Industry Analysis Of Myer Holdings Limited Using Porter’s Five Forces Model

Company Overview

Discuss about the Industry Analysis of Myer Holdings Limited for Topshop Topman.
 

Myer Holdings Limited (Myer) is a department store or retail company located in Australia. The department store of the company has network around almost 60 stores in various retail location across Australia. The merchandise of Myer has approximately 11 categories of product which are womenswear, menswear, childrenswear, miss shop (youth), beauty, intimate apparel, homewares, toys, electric goods, fragrance and cosmetics, handbags and accessories and general merchandise (Myer Holdings Limited 2018). The brands of the company are Seed, Mimco, Jack & Jones, Topshop Topman, French Connection, Veronika Maine and Industrie. The subsidiaries of the company are Myer Pty Ltd, NB Russell Pty Ltd, Myer Group Finance Limited, Myer Travel Pty Ltd, NB Elizabeth Pty Ltd, Warehouse Solutions Pty Ltd and Myer Group Pty Ltd. The company takes care of various activities as well which are not under the department store retail business and they do this through its various subsidiaries and FSS Retail Pty Ltd.

The five forces is an industry analysis tool which was created by Michael Porter, who was a professor of Harvard Business School. This is a tool which measure the likely profitability of a company and also analyses the attractiveness of an industry (Dälken 2014). Porter established five forces that was existent in the competitive business environment and could lessen the profitability of companies. The five forces were:

• Competitive Rivalry – This determines the number of rivals of a company that are present in the market and the strength that these rivals or competitors possess in the market. The quality and services of the competitors are measured in this force (Dobbs 2014). Companies take aggressive measures and marketing techniques are adopted when the competition is intense between them. Whereas if the rivalry is minimal between the companies, then they can have increasing profits and strength in the market.
• Power of supplier – This force determines that if the number of products are more in the market and the buyers find many alternatives to the products then the power of supplier would be less as the buyers would purchase another product if the price increases (Porter and Heppelmann 2014). However, if the number of products are less in the market, then the power of supplier increases as they will be able to charge more from the buyers.
• Power of buyers – This force depicts that if there are a large number of products in the market then the buyers can switch to another supplier if they feel the price is high, then the suppliers feel inclined to decrease the price to retain the buyers (Porter and Magretta 2014). However, when there are only a few chosen buyers for a particular supplier, then the buyers have very less power over them.
• Threat of substitutes – This force refers to the availability of a cheaper substitute product in the market which gives good competition to the existing product. The substitute product would provide the same benefits as that of the original product, however, the price would be less and hence would attract more buyers. These substitute products can weaken the position of a company in the market and impact the sales and profitability of that company (Rothaermel 2015).
• Threat of new entrants – This force determines that company can get affected by the entry of new competition in the market as the risk of losing buyers can be high if the products and services offered by the new entrant is better than the existing company (Tanwar 2013). Hence, it is important to maintain a strong foothold in the market by the existing companies. 

The five forces analysis for Myer Holdings Limited is as follows:

• Competitive Rivalry – The rivalry among the existing players in the market will determine the prices and the profitability of the industry. Myer Holdings Limited has numerous rivals of the retail industry in the market and there is extreme competition between them. However, the operations and the functioning of Myer is strong in the retail industry. Therefore, the rivalry has no long lasting impact on the profitability of the company and they do not suffer for a great period of time even when they are affected (Mason and WRLC 2016).
• Power of suppliers – The retail sector is such that almost every company in the retail industry purchases their raw materials from several suppliers. These suppliers find themselves in a dominant position from where they can increase the prices of the raw materials if they desire and this can decrease the margins that Myer gets from the market. The suppliers in the retail sector have huge bargaining power through which they earn more price from the companies in the field (Laudon and Traver 2013). Therefore, the high bargaining power of the customer in the retail industry decreases the profitability of Myer.
• Power of buyer – Myer has a small but powerful base of customers who have a lot of power over the company. The normal agenda of a buyer is to be demanding and extract the best possible products and services in the least price possible. This creates a great impact on Myer Holdings as this high bargaining power of their buyers affects their overall profitability in the long run (Fabbri and Klapper 2016). Hence, the small customer base of Myer Holdings have high power over the company, and they can pressurize the company to decrease the prices or demand more discounts or offers from them.
• Threat of substitutes – If there are products in the market which can satisfy the needs of the customers, then the industry profitability takes a great impact. The department store of Myer Holdings stocks a variety of products, however, their competitor, Harvey Norman becomes their substitutes as their products range is more cheaper and of better quality and they provide more discounts to their customers. Moreover, there are many discount stores who use the strategy of high-low discounts and try to increase their sales (Özer and Saldamli 2015).
• Threat of new entrants – The new entrants in the market put a lot of pressure on Myer and enables them to do new things. It also pressurizes them to lower their pricing strategy, reduce their costs and provide new propositions for value to the customers. Myer Holdings have been able to overcome these challenges and maintain their foothold in the market effectively (Marshall 2013).

After analysing the five forces of Myer Holdings Limited it has been found that the competitive rivalry and the threat of new entrants of the company is comparatively low, whereas, the threat of substitutes, the bargaining power of suppliers and the bargaining power of buyers is quite high. There are certain recommendations that could be put to effect for the powers that are high. To handle the high bargaining power of the suppliers Myer can build a supply chain where there are many suppliers so that they have more suppliers to choose from in case one increases their price. They could also research and experiment their products with different raw materials so that they can use other raw materials if the price of one goes up. To tackle the high bargaining power of the buyers, Myer could increase the base of customers that they currently possess. This could have two benefits, one where they could decrease the bargaining power of the buyer and second where they could increase the sales and production of the company. They could innovate new products as the buyers get attracted easily to new products in the market and this also decreases their bargaining power. To handle the threat of substitutes, Myer could concentrate more in the service that they shall provide to the customers, rather than just on the products. They should understand the needs of the customers than just what the customer purchases. Finally, they could also increase the cost of switching for the customers. These recommendations if adopted could help Myer to manage the high forces of the market. However, the forces which are low could also become high if they are not managed continuously. Hence, to keep forces such as competitive rivalry and threat of new entrants low there are certain recommendations that could be followed by Myer. To handle the growth in competitive rivalry among the existing competitors in the retail sector, Myer could collaborate with the competitors to grow the size of the market, rather than competing with each in a small market. They could also build sustainable differentiation among them and their customers. Finally, to tackle the threat of new entrants and to keep it low, Myer could innovate new products and services in the market so that it could attract new customers and could also retain the old ones by giving them a reason to stay loyal to Myer Holdings Limited. These are certain recommendations that could help Myer Holdings Limited to remain the best in the retail industry.

Conclusion

Hence, it can concluded from the above industry analysis that Myer Holdings Limited has a strong foothold in the market and could remain so for a long time if they are able to access the issues that are faced by them and if the managers of the company could shape the highs and lows of the forces in their favour. This analysis would help the company strategists to understand their stand in the market and hence, help them to form strategies which will increase the profitability in the retail industry. 

References:

Dälken, F., 2014. Are porter’s five competitive forces still applicable? a critical examination concerning the relevance for today’s business (Bachelor’s thesis, University of Twente).

1. Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Fabbri, D. and Klapper, L.F., 2016. Bargaining power and trade credit. Journal of Corporate Finance, 41, pp.66-80.

Laudon, K.C. and Traver, C.G., 2013. E-commerce. Pearson.

Marshall, S., 2013. Evaluating the strategic and leadership challenges of MOOCs. Journal of Online Learning and Teaching, 9(2), p.216.

Mason, R.B. and WRLC, C., 2016. Prepared by: Lead researcher: WJ Sewell, D Litt et Phil Research team: P Venter, CPUT.

Myer Holdings Limited, M., 2018. Myer Holdings Limited. [online] Myer Holdings Limited. Available at: https://www.investsmart.com.au/shares/asx-myr/myer-holdings-limited [Accessed 30 Jun. 2018].

Özer, K.O. and Saldamli, A., 2015. Evaluation of competition conditions in the hotel sector in Istanbul. International Review of Management and Marketing, 5(2), pp.102-107.

Porter, M. and Magretta, J., 2014. Strategy and Competition: The Porter Collection (3 Items). Harvard Business Review Press.

Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard Business Review, 92(11), pp.64-88.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

Tanwar, R., 2013. Porter’s generic competitive strategies. Journal of business and management, 15(1), pp.11-17.