Entry
Barriers to entry are relatively low in the fashion retail industry. Historically, acquiring property,
inventories, and a physical storefront was the biggest upfront cost and barrier for companies wishing
to enter into the brick-and-mortar apparel space. However, with the sizeable growth in e-commerce
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platforms and online retail this initial barrier is reduced, encouraging the entry of more competitors
and increasing competition. In addition to this relatively low capital requirement, workshops and
storefronts do not require highly skilled laborers. Despite this, economies of scale in production
impact entrants who will either accept a cost disadvantage or produce in large volumes. Entrants
wishing to compete on a greater, global scale face the highest barriers to entry. Competitors that
outsource manufacturing develop a broad network of suppliers over time, giving them a resource
that cannot be immediately copied by new entrants. Similarly, Inditex has spent decades perfecting
its integrated network, and a new competitor cannot duplicate this advantageous large-scale
integration, IT response structure, or distribution system upon entry. Moreover, Inditex and its
closest competitors have a high brand value that cannot be achieved immediately.
Lastly, the current global economic condition is a potential barrier to entry that must be
considered. During a recession, retailers offering low price points become more competitive, and
new entrants are more likely to hesitate. As the global economy moves out of the recession and
customers regain buying power, then the incentive to enter increases. Despite Inditex’s high
percentage of sales within its home Spanish market, the company’s low prices allowed it to remain
competitive during the downturn of the economy.