Competitive Landscape and Competition, Research Paper Example

Competitive Landscape and Competition of Used Goods Stores

The below chapter will analyze the competitive landscape, trends, and competition of used good stores, using market studies, analysis, and innovation models, in order to determine how to create a competitive advantage for SMCA store in the current market conditions.

Competitive Landscape

Today, it is important to note that analyzing the competitive landscape and recent changes of the market is essential for creating a successful marketing and pricing plan. The recent First Research study (2014) confirms that thrift stores do not only compete with other used merchandise shops,  but retailers offering new goods at a low price. Due to the impact of globalization and internet communication development, they also need to compete with auction and classified sites where individuals sell used clothing or household items. Another analysis based on the profile of Family Dollar Stores (Baker et al. 2007) describes the main areas of competitive landscape as follows:

• rivalry among existing companies
• threat of new entrants
• threat of substitute products
• bargaining power of customers
• bargaining power of suppliers.

Below, the authors would like to analyze the aspects of the competitive landscape in order to reveal the industry specific threats and opportunities. The five forces model to assess competition is going to be a valuable tool for analyzing market trends within the used goods (clothing and other household items) industry. While the Family Dollar stores chain is operating in a different segment of the market, there is currently an overlap in the customers of used merchandise stores and Family Dollar. One of the most important findings of the study of Baker et al. (2007) is that there is a very high level of competition among existing firms within the discount items industry. It is clearly visible that in the Austin area alone, there are dozens of thrift stores offering low price solutions for customers, while there are also discount chain shops located in the close proximity of SMCA. The threat of new entrants is relatively low in the industry, as used merchandise charity shops rely on donation, which has a limited supply. The threat of substitute products has already been determined as high. Customers can choose to go to discount clothing stores, wait for sales, or visit warehouse shops where they can obtain a 50-70 percent discount on the price of the item. This also means that the bargaining power of customers and suppliers is extremely high. Thrift stores in America are highly reliant on both: without a constant supply of new items, customers will not be satisfied with the store, and will move to another shop. Similarly, customers can choose from dozens of used merchandise stores and often shop around for the best offers, prices, variety, customer service, or quality of items.

The IBIS World industry performance report (2013) states that the growth of the industry has been steady since 2011. When the economic recovery started, the retail sector has benefited from the increased spending power of the population. The predictions state that an average of 3 percent growth is to be expected in the next five years. The report also confirms that industry globalization is an important trend in the marketplace, and in order to remain competitive, the company needs to maintain its cost structure benchmark. Another risk identified by the above industry review is “revenue volatility”. In the thrift store marketplace, revenues are dependent on both donation volumes and sales.

Competition

Social media and online retail is changing the competitive landscape of thrift stores. The benchmark information of used merchandise stores, created by First Research (2014, p. 13) states that the average operating expense of used merchandise stores is around 40 percent of the revenue. In order to remain competitive on the marketplace, reducing expenses is essential. This way, American companies can lower the prices offered for customers, make improvements that benefit communities and shoppers alike.

There are also several challenges identified by the above report (First Research., 2014). Thrift stores can achieve a competitive advantage by dealing with these business challenges better than other companies do. There is an ever-increasing level of competition from online retailers and new goods retailers making items available at the same price as used products. Further, retail stores are highly dependent on customer income. While the market of used merchandise stores is predicted to grow at an average rate of 5 percent in the next five years, the growth is going to be equal across all sub-segments. Electrical items and furniture segments are likely to grow at a faster rate. The increased level of awareness within the US society about the benefits of recycling is likely to be one of the main drivers of the growth. Therefore, companies that create recycling project collaboration with companies and take advantage of the advertising power of the company can create a competitive advantage. Specialization can also create a unique advantage on the marketplace for individual thrift stores. Organizing special events, creating online stores, and standing out based on customer service excellence can help the store differentiate itself on the competitive market.

Summary

Several development areas have been discovered during the competitive landscape analysis above. Community involvement, improvement of inventory turnover speed, and implementation of online marketing/sales activities would make SMCA Thrift Shoppe more competitive. It is also advisable that additional volunteers are recruited from among current and previous students, in order to help collaboration resulting in new ideas for making the store more customer-friendly.

References

Baker, C., Bosworth, N., Huff, R., Johnston, D. & Randolph, T. (2007) Family Dollar Stores, Inc. Equity valuation and analysis. Retrieved from http://mmoore.ba.ttu.edu/ValuationReports/Fall2007/FamilyDollar.pdf

IBIS World (2013) Industry walkthrough. Retrieved from http://www.ibisworld.com/

First Research (2014) Used merchandise stores. Retrieved from http://www.firstresearch.com/Industry-Research/Used-Merchandise-Stores.html