PESTEL Analysis of Abercrombie & Fitch: Assessing Environmental Impacts - Essay Sample

Conduct a PESTEL assessment for the Industry and provide an overall assessment of general environmental impacts on the industry.

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This is a framework that analyzes the macro-environment where businesses operate, including the political, social, economic, environmental, legal, technological and social factors affecting it. In the case study, Abercrombie & Fitch the first factor that affects the industry is the economic factors, and the performance of an economy determines the success of companies in the apparel industry (Matuschek et al., n.d.). Successful economies develop infrastructure that improves ease of doing business. Moreover, factors such as competition reduce the profitability of an industry. Abercrombie & Fitch operates in developed economies and it has access to business infrastructure. However, it also faces intense competition from firms such as GAP. Aeropostale Inc., and the American Eagle Outfitters. Intense industry competition reduces the profits by key industry players.

The social environment also affects the apparel industry and the target market's culture and social habits determine the success of firms. For instance, Abercrombie & Fitch faces negative publicity after the CEO publicly admitted that the company shuns fat people when developing clothes (Matuschek et al., n.d.). The remark caused adverse performance by the company. The third is the technological factor, and technology affects companies in the apparel industry. Such corporations need to invest in the latest technology that helps them to improve the efficiency and effectiveness of their operations. Abercrombie & Fitch possesses the financial muscle that is required to purchase in technology that will further its goals.

Political factors also affect the apparel industry, and companies that operate in politically-stable countries will likely attain their goals since they will face minimal political instability that may affect operations within the industry. Abercrombie & Fitch has invested in developed countries that are politically stable, which reduces the likelihood of political instability affecting business (Matuschek et al., n.d.). Additionally legal factors affect the apparel industry, and the laws and regulations within a country affect an organization's operations. Abercrombie & Fitch operates in developed countries with strong laws, and its operations will not be adversely affected unless it engages in illegal actions. Finally, environmental factors may impact operations in the apparel industry since consumers may prefer to purchase clothing that is manufactured in an eco-friendly way.

In conclusion, the main factors that affect the apparel industry and which may impact operations by Abercrombie & Fitch are the economic, social, and technological factors. The intense competition within the apparel industry and the strong consumer conviction on social issues such as equality may adversely affect the operations by Abercrombie & Fitch. Moreover, the company operates in developed countries with a solid legal infrastructure, strong economic growth, technological advancement, and a politically stable environment, and these factors will positively affect operations by Abercrombie & Fitch.

Describe the Major Driving Forces of the Industry. Provide an overall assessment of their combined impact on the industry.

These are the main factors that cause the underlying changes within the industry and they influence how the industry operates. The first major driving force is competition, and the intense competition within the apparel industry has enhanced competitiveness and reduced profitability for the key players. To attract new customers to the clothing products, companies are forced to invest in research and innovation so that they develop high quality clothing products which differentiate them from those of competitors. Moreover, intense competition within the apparel industry has motivated businesses to venture into emerging and new markets where there is less competition.

Another major driving force in the industry is marketing and advertising. In the competitive apparel industry, firms that gain an edge are those that are able to aggressively market their products to new and emerging target market segments. Companies such as Abercrombie & Fitch have taken advantage of the internet platform to advertise their products on social media and other e-commerce platforms (Matuschek et al., n.d.). Specifically, apparel firms that target millennial generations have developed aggressive market strategies that appeal to this market since it is the largest market segment after baby boomers.

The third industry driving force is innovation, and firms in the apparel industry need to conduct research and development to create new products that satisfy the changing needs of consumers in this industry. For instance, a company such as Abercrombie & Fitch has applied innovation to develop products such as Abercrombie Kids, which is a fashion line that targets children (Matuschek et al., n.d.). Companies in the apparel industry that do not use innovation to address the changing trends in the clothing market risk losing their market share as consumers will purchase products by their competitors.

The three factors discussed above have had the greatest impact and influence in the apparel industry. Among the three factors, competition bears the greatest weight as a key industry driver, as it has contributed to the emergence of the other factors. The increase in competition has facilitated the use of innovative ways of penetrating the market such as the use of innovation and an aggressive marketing strategy.

Identify & assess the strengths of the Industry's Competitive Forces and provide a summary of their impacts on current or potential industry participants.

There are five competitive forces that affect the industry based on Porter's Five Forces. The first is the threat of substitute, and this factor ranks high within the case study, The intense competition in the apparel industry has created many substitute clothing that consumers have access to. Firms should apply innovation and an effective marketing strategy to mitigate the threat of substitute products. The second factor is competitive rivalry, and this factor also ranks high in the industry. There is a strong competition from firms such as Abercrombie & Fitch, GAP and American Eagle Outfitters in the apparel industry (Matuschek et al., n.d.). Competition has reduced the market share that each corporation enjoys and it has inspired clothing companies to develop new and innovative products that will give them a competitive edge.

The third factor is the bargaining power of suppliers and it entails the influence that suppliers have in influencing the market products and prices. This factor ranks low in its impact within the industry. Since there are many suppliers of clothing products within the apparel industry, consumers have access to substitutes, which reduce supplier power in influencing the market prices. The fourth factor is the bargaining power of customers and this entails the influence that customers have in determining the market prices. This factor ranks high in the apparel industry. Consumers can access substitute products due to the high supply of clothing products within the industry, and this helps them influence the price that they would want to purchase clothes at.

The fifth factor is the threat of new entry and this factor ranks low in the industry. This is because there are many established global brands in the apparel industry that offer high competition. Moreover, the costs linked to starting a global clothing company are relatively high, especially since firms need to invest in technology and research and development required to develop competitive clothing products at affordable prices. The high market entry costs make it difficult for new players to enter the industry.

Based on the assessment of Porter's Five Forces, the main factors that rank high are the bargaining power of customers, the threat of substitutes, and competitive rivalry. The high competition in the apparel industry makes these factors rank high since consumers can dictate the market trends and prices due to the accessibility of substitute products. Moreover, suppliers have low influence in market prices, which makes their impact low in ranking. Additionally, the barriers to entry into the apparel industry also make the threat of new entrants low.

Identify and describe the Key Success Factors for the Industry. Rank the key success factors in terms of importance. Assign and justify any weights to be used in a Competitive Strength Assessment.

This section will assign the weight of key success factors based o their important in the apparel industry. In the competitive strengths assessment, the rank of '5' bears the most weight and portrays the most important critical success factors while a scale of '1' bears least weight and defines the least important critical success factors.

The first factor is innovation and this factor is ranked 5. To achieve success in the apparel industry, it is important for companies such as Abercrombie & Fitch to conduct market research and determine the changing market trends so that they can develop new and innovative clothes that satisfy the market needs. Innovation makes companies achieve competitive advantage and become industry leaders.

The second critical success factor is responsiveness to market needs, and this factor is ranked 4. The clothing industry is dynamic and firms in the apparel industry need to conduct regular market research and development so that they can adapt to the changing consumer preferences and develop clothes that satisfy the client needs. Responsiveness to the market is therefore essential to create clothes that consumers want depending on factors such as the current fashion and trends and seasons.

The third key success factor is the use of technology and this factor is also ranked 4. Technology is imperative in the apparel industry since it enable companies to develop clothing products efficiently and at lower costs. Most global firms in the apparel industry have heavily invested in technology since it gives them a competitive advantage. Through manufacturing clothes at cheaper prices, technology helps companies to sell products that are affordable to consumers.

The fifth factor is supply chain management and this factor is ranked 3 on the strength assessment scale. Supply chain management enables clothing companies to distribute their products in an efficient way to consumers. It also helps them to reduce the costs associated with distribution to ensure that customers from any part of the globe can access their products. Many apparel firms have invested in physical stores and online sales strategies when investing in their supply chain management.

Using a Strategic Group Map(s) identify & discuss the major "players," their strategies, and how the strategies differ.

The major players within the US apparel industry are Abercrombie & Fitch, GAP. Aeropostale Inc., and the American Eagle Outfitters. Nationally, 18% of the apparel sales in US are controlled by the ten largest firms (Matuschek et al., n.d.). Abercrombie & Fitch is a leading global brand that was founded in 1898 and some of its strategies include focus on kids' brands such as Abercrombie Kids, which sells children's products at low prices that are affordable to its target market of people aged between 7 and 14 years. The brand has steadily grown and currently develops sexy products that appeal to a niche audience. However, its discrimination of people who are considered unattractive, such...