1. Executive Summary
P r e s e n t e d b y J u l i e n K a n g
Apparel Industry February 2015
 3 different types of retail companies: wholesalers, department or specialty stores
 Largest players in the apparel and luxury goods industry: Ralph Lauren, VF Corp and PVH
Corp. (determined by their market cap, revenue, size of the firm, number of employees and
earnings per share)
 The apparel market in the United States represents more than $225b annually
 Key economics indicators of the industry: unemployment rate, disposable income, and
consumer confidence
 The average debt to common shareholder equity of the industry (based on Bloomberg) is
45.5%
 Data privacy has been a rising concern for people and several popular lawsuits have made it
harder for companies to gather data
 The treat of substitute is really high for the apparel industry

2. 1.0 Introduction........................................................................................................................... 3
1.1 History .........................................................................................................................................5
2.0 Business Model .....................................................................................................................5
2.1 Producers (3 Department Companies and 3 Branded Apparel Companies) .......................................7
3.0 Correlations to Economic Drivers.....................................................................................9
3.1 Correlation to Unemployment, Disposable Income, and Consumer Conf. .........................................9
3.2 Correlation to Average Change in Temperature and Cotton Prices.................................................11
3.3 Summary of Economic Factors.....................................................................................................12
4.0 Debt Structure.....................................................................................................................12
5.0 PESTEL ..................................................................................................................................13
5.1Political.......................................................................................................................................13
5.2Economic.....................................................................................................................................13
5.3 Social..........................................................................................................................................14
5.4 Technological..............................................................................................................................14
5.5 Ecological ...................................................................................................................................14
5.6 Legal ..........................................................................................................................................14
6.0 Porter’s Five Forces............................................................................................................15
6.1 Bargaining Power of Suppliers......................................................................................................15
6.2 Bargaining Power of Buyers.........................................................................................................15
6.3 Threat of Substitutes...................................................................................................................16
6.4 Threat of New Entrants ...............................................................................................................16
Conclusion ..................................................................................................................................17

3. Apparel Industry February 2015
1.0 Introduction
In a broad scope, the apparel industry is composed of two types of companies; designers and
those that source and market the designers. However, the industry is much more complex than
that. If we break down the companies that specialize in the design of apparels, it is divided into
luxury goods like Louis Vuitton, brands suited for lower to middle class consumers such as
H&M or multi-brand apparel companies like PVH Corp that sells multiple brands through own-
brand retailer or wholesalers.
On the other hand, we have companies that make their profits from sourcing designer brands,
which serves as a marketing tool for those brands. These retail companies are called wholesalers,
department or specialty stores. A branded apparel company can choose to outsource their
garments to retailers exactly like how Wal-Mart may sell different brand of goods, or sell their
goods directly through their own retail channels. Moreover, just like Wal-Mart with their “great-
value”, sourcing apparel companies can also have their own private label brands on top of selling
sourced brands.
I used my methodology illustrated below, to find the biggest players in the apparel industry
based on market cap, number of employees, revenue, same store sales %, number of locations
and price to tangible book value. The sales of garments of wholesale vs direct to consumer are
73.1% and 25.1% therefore, I’ve made two divisions of biggest players; the department stores
and designer brands in order to reflect the largest players in sourcing brands as well as the
leading designer brands.
Consumer
Discretionary
Textiles
apparel &
luxury goods
Apparel
Accessories &
luxury goods
Footwear Textiles
Retailing
Distributors
Multiline
Retail
Department
Stores
Specialty
Retail
Apparel Retail

4. The tree diagram above includes retailing, department store found from the branches of the
Global Industry Classification Standard (GICS) that I’ve selected to allow me to find the most
influential companies in the department stores sector.
Market Cap Revenue # of
Employees
Price to
Tangible
book value
SSS % # of
Locations
TJX Cos Inc. TJX Cos Inc. TJX Cos Inc. Macy’s Inc. Foot Locker
Inc.
Foot Locker
Inc.
L Brands Inc. Kohls Corp Ross Stores
Inc.
Nordstrom
Inc.
Stage Stores
Inc
TJX Cos Inc.
Ross Stores
Inc.
L Brands Inc. Kohls Corp Dillards Inc. Ross Stores
Inc.
L Brands Inc.
Now, let’s look at the biggest players using a tree diagram that only includes the designer brands
and excluding the entire retail side of the GICS.
This gives us a completely different set of results (Note the same store location has been taken
off for branded apparel because they have an average of negative same store sales %).
Market Cap Revenue # of Employees Price to
Tangible book
value
# of Locations
Michael Kors Ralph Lauren
Cor
Hanesbrands Inc. Kate Spade & Co Coach Inc.
Hanesbrands Inc. Hanesbrands Inc. Ralph Lauren
Cor
VF Corp Carter’s Inc.
Ralph Lauren
Cor
Coach Inc. Fossil Group Inc. Carter’s Inc. Michael Kors.
Consumer
Discretionary
Textiles,
Apparel &
Luxury goods
Apparel
Accessories&
Luxury Goods
Footwear Textiles

5. 1.1 History
Before the 1830s, most of the clothes worn by individuals were either custom made by tailors or
homemade. If you’ve ever watched a movie in the 1800s for example, you’ll notice that the
clothing people wore at the time were very similar to one another. Indeed the variety of apparels
available in the market at that time was very little because the tailors made very standardized
styles of clothing. Then, the military ready-made clothes were used as an example of efficient
and rapid production of clothes and so the apparel industry was born. Today, people have the
freedom to choose their own unique styles of outfits. In the 1970-90s, because of the decline in
employment, wages and other factors, the American garment industry declined dramatically,
almost to a point of disappearance. Thanks to the International trade agreements and North
America Free Trade Agreement, the industry thrived once again due to lower tariffs, quotas and
imported goods, making imported textiles a lot cheaper. Additionally, over the past decade the
margins of branded apparel companies improved significantly as clothing costs declined due to
the textile industry moving to China. On top of that, the Chinese government has recently
stopped its price floor policy on the production of cottons, the most popular raw material used in
the apparel industry, improving the margins of companies even further.
The largest players in the apparel and luxury goods industry are Ralph Lauren, VF Corp and
PVH Corp. These companies are largest in terms of market cap, revenue, size of the firm
(counted by number of employees) and earnings per share. The apparel market in the United
States is more than $225b. To give some perspective on its size, the popular fast food industry in
the US is only $191b. The per capita expenditure on apparels in the U.S is $686, which is the
fourth highest worldwide next to Japan, Canada and Australia in first place. This number is
expected to increase by more than 50% in the next 13 years.
2.0 Business Model
Each company has their own and unique business models, but we can find a line of consistency
between them. Here, we use Zara as a standard example of how apparel companies typically
operate. It should be noted however that Zara is the world’s biggest apparel company and not all
companies have the luxury of having some of Zara’s activities, such as having in-house
manufacturing or highly sophisticated logistics. Furthermore, Zara’s business model is aimed at
producing in style fashion clothing that are affordable and trendy while as luxury/designer
brands such as Louis Vuitton for example, aim for a higher class of consumers. These two types
of companies would also have variations in their operations, mainly in the design and fashion
forecasting. Zara, H&M and forever21 are considered as a fast fashion brand which means that

6. they bring the latest styles from runaway fashion shows to their stores. It takes an average of 18
days for Zara to move a design sketch to store shelves compared to the average 8months to a
year for an average apparel company. Indeed, Zara leads a world example of ready-fashion; they
are trend followers and adapters and less as trend leaders.
The heart of a product starts at the design. Apparel companies have a creative team responsible
for the design, sourcing and product development. Successful apparel companies need to be
following and even leading trends with their seasonal collections. In order to have products
aligned with hot fashion trends, designers use fashion forecasting, that’s why apparel companies
send their designers and employees to runway fashion shows such as the popular NewYork
fashion week. During a fashion week, top designers for luxury brands show their newest
collections of adult, teen and even kids’ apparel for the audience to interpret. This in turn gives
trend followers an idea of the hottest trends in the current and/or upcoming season. However,
fashion is very ambiguous and up for interpretation, making it very risky to rely solely on a
couple designers to lead. A lot of adaptations to trends are made from information that can be
gathered through information technology, but often times, it can also be done informally through
conversations with store managers and discuss their observations. Store managers can find
tendency in colors, textiles and seasonal preferences. Gathering the data from many store
managers can give relevant insights on the current and forward trend as well as adapting to it.
Trend-spotters also find their information through T.V, magazines, newest films or even go to
University campuses.
After the creative team have an idea of the styles they want to create, they select and assemble
the fabric, colors, materials, and many other components needed in order sketch the product. For
Zara, this process is a lot more rapid than smaller companies as many materials can be insourced.
For smaller companies, out-sourcing of all materials is required for production. (This is one of
the fundamental success factors for Zara; because of the rapidity of their production, the latest
trends come to the market first).
The advantages in the manufacturing process are the same for big companies; in-house
manufacturing permits for more rapid production, leading to first-hand market exposure of hot
trends. On the other hand, smaller companies have to outsource their production, making their
apparels more costly and slow to produce. However, even for Zara, some manufactured garments
have to be sent out to out-sourced labour intensive workshops because cheap labour is too
competitive. Once the designs are finalized, only few carefully selected ones are sold in key store
locations. Then, after examining the rate of purchases of each item and opinions of customers,
they can finally conclude whether an item is ready to be produced and sold on a larger scale or if
it should be taken back.
The entire process from design to production would not have been possible without the logistics
of the activities. It takes an average of 8 months up to a year for apparel companies to go from
designing a new style to having it in store shelves. The longer the time, the more the risk of

7. having the style not in trend anymore, therefore having to either restart new designs or sell them
at discount.
2.1 Producers (3 Department Companies and 3 Branded Apparel Companies)
Company RelevantFactor Competitive Advantage Other Comments
TJX
Market Cap: 47.24b
Revenue:29.08b
# of Employees: 191k
# of Locations:3.4k
Price to Tang: 11.98
SSS %:4
The size of TJXallows them
to leverage theircostsby
havingstrongpowerover
theirsupplier.
Market expectshighgrowth
potential forTJXand itscurrent
P/E ischeapcomparedto its
comparables.
FootLocker
Market Cap: 8.71b
Revenue:7.15b
# of Employees: 14k
# of Locations:3.5k
Price to Tang: 3.73
SSS %:10.20
In the lastyear,theyhave
closed (50),opened (86)
and remodelled (319) a lot
of theirstores. Indeed,
Footlockereffectively
managestheirgreat
numberof locations.
Rise in yoy% comparable salesin
the Q4 suggestsarise or
conservative trendinbasketball
and runningshoestrend.
(Footlocker’sofferingof garment
isaimedat youngsports
amateur,especiallythe
basketball ones).Nikeand
Footlockerhasa reallyhigh
correlation,one of the most
significantone inretail.This
mightbe explainedby the similar
segmentof customersthatthey
aimat. Finally,Footlocker
recentlyhita 52 weekshigh.
Ross
Stores
Market Cap: 21.97b
Revenue:11.04b
# of Employees: 66k
# of Locations:1.36k
Price to Tang: --
SSS %:6.00
“Ross Dressfor Less”
alignedwithitsDD
(discounted stores) isa
strongmotto that attracts
low to midclassconsumers
that lookforhigherend
apparel fordiscounted
price.
One of the strongestdividend
growths;has beenconsistently
growingsince 1995.
Dividendstripledsince 2010

8. Hanesbrands
Inc.
Market Cap: 12.93b
Revenue:5.32b
# of Employees:60k
# of Locations:250
Price to Tang: --
Offerslarge varietyof
clothingrangingfrom
stylishapparel torecently
specializinginsportswear.
Hit an all time highof $32.48.
Theyhave successfullyacquired
twowell-known companiesand
have announcedthe acquisition
of anotherone (Maidenform),to
drive growth.Theyare coming
out withnew productssuchas
flexiblefit.Ithinkthisistoadjust
to the “healthylife-style”yoga
trendespeciallybecause of the
decliningrate of bottomwear
(jeans) thisyear.
MichaelKors
Market Cap: 12.99b
Revenue:4.21b
# of Employees:9k
# of Locations:703
Price to Tang: 6.32
Understandsthatthe
marketof “HENRY” (High
EarnersNot Rich Yet) is
growing;youngadultsthat
aren’trich butspendsa lot
on luxurygoods.Their
productsare focusedon
luxuriousbutaffordable
goods.Michael Kors,the
mastermindof design,is
verytalented.
People believe thatMichael
Kors’sgrowthis onlya short-
termtrendand will eventually
die soonjustlike the 90’s Tommy
Hilfigerorthe case of Kate
Spade.Recentreportshave
supportedthisbyshowingthat
the trafficof Michael Korson the
internetisslowlydecreasingyear
by year.
RalphLauren
Market Cap: 11.18b
Revenue:7.60b
# of Employees:23k
# of Locations:470
Price to Tang: 3.86
Has had a strong history
attachedto itsbrand thus
havingstrongbrand
loyalty.Theyare currently
sellingtheirgarmentsat
discountscomparedtothe
otheryearsbut itis giving
thema strong margin.They
alsohave otherstrong lines
of clothingsuchas Club
Monaco that is makinga
global presence.
Currentlyinvestorsare bearish
on the stock.The companyhas
one of the largestinternational
exposures thereforeexposing
themto currencyexchange risk
as well asthe rise of labourwage
inChina. Currently,the dollaris
extremelystrong,makingitmore
costlyfor RL to exporttheir
garmentsinChina.
Coach Inc. Market Cap: 11.15b
Revenue:4.49b
# of Employees:7k
# of Locations:1.02k
Price to Tang: 5.05
Specializesinleather
handbag(61% of sales).
Restof salesare from
womenaccessories.Their
turnaroundstrategyseems
to be doinggoodas
JPMorgan gave positive
commentsfollowinga
meeting.Theirgrowth
recipe isfocusedswitching
fromaccessoryto global
lifestyle brand,raising
brand awarenessinEurope
Currentlyinthe processof
acquiringa footwearcompany –
Stuart Weitzman(willbe settled
inMay 2015). The companyis
not publiclytradedbutitis a
“footweargiant”.Itappearsthat
theirmainoperationis e-
commerce that shipsacross80
countries.

9. and Asiaandoptingfor a
more moderndesign.
Lululemon
Ath
Market Cap: 8.80b
Revenue:1.72b
# of Employees: 8k
# of Locations:289
Price to Tang: 7.80
Seenasa brandthat
promoteshealthychoices
such as eatinghealthy,
exercising,etc.Thisinturn
makesconsumerbelieve
that buyingtheirproductis
a brightdecisionif they
wantto start beingactive.
Great inpromotingactive
lifestyle.Theirbiggest
competitiveadvantage isintheir
marketingtoolssuchas giving
free yogaclasses,culinary
classes,encouragingemployees
to a fitlifestyle,etc.
Macy’s Inc Market Cap: 21.74b
Revenue:28.10b
# of Employees:173k
# of Locations:825
Price to Tang: 18.87
SSS %:2
Highlydiversified;sells
men,women,children
apparel andaccessories.
Alsosellscosmeticshome
furnishingandother
consumergoods.
Claimstobe worldpremieromni-
channel retailer.That’sthe
evolutionof multi-channel
retailingbecause itevolvedwith
mobile ande-commerce.
Kohls Corp Market Cap: 15.01b
Revenue:19.02b
# of Employees:31k
# of Locations:1.16k
Price to Tang: --
SSS %:3.7
Familyoriented,middle
income customers.Offers
theirowncreditcards and
are omni-channel aswell.
DirectcompetitortoMacy’s,
same businessmodel.
3.0 Correlations to Economic Drivers
Correlations and economic drivers of the apparel industry will provide insights on the key factors
that cause changes in the market. Most popular economic elements are GDP, jobless claims,
unemployment, CPI index, housing starts, retail sales, oil prices, corn prices, gold price, etc.
However, for the apparel industry not all of these will be relevant, thus this analysis is based only
on factors that are believed to have a strong impact on this industry. Numbers for this section
have been extracted from a Bloomberg terminal.
Here is a list of key economic data that have been relevant to the apparel industry in the past:
 Consumer Confidence - Cotton Prices
 Unemployment Rate - Disposable Income
 Average Temperature
3.1 Correlation to Unemployment, Disposable Income, and Consumer Conf.

10. The apparel industry constitute mostly of non-essential goods since consumers typically buy
extra clothing or accessories items only when they have spare disposable income. Accordingly,
most of the revenue from that industry is derive from non-necessary purchases and not from the
basic needs of the customers, so unemployment rate should have a strong negative correlation
with the apparel industry. Indeed, after performing a regression analysis of the unemployment
rate in the US and the ETF, we can observe a correlation coefficient of –0.88, which confirms
our argument; when unemployment increase sales in the apparel industry decrease. This
relationship is logical since the last thing unemployed people think about is to purchase apparel,
as they have to pay for fundamental needs such as rent and food. All in all, the unemployment
rate vastly impacts the apparel industry; a slight increase of unemployment can mean that
millions of consumers will stop purchasing apparels until they find a job, resulting in millions of
dollars of loss in revenue, which is not recoverable in later years.
Disposable income is calculated by subtracting personal income tax payment from personal
income. In other words, it is what the consumers have left in their hands to either spend or save.
In its nature, the more money consumers have, the more they will spend and a portion of that will
definitely be used to buy apparel goods. This claim is supported by the result of the regression
analysis performed on disposable income and apparel ETF that yields a correlation coefficient of
0.59. Moreover, when the disposable income is high, consumers have more money to spend on
non-essential goods. It is also important to note that the effect of a change in disposable income
on revenue of apparel stores will not be the same for all of them. For instance, having more
money to spend will not result in higher sales for lower class brand such as 725 (Wal-Mart
clothing line). When lower class disposable income grows, like we concluded before, they will
spend more money on apparel, however it is also very likely that they will change their
preferences and visit new stores. Therefore, overall, as the disposable income of US citizens
increases, the sales of apparel industry will follow the same trend.
-10%
-5%
0%
5%
10%
15%
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Unemployment Rate Correlation
S&P
Growth %
ETF Growth
%
Unemp
Growth %
-8%
-3%
2%
7%
12%
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Disposable Income Correlation
S&P Growth %
ETF Growth %

11. Consumer Confidence: This indicator looks at the outlook that consumers have on the overall
economy. In principle, if consumers believe that the future of the economy is bright, they will
perceive their jobs as more stable, as a result they are more propelled to spend their current
disposable income instead of saving that money for an uncertain future. Contrarily, if they have a
bearish view of the market, consumers will spend less on goods, as they fear the loss of their jobs
and they will want to save more. However, this economic indicator is considered to be lagging
since most of the time it will take some time for the consumers to adapt to forecast about the
economy and they do not always have perfect information about the future of the market. This
explains why apparels companies often use the consumer confidence index as one of many
indicators to forecast their sales. All in all, a high consumer confidence will lead to more
spending in apparel industry.
3.2 Correlation to Average Change in Temperature and Cotton Prices
While doing some research on Bloomberg it appears that the average change in temperature
should be correlated to the apparel industry in North America. For example, a yoy drop in
temperature of 2 degree Celsius in November, dramatically increased the outerwear sales by
20%. Therefore, here we look at the average decrease or increase in temperature for a season
and the change in sales of overall apparel. The result of the regression test ran through excel
were not as conclusive as we thought they would be at first, having a low correlation coefficient
of 0.27 with the ETF. In this analysis, we look at absolute change in temperature, because any
variation will create a desire for the consumer to buy new apparels. For example, during longer
summer, women will buy more dresses and accessories. In contrast, if a winter is colder people
will buy more winter jacket. The two examples here explain why the correlation of the change in
temperature did not result in a high correlation with the apparel industry; the increase in one and
decrease in the other one may almost offset each other sometimes. Thus, the weather will affect
the revenue of individual stores, but not the overall revenue of the industry, since temperature
changes will shift consumption from one type of clothes to another.
There was a price floor for cotton in china, which has been removed recently. Since the raw
material the most used in the apparel industry is indeed cotton, we expect that this change in
regulation will have an effect on the revenue of the industry. First, the purpose of a price floor is
-10%
-5%
0%
5%
10%
15%
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Consumer Confidence Correlation
S&P Growth %
ETF Growth %
Cons. Conf.

12. to regulate the sale of a commodity for producers to a minimum price. The results of the
regression analysis was a correlation coefficient of -0.49, which would mean that as the price of
cotton decreases the apparel industry is doing better. Indeed, this relationship makes sense, if the
retailers or wholesalers did not pass on the economy to the consumers. For example, when it
costs less to buy cotton, which is the raw material of many clothes, then the profitability of the
industry will be greater, thus leading in a higher price for the ETF of apparel industry.
3.3 Summary of Economic Factors
4.0 Debt Structure
The average debt to common shareholder equity of the industry (based on Bloomberg) is 45.5%
Companies Debt to Equity
TJX 38.1%
Macy’s 136.5%
Footlocker 5.4%
Ross Store 17.5%
Hanesbrand 143%
Michael Kors --
Coach 5.8%

13. Ralph Lauren 7.4%
Lululemon --
Kate Spade 205.8%
Kohl’s Corp 79.5%
Average 58.1%
Companies Interest Rate Debt Interest Rate Paid:
(Int. Rate * Debt)
Comment
TJX 4.5% $1.6B 7.1M
Michael Kors -- 0 400k No long-term debts
Coach -- 0 0 Repaid all debts and
stopped issuing more
Ralph Lauren 3.453% $555M $19.1M
Lululemon -- 0 0
Macy’s 1.34 $7.3B $7.2
5.0 PESTEL
5.1Political
A 2014 KPMG survey on large apparel company executives reveal that the majority are worried
about the US health care reform but no further details have been published as to why. The
Obamacare that has been established since 2010 is aimed to ease the rough health care system
that the US has predominantly been known with; many US citizens could not afford basic health
care and it is one of the leading cause of bankruptcy. One of the actions the reform would like to
initiate is to strengthen the employee health care benefits. This would in turn give rise to labour
costs, which is especially important for apparel companies because it is labour intensive.
Other political factors that may influence the industry is the rising concern on unethical practices
such as child labour and sweat shops that have predominantly existed and thus given rise to more
scrutiny. Finally, companies must also be aware of all the different political differences across
the international countries in which they operate.
5.2Economic
The apparel industry report of 2014 from KPMG also revealed that the majority of top
executives in the industry are optimist about the future of the economy. As mentioned before in
the correlation segment of the report, when the outlook of the economy is good the forecast of
sales for retails store is also very likely to be positive. This is true since a positive view of the
future of the economic of a country generally means that the unemployment rate will decrease or

14. stay low, job will be more stable thus more disposable income, and finally consumer confidence
in the market will be high.
5.3 Social
Today, consumers are the leaders of how the apparel industry is being shaped. Because of
stronger data literacy and more sophisticated IT to gather data, companies are using more and
more information about people to shape their strategies on branding, pricing, and expanding. All
in all, changes in socio-economic and cultural trends can impact the industry immensely.
5.4 Technological
Since cloud technology has been introduced to the market, the entire world has been
revolutionized. Cloud has proven to be especially useful for apparel companies in terms of cost
saving, transparency in the data, enable executive to find trends with more ease, and many more
perks. In my opinion, technology is what affects the industry the most because we live in the
digital age after all. For example, there is a significant correlation between the size of screens on
tablets and phones to the number of online sales made by consumers. Moreover, companies are
investing significantly amount of resources for their online presence.
Technologies allow stores to sell their merchandise on a global scale within the click of a mouse.
The busiest day for retailers is the black Friday; the day retailers they make the most revenue by
selling a variety of discounted items. This phenomenon was mostly a US one up until recently,
now even online retailers such as Amazon are participating in it. Furthermore, there is a large
opportunity to improve as a survey reveal that consumers believe the average data literacy is
below average.
5.5 Ecological
Because of the rise of environmental awareness, there have been initiatives in the apparel
industry to market their garments as being made with “green efforts”. However, popular surveys
reveal that most consumers are indifferent as to whether or not the apparels they purchase are
environmentally friendly or not; they would not pay more to be more “green”
5.6 Legal
A big dilemma for apparel companies is that they rely a lot on gathering data to get insights on
how to better manage their firm. However, data privacy has been a rising concern and several
popular lawsuits have made it harder for companies to gather data.

15. 6.0 Porter’s Five Forces
6.1 Bargaining Power of Suppliers
The bargaining power of suppliers for the apparel industry appears to be low. This is mostly due
to the fact that there are many new designs from year to year, which make a pool of unique
products that need to be outsourced by different manufacturers. Moreover, the fashion is an
industry that is always on the move, so to remain competitive apparel retailers must design the
trendiest items, which may not necessarily have the same textiles as other designs. Additionally,
apparel retailers usually have different merchandises in order to attract as many consumers as
possible. For example, they may be selling leather products as well as line products to appeal to
the different taste of their clients.
Many apparel companies have standard signature materials, which is contained in a lot of
products, like J.Crew’s famous signature cashmere wool imported from Italy. However, many
small components of the item may still have to be purchase from other suppliers. Therefore,
apparel retailers have a significantly larger pool of manufacturers that produce the material for
their products and also ever since the globalisation of markets around the world, retailers can
easily import products they need from the cheapest country. For example, for a big name such as
Ralph Lauren, they do business with more than 700 different manufacturers across the world. All
in all, we can confidently assess that bargaining power of suppliers of the apparel industry is low.
6.2 Bargaining Power of Buyers
The bargaining power of buyers is divided into two categories: end customer and intermediate
customer - wholesalers in this case. First, the power of end customers is moderate to high
because they mostly buy in very small quantity, however, companies can have a difficult time
differentiating themselves from similar retailers; thus low switching cost enhances the power of
customers. Furthermore,
Bargaining
Power of
Suppliers
Threat of
Substitutes
Threat of
New
Entrants
Bargaining
Power of
Buyers

16. Secondly, the bargaining power of wholesalers is moderate since several of the names in the
apparel industry rely part of their sales on wholesalers. For example, Macy’s a well known
wholesaler in the US retails and sells brands like Ralph Lauren or Michael Kors. When
wholesaler are selling such famous brands with high leveraging power, they might not have as
much power as when they retail less popular brand or brand that don’t have their own store such
as Jessica Simpson’s clothing line. If the wholesaler is not pleased with the prices, they can
easily switch to another brand or a private label.
6.3 Threat of Substitutes
Apparel industry in the US represents $225b annually, which is massive and so is the
competition. One single negative trait on a product can make the difference between buying it or
buying a similar product from a competitor.
In today’s world, social media constitute a dangerous voice for unhappy consumer. For instance,
one small complaint from a celebrity on twitter can deteriorate a brand’s name, which in turn
results in a decrease of sales. In addition to that, the switching cost is low as there is almost no
cost in switching from one brand to another. The only power that apparel companies can use to
prevent consumers from changing brand is loyalty points.
Higher up luxury brands such as Louis Vuitton or Burberry suffers greatly of the threat of
substitutes due to the billion-dollar industry of counterfeit products. Here it is important to note
that the consumers that are willing or have the money to buy Louis Vuitton are not the one who
will buy the fake products, but they might not find it as attractive as before to wear that brand
because of the loss in perceived exclusivity. Moreover, the volatility in taste can also affect the
threat of substitutes if one brand is not able to keep up with the trend of the industry. Each
season, apparel companies release their collections and if they did not predict the fashion trend
well enough, a customer can easily switch to another brand that did. Therefore, the threat of
substitute is high for retailers of apparel.
6.4 Threat of New Entrants
The threat of new entrants is moderate. The capital needed to invest to create a brand and market
is relatively high and the investor must have certain skills and an eye for fashion, creativity and
understand what customers want. However, today the retail world is changing as the proportion
of apparel sales that are performed through a website is forever increasing. These are often called
online store and sometime they do not have a physical location to sell their products which
decreases their cost. Therefore, this intensify the threat of new entrants since building a website
does not require high capital and the risk of loss if they fail to market their apparels is limited to
the product itself. Simply ordering a small quantity of a t-shirt, try to sell them, and observe how
the market react gives the opportunity to more people than before to enter this industry.

17. Having said that, apparels are very dependent on brand loyalty. The recognition and loyalty that
people develop towards a brand are the main factors that attract middle-to-high income earners to
buy luxury goods such as Lacoste. It will be difficult for a new player to achieve brand
recognition without significant investments of money and time. Therefore, after considering all
the factors mentioned above we can strongly conclude that the threat of new entrant is moderate.
Conclusion
The Apparel, textile and luxury goods companies have many players that play a role in making
the goods. That’s because the flowchart on how to make apparels goods extends from fashion
forecast to designing/sketching, sizing, sampling, cutting & sewing, assembling, coloring and
folding. Since many of the components of apparel products vary on the season and fashion trend,
companies typically outsource most of their components to hundreds of different manufacturing
companies oversea to save cost. However, those that manages to have a vertically integrated
system i.e manufactures their own raw material, can deliver the newest fashion items which
gives them in advantage in early market share exposure. The largest players in the apparel
industry are holding companies such as VF corp for example, that owns many brands including
North Face, Jansport, Vans and up to 20 more. However, aside from large holdings corporations,
the biggest single product brands are Nike, Ralph Lauren, Michael Kors, Gap, Lululemon and
Kate Spade based on Market Cap, Same Store Sale and Revenue. Although the materials of each
brands can be unique, the most commonly used raw material is cotton and the largest producers
of cotton is China.
The biggest factors affecting the industry are Consumer Confidence, Disposable Income and
Unemployment rates, they have all been screen from a pool or other deciding factors based on
the highest correlations.