many harmful chemicals and noises which include cotton dust, dyes, and machine noise. Also a major ill-health problem that is predominate in this industry is musculoskeletal discomfort from repetitive movement and sitting. OSHA requires annual safety training for employees, as well as ventilation and noise regulations (BLS). To operate in this industry it is vital to comply with these standards.
Trade regulations are probably the single most important factor influencing this industry in the United States. Since the apparel industry is labor-intensive, it is exposed to overseas competition from nations where their employees receive much lower wages. By 1999 the proportion of domestically made United States' retail apparel dropped to just 12 percent (BLS). As of January 1, 2005 all quotas for apparel and textile products will be lifted among members of the World Trade Organization, which includes most of the United States trading partners (WTO). The removal of quota and other trade barriers will serve to increase the competitive edge of countries with a mature textile and clothing industry
The United States has other trade agreements with nations such as China. The U.S-China Textile Memorandum of Understanding is an established agreement between the Government of the United States and China on restraint levels for certain textile products, produced or manufactured in China and exported to the United States during three one-year periods beginning on January 1, 2006 and extending through December 31, 2008 (U.S CBP). Operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, the Dominican Republic Central American Free Trade Agreement, and the Egypt Qualified Industrial Zone program (Levi).
ECONOMIC ANALYSIS
All businesses are affected by economical factors nationally and globally. A strong economy indicates positive results for businesses and consumers, and a weak economy indicates quite the opposite. For the apparel industry in the united states, the future does not look promising. Wage and salary employment in the apparel industry is expected to decline 69 percent through 2012, compared with an increase of 16 percent for all industries combined. The expected decline translates into 245,000 lost jobs over the period-greater than the decrease for almost any other industry (BLS). The Decline in employment can be attributed to increase in imports, new automation machinery, and cost-cutting pressure from increase global competition.
Real GDP increased 3.5 percent in 2005, compared to an increase of 4.1 in 2004. The increase was contributed to an increase in personal consumption expenditures, equipment and software, exports, and residential fixed investment (BEA). The value added by the apparel manufacturing industry contributing to the Gross Domestic Product is down to 18.9 billion in 2004 from 25.1 billion in 2000.
Nonfarm payroll employment increased by 193,000 in January of 2006, and the unemployment rate fell to 4.7 percent. The unemployment rate had ranged from 4.9 to 5.1 percent during most of 2005. The average hourly earnings is up from 16.16 in August of 2005 to 16.41 in January of 2006 (BLS). However, the consumer price index is also up 0.7 percent, but this can be contributed to unstable and high energy prices. Pressure from inflation is also causing interest to rise, the Federal Reserve has raised its target funds rate 14 straight times by a quarter-percentage point each time to 4.5 percent, in order to gain control on inflation (Isidore).
The major components of spending-food, housing, apparel and services, transportation, healthcare, entertainment, and personal insurance and pensions-account for about 90 percent of total expenditures, and of these, only the change in apparel and services was statistically significant in 2003, decreasing by 6.2 percent (BLS). Overall, consumer spending was up in the final quarter of 2005. Spending by households, which accounts for almost two-thirds of GDP, rose by 0.7 per cent in the three months to December. This is the largest quarter-on-quarter increase since autumn 2004 - matching a strong rise in retail sales at the end of last year - and is a sign that consumer spending grew after a slow start to 2005 (Isidore).
SOCIAL ANALYSIS
Demographics is essentially population characteristics. It is the statistics on individuals in a region in terms of age, sex, marital status, income, ethnicity, and other personal attributes that may determine buying patterns. Understanding this basic information about a population can help a firm determine whether or not its products or service will appeal to customers and how many potential customers for these products or services might have (Barney, pg. 35).
From 1990 to 2000 the population increased by 13 percent in the United States. 75.1 percent of the nations 284.1 million people are White compared to 12.5 percent Hispanic or Latino, and 12.3 percent Black or African American. Educational attainment of the population 25 years and over for the United States is up. In 1990, 75 percent had earned a high school diploma or more, and 20.3 percent had earned a bachelors degree or more. In 2000, those stats increased to 80.4 percent, now have a high school diploma or more, and 24.4 percent have a bachelors degree or more. Of the 284.1 million people, 143.4 million were female and 138.1 million male (Census).
Overall, the number of households in the United States increased 15 percent, from 91.9 million in 1990 to 105.5 million in 2000. Family households increased 11 percent, from 64.5 million in 1990 to 71.8 million in 2000, while non-family households increased faster, 23 percent, from 27.4 million in 1990 to 33.7 million in 2000 (Census).
Of the U.S population, 26 percent are 18 years old or younger, and 62 percent are 18-64 years old, both of which grew about 13 percent from 1990 to 2000. The labor force grew as well. With 217 million people ages 16 ...
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Overall, the number of households in the United States increased 15 percent, from 91.9 million in 1990 to 105.5 million in 2000. Family households increased 11 percent, from 64.5 million in 1990 to 71.8 million in 2000, while non-family households increased faster, 23 percent, from 27.4 million in 1990 to 33.7 million in 2000 (Census).
Of the U.S population, 26 percent are 18 years old or younger, and 62 percent are 18-64 years old, both of which grew about 13 percent from 1990 to 2000. The labor force grew as well. With 217 million people ages 16 years and over, 63.9 percent are in the labor force. Median household income in 1999 was $42,000, up 7.7 percent from 1989 in real terms (after adjusting for 29.8 percent inflation over the period). Median household income by age of householder in 1999 shows, ages 25-34 with $41,414, 35-44 with $50,654, and 45-54 with $56,300 (Census).
Despite rises in education attainment, peoples general health and lifestyles are poor. In recent years, diabetes rates among people ages 30 to 39 rose by 70% (healthierUS). About 46.5 million adults in the United States smoke cigarettes, even though this single behavior will result in disability and premature death for half of them. More than 60% of American adults do not get enough physical activity, and more than 25% are not active at all (healthierUS). More than 60 percent of women and teens wear plus-size clothing, and the kids plus-size apparel market is growing. Thanks to the ever growing obesity epidemic, market research firm The NPD Group reports that kids plus-size apparel industry has grown to about $3 billion a year--about 12 percent of the overall children's clothing market (Entrepreneur) .
Other growing trends are happening in the apparel industry. "Today's clothing needs to offer more than just a fashion statement--it needs to offer value and practicality. That's the thinking behind the growing industry of performance apparel" (Entrepreneur). Fitness and leisure-time clothing are the hottest segment of the performance apparel market today and by 2010, some 40 percent of all garments sold will have some performance apparel element to them (Entrepreneur).
TECHNOLOGY ANALYSIS
Innovative technology has boosted the apparel industry's productivity, however, the apparel industry is expected to stay labor intensive. There has been an increase in automated machinery that has improved production and manufacturing facilities. However, machine operators will continue to complete most sewing tasks, and automated sewing will be limited to simple functions. In some cases, however, computerized sewing machines will increase the productivity of operators and reduce required training time (BLS).
Computer system software has also been a huge technological success in all industries. An entire industry has develop just for creating apparel and textile industry software. A number of companies have developed software for each section of the industry including, warehouse, patternmaking, embroidery, and knitting and weaving software. Fashion designers begin the process by making rough sketches of garments or accessories, often using computer-assisted design (CAD) software. This software prints detailed designs from a computer drawing. It can also store fashion styles and colors that can be accessed and easily changed (BLS). "SnapFashun is a new software program to assist fashion designers. It is called by some the ultimate "pictionary" of design details with a library of over 3000 design elements that have been proportionately drawn so they can be "snapped" together to create items with great accuracy and speed" (Van De Bogart).
PRODUCT LIFE CYCLE
The market for jeans and jeans related pants, and casual pants, has become mature in the united states. The growth of the industry has slowed, there has been a dramatic increase in international competition, and the overall profitability of companies has dropped. Current products in this industry have moved towards being refined and improved. Work jeans are becoming more durable, slacks are being made with wrinkle-free and anti-static material.
Manufacturers have now been able to focus on quality of service. Providing high quality apparel for a very low price is a growing trend and customers expect only the best quality in apparel they purchase. Process innovation has also improved dramatically. With increased technology, and automated machinery, apparel products can be made in increased time. Furthermore, point of sale software and bar code scanning have helped reduce the need of high inventory.
PORTERS FIVE FORCES
THREAT OF ENTRY
"The first environmental threat identified in the five forces framework is the threat of new entry. New entrants are firms that have either recently begun operations in an industry or that threaten to begin operations in an industry soon"(Barney, pg. 43). There are four barriers to entry when analyzing an industry that should be taken into consideration. They are; economies of scale, product differentiation, cost advantages independent of scale, and government regulation of entry.
As I have stated earlier, the apparel industry is buyer-driven. What this means is producers are bound to the decisions of buyers through the functions of design and marketing, notably when retailing and brand names are concerned. The most significant sectors concern agriculture, garments, footwear and toys (entrepreneur). Buyer-driven industries therefore have low-barriers to entry. This industry is driven by intense competition among different types of developed-country retailers and marketers who mimic each other's moves in two ways; the growth of offshore sourcing; and utilizing brands as a source of market power (Gereffi 2001).
Building brand awareness is a fundamental challenge and a major source of market power for firms in buyer-driven markets. Strong brand names are what consumers use to associate with a specific product, and brand awareness can be reached through advertising, reputation and prior experience. Developing consumer loyalty and brand awareness can be costly.
In the clothing industry, it is said that the future relies in branding, fashion and mass customization, rather than in the efficiency of the operations. The focus of local manufacturers should be on cutting costs without compromising quality (busrep). However, cheap labor in neighboring countries such as china, are manufacturing high quality apparel at a much lower cost. High quality apparel at a much lower cost is going to put a damper on firms that possess high brand identification with high prices. Firms are no longer going to be able to rely on brand awareness as their only means of support for their product. It is therefore simply not true that the future lies in branding. If anything, it lies with the cutting, making, and trimming of the apparel (busrep).
The lavish advertising budgets and promotional campaigns needed to create and sustain global brands, and the sophisticated and costly information technology employed by mega retailers to develop "quick response" programs that increase revenues and lower risks by getting suppliers to manage inventories, have allowed retailers and marketers to displace traditional manufacturers as the leaders in many consumer-goods industries (Gereffi). Other cost advantages independent of scale as barrier to entry are proprietary technology, managerial know-how, favorable access to raw materials, and learning-curve cost advantages. However, proprietary technology in the apparel industry is almost non-existent. As I have mentioned before the industry is extremely labor-intensive, and what little technology that is used, can be purchased from a number of different software firms.
Managerial Know-how can play a role as a barrier to entry. However, this industry does not require world-class research and development, and although technology is improving, manufacturing facilities are still below average industry levels. There is a considerable amount of knowledge needed to understanding the day to day basis of interactions with suppliers and customers, being innovative and creative, and how to manufacture high quality apparel at a low price. Also staying on top of a fashion-oriented industry requires mobility and the ability to adapt to new demands.
Cotton is a major material needed in manufacturing apparel. For the U.S. textile industry, the removal of quotas increases the competition from imported cotton textiles, and will also lead to further downward pressure on retail prices. Exports will continue to be relied upon as the primary outlet for the U.S. crop (NCC 2005). The world situation, as estimated by USDA for 2004/05, is driven by a record crop of 117.7 million bales. USDA estimates world mill use will increase to 106.2 million bales (NCC 2005). Although, there is no lack in the world cotton supply, any large natural disaster could sway otherwise. Therefore, favorable access to raw materials may exist, but at a minimal advantage.
Learning-curve cost advantages would take affect on production workers. Since most production workers are trained on the job, efficiency will be low but over time will increase. Also, a firm that has been in the industry for some time, will have experience in running more efficiently and effectively, taking less time to cut, mark, and trim the fabric.
THREAT OF RIVALRY
There are a number of top competitors in the jean, slack and trouser industry. GAP inc. did $16 billion in sales, VF Corp., did $ 6 billion while Ralph Lauren Polo Corp. did $3 billion in sales. Liz Claiborne Inc. and Jones Apparel, did $5 billion in sales and there are roughly 40 competitors in this industry, but all fluctuate in size. Industry sales have been slow and have actually gone down from $183 billion in 1999 to $181 billion in 2005.
The Apparel Industry is facing a new set of business challenges that are forcing companies to focus on product development improvements in order to respond more rapidly to market trends and changing customer needs. These challenges include increased global competition, the need to target new markets and create new revenue streams, customer demands for more innovative products and pressures to reduce new product development costs (matrixone). Due to the ever increasing globalization of the industry, neighboring countries such as China are developing equal, or even superior quality products, at a cheaper price.
This is forcing some companies, like Levi Strauss and Co., to develop mass customization products to produce product differentiation. If a certain brand image suffers or if a competitor launches a wildly successful advertising campaign, shopper sentiment can shift quickly and dramatically. In the apparel industry product quality is fairly equal. For this reason, the primary source of differentiation for competing products is brand image.
Due to the increase in information technology of bar-code scanning and point of sale software, it has enabled manufacturers to access immediate and accurate information on product sales. Electronic data interchange (EDI) used by the retailer to restock items once below a certain inventory level, have helped eliminate the traditional warehouse system used for large bulk shipments (Gereffi)
THREAT OF SUBSTITUTES
One threat of substitute for men's and boys' jeans, dungarees, and other separate trousers and slacks, would be athletic apparel. Athletic apparel such as cotton sweat-pants, polyester shorts and pants, and fleece wear. The athletic apparel industry is currently booming and some predict that fashion trends are moving more towards relaxed fit fashion. This could put some damper on the industry, and if acceptable attire is moving towards more comfortable, loose fit apparel, then this would definitely be a threat of substitute.
THREAT OF SUPPLIERS
The major fabrics used in the industry are cotton, blends, synthetics and wools. The price and availability of cotton may fluctuate substantially, depending on a variety of factors, including demand, crop yields, weather, supply conditions, transportation costs, government regulation, economic climates and other unpredictable factors (Levi). Cotton production occurs on approximately 30 thousand farms and covers more than 13.5 million acres. In 2004, record yields led to a U.S. crop of 23.0 million bales, the largest on record (NCC 2005). Quotas have been lifted on textile imports, so the demand for raw materials in the apparel industry have been globalized. Raw materials sold are standard, and using numerous independent contractors, raw material suppliers, and importers, apparel manufacturing firms can do an exceptional job of isolating themselves from this damaging threat.
However, suppliers could easily become rivals with the threat of forward vertical integration. Since the barriers to entry in this buyer-driven market are relatively low, suppliers become a threat of entry and could possibly become a rivalry to other apparel manufacturers. Contractor suppliers, those who contract out labor, could also become a threat, if the demand for their labor increases, it could potentially cause a price inflation for labor costs.
THREAT OF BUYERS
The apparel industry is a gigantic, $181 billion dollar a year industry with millions of buyers. This is no small group of consumers. However, retail stores are the main buyers in this industry who then sell the manufactured apparel to the end consumer. So, giant retail stores, such as Wal-Mart or Target, that purchase the manufactured apparel, have large amounts of clout. They can make significant requirements and demands on the product they purchase, and if the supplier fails to meet these demands, buyers will take their business else where.
This also explains why you see many firms in the apparel industry open their own retail stores that sell one specific product. GAP Inc, Liz Claiborne Inc., and Levi Strauss and Co., all have their own retail stores where they sell their own products straight to the end consumer. That is also why it is important to apparel manufacturers to have a diverse customer base, ranging from small clothing shops to department stores, which makes it less reliant on one class of customer.
Jeans, trousers, and slacks have become an excepted attire in the world of fashion. People wear these clothes in the work field, at home, in the office, and just about everywhere else. For the big retail store buyers, they want to pick the product that is going to sell the best, for the cheapest price. As I have mentioned earlier, due to the globalization of this industry, price wars have intensified the competition. Other countries are able to produce above standard apparel, for a much lower cost. Apparel is becoming less and less differentiated, and more firms are struggling to develop strong market brand awareness, enough to differentiate their product from the rest.
When selling straight to the end consumer, the price for the apparel can be a significant percentage of a buyers expendable cash. Although, it does depend on what type of apparel the buyer is looking to purchase, jeans, slacks, and other apparel can run anywhere from $30-$200 a pair. This is going to leave consumers looking for the cheapest pair with the highest quality. As long as a cheaper price does not comprise quality, buyers are going to pick the apparel that cost less.
This is true for retail stores as well. When retail stores purchase the apparel it constitutes a significant amount of their final cost. So retail stores are going to want to find the apparel with the best quality and cheapest price. However, retail stores are not going to want to purchase cheap apparel that is not selling. They want quality products with quality prices, and if they see the opportunity to buy cheaper apparel with the same high quality, they will switch.
LEVI STRAUSS AND CO.
In 1853, Levi Strauss and Company was developed during the California gold's rush. For well over 100 years Levi Strauss and Company has been providing our nation and the rest of the world with high quality jean and apparel products. They are one of the world's leading branded apparel companies. They design and market jeans and jeans-related pants, casual and dress pants, tops, jackets and related accessories for men, women and children under our Levi's(r), Dockers(r) and Levi Strauss Signature(r) brands in markets around the world. in addition they license their trademarks in many countries throughout the world for accessories, pants, tops, footwear, home and other products (Levi).
VALUE CHAIN ANALYSIS
One way to identify potentially valuable resources and capabilities controlled by a firm is to study that firm's value chain. In this case, i will be analyzing Levi Strauss and Co., and will hopefully develop an accurate value chain analysis. A value chain describes the full range of activities which are required to bring a product or service from conception, through the intermediary of production, and delivery to final consumers.
The apparel value chain is organized around five main parts: raw material supply, including: natural and synthetic fibers; provision of components, such as the yarns and fabrics manufactured by textile companies; production networks made up of garment factories, including their domestic and overseas subcontractors; export channels established by trade intermediaries; and marketing networks at the retail level (Gereffi).
The inbound logistics and production for Levi Strauss and Co. which is the purchasing, inventory holding, and materials handling is mostly sourced to independent contractor manufacturers. Levi Strauss and Co. source their products from contract manufacturers primarily through "package" or "ready to wear" arrangements in which the contractors produce or purchase fabric themselves and then sew, finish and ship the garments (Levi). Levi Strauss and Co. then purchase the finished goods. They also source a small proportion of their products through "cut-make-trim" arrangements in which they purchase the fabric and retain ownership of the raw materials and work-in-process throughout the contractor's manufacturing process. they typically conduct business with they garment manufacturing and finishing contractors on an order-by-order basis (Levi).
Levi Strauss and Co. owns a number of warehousing and distribution centers in a number of countries. They also outsource distribution activities to third-party logistics providers, including third-party arrangements in the United States. Distribution center activities include receiving finished goods from contractors and plants, inspecting those products, preparing them for presentation at retail and shipping them to their customers (Levi).
Sales and marketing is huge part of the apparel industry and in the success of firms. Levi Strauss and Co support their brands with a diverse mix of marketing initiatives to drive consumer demand and spent approximately $332.9 million, or 8.1% of total net sales in 2005 on advertising activities (Levi). Here is a direct quote from Levi Strauss and Company's 10k report how they utilize their marketing vehicles:
"We advertise around the world through a broad mix of media, including television, national publications, the internet, cinema, billboards and other outdoor vehicles. We execute region specific marketing programs that are based on globally consistent brand values. We believe this approach allows us to achieve consistent global brand positioning while giving us flexibility to tailor marketing programs to local markets in order to maximize relevancy and effectiveness. We use other marketing vehicles, including event and music sponsorships, product placement in major motion pictures, television shows, music videos and leading fashion magazines, and alternative marketing techniques, including street level events and similar targeted viral marketing activities" (Levi).
Sales of their products take place in a number of different national retail stores, department stores, as well as, franchise and company operated stores that are dedicated solely to their brand. They have roughly 3,300 retail customers operating in more than 30,000 locations in the United States, Canada and Mexico, and have plans of opening 20 more dedicated retail stores in North America in 2006 (Levi). Levi's also offers Business-2-Customer service (B2C) through their online service www.levisstores.com, which will sell their products directly to the consumer. Levi's also sells through third party internet-net based sites that meet our standards relating to customer service, return policy, site content, trademark use and other matters (Levi).
Levi Strauss and Co. provides customer service through nation wide offices. They also provide direct access to product quality information telephone lines and consumer information telephone lines. The company is striving to promote strong retail relationships by providing quality service and quality apparel. Levi Strauss and Co. wants their brands to be essential to the retail stores by providing innovative, differentiated apparel, with great retail presentation (Levi).
These primary activities are then supported by infrastructure activities, technology, and human resource management and development. The firms infrastructure activity is driven by corporate planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting and finance department. The technology activities includes research, development, and product design. These activities assist the firm in accomplishing its primary activities, which is the purchasing, production, distributing, marketing and selling of their apparel.
VRIO FRAMEWORK
One of Levi Strauss and Company's biggest resources is its brand name. Over history the name Levi has been synonymous with jeans and other apparel. Although, brand awareness is down from say 15 years ago, the name is still huge, and the brand awareness is of intangible value to the firm. The firms brand name is a business asset. In addition, their brands are legally protected by trademarks and patents, and therefore secured from duplication throughout the industry. Brands are valuable, rare, and is built over time, by the impressions one has of the company, and its products or services. Since a brand name is built overtime it becomes costly to imitate. As a result their brand provides a sustainable competitive advantage in the industry.
A very important resource that is also part of their brand name is their products. Levi's strives to develop high quality products, with a diverse assortment of styles, that enables them to appeal to broad range of customers. They continually introduce innovative products and update their continuing products with new fits,
fabrics, finishes and features. They have over 200 designers and merchandisers that are dedicated to their brands and use global trend scouts and trend forums to identify emerging trends with potentially strong consumer appeal and a
global innovation group to develop commercially viable style and technical innovations across their brands (Levi). Their ability to quickly adapt to trends and new markets has helped them develop product differentiation, something that is key to a firms success in the apparel industry. Their products are of great value to the firm, and it has become of a rare commodity in the industry. Product differentiation is what separates the top competitors from the rest, but it something that is not costly to imitate. This is why their product differentiation is only a temporary competitive advantage.
Another resource for Levi Strauss and Co. is out-sourcing their manufacturing and production. The firm sources 90 percent of their inbound logistics to contractors who then produce apparel through packaged arrangements. This resource is of value to the firm because it allows them to focus on broader business issues such as marketing and strategic planning, by having outside experts handle various operational details. It also provides them with world class capabilities, reduces investment requirements and makes the firm more flexible, and better able to adapt to changing opportunities. As well as, the firm is better able to redirect efforts from the every day operational activities toward those that serve customers more effectively. However, sourcing has become the go-to in the apparel industry and is very common amongst the leaders in this industry. So, although sourcing is of value to the company, it is not rare, and therefore is a strength and a competitive parity for the firm.
A capability for the firm that is of extensive value, is their marketing abilities. Technically this could be a two bit piece. Part of this is their financial resources, their ability to spend $300 million dollars on advertising activities, but the other part is a capability. It is their intangible asset of marketing skills which creates brand awareness. This is of extreme value to the firm and enables them to build strong brand recognition, something that is very important in this industry.
Another important resource for this firm are it products.
However, in today's clothing industry, marketing skills are not a rare capability. There are hundreds of marketing firms in the united states that have bright, intelligent, innovative working people that can create advertising campaigns for firms. So both their expendable cash on advertising activities, and their innovation in the marketing world are of value to the firm, but both are not uncommon in this industry. Their marketing abilities is therefore a competitive parity to the firm.
Dedicated stores are another resource that is very important to the firm. There are 44 company operated retail stores solely dedicated to selling Levi apparel throughout the United States. There are also many franchised stores operated by third party agreements that are dedicated exclusively to the Levi brand apparel. This is of great value to the firm and it provides sufficient retail distribution, visibility and availability and ensuring effective presentation of products at retail. Retail stores that sell exclusive brand apparel are more rare in this industry. There are only a number of top competitors that own retail stores dedicated solely to their brand. Attaining retail space that is in an effective location can be difficult to attain and very expensive. Firms would be required to enter into
lease agreements, which would increase rental expenses and capital expenditures for the stores. With plans to expand on these stores Levi Strauss and Co. is taking advantage of these opportunities and has a sustained competitive advantage.
Moreover, the number of diversified retail stores that Levi Strauss and Co. sell to, provides them with ample opportunity to get their product to the end consumer. With more than 3,000 different retail customers operating in 30,000 different locations in North America the firm is ensuring that their brands and products are available where consumers shop and that their product offerings and assortments are appropriately differentiated for the channel. Not only is this of value to the firm, but this is rare as well. Only a few top competitors have such a market saturation as does Levi's. Although, I believe this would be costly to imitate, do to the access of out-sourcing and the diminishing of international tariffs, I believe this is only a temporary competitive advantage for the firm.
Although, this industry has become very competitive with price wars and globalized sourcing, Levi Strauss and Company has many organizational strengths. By capitalizing on their major resources and capabilities it has given them a competitive advantage in this industry. They have done a persistent job on maintaining brand awareness in this industry, and putting forth major capital expenditures in order to use a variety of marketing vehicles to develop product awareness. They have also used these marketing techniques to develop product differentiation which is crucial in this industry for the success of the firm. Sourcing its major manufacturing and production duties has allowed Levi Strauss and Co. to focus more on the firms true strong points, which is, product quality, product innovation, and market awareness.
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