Strategic Management Analyse Home Retail industry using PESTEL, scenarios, 5 forces and strategic groups. October 11 of 2012 London, UK Introduction Retail stores, are one of the biggest and largest businesses around the world. They produce thousands of hundreds in revenues and they are some of the biggest employers industries. WALL-MART, IKEA, TESCO, ARGOS, MACYS, WALLGREENS and OFICCE DEPOT are some of the well-known retail stores that supply us every day with different kind of goods and services. For a better understanding, one of the main definitions of retail is: “… tore commonly a shop or stall for the retail sale of commodities, but also a place where wholesale supplies are kept, exhibited, or sold…” What this means is that these stores represent the last stop of a product in what is known as “supply chain”. Thanks to globalization and new technology such as internet, one of the biggest communication systems in the world, retailing has become easier. It has allowed the creation of new products as well as the expansion of small manufacturing companies. Indeed, globalization and technology have permitted the growth of different markets that supply these retail stores.
Home retail has been another big and successful market in this huge industry. This market is the main topic for this writing and for analysing and understanding its environment, we will help us using several frames such as: PESTEL, Scenarios, Porter 5 forces and strategic groups. Finally, we can extract some conclusions depending on the results that these frames show us. PESTEL Political * Government decision of changing analogue TV to digital TV. | Economic * High bank rates. * EU recession. * Unemployment. * Inflation rates. * High fuel price. Social * Easier shopping for costumers with disability. * Old people Internet access. * People migration. | Technological * On the way purchases. * Smartphones. | Environmental * Reduce of CO2 emissions. * Reduce amount of resources used on working operations. | Legal * High manpower rates. * High taxes. | Table 1: PESTEL framework categorise environmental influence into six main types: Political, Economic, social, technological, environmental and legal. * Political factors The political environment is always going to affect variables in any industry, company or market.
For the home retail industry, the decision of the government to change the old TV system in the country to the new digital TV system was an advantage. People needed to change their old TV and buy a new one, or update their TV systems for using it. This increased the production of TV? s as well as the sales of them through this channel. * Economic factors Even though the UK doesn? t not share the euro, that doesn? t mean the financial crisis in this sector does not affect the internal economy. Stock exchange rates and import and exports decrease significantly affecting most of the internal markets.
As a consequence, unemployment increases affecting purchasing power of families. For controlling inflation, banks need to increase their rates so costumers reduce their purchases affecting directly the industry in a reduction in sales. On the other hand, a high fuel price increases freight traffic of products making them more expensive. * Social factors Internet is a power weapon for most industries. On one hand it makes it easer for people with disabilities for buying their products but on the other hand, it does not consider the elderly who may not know how to use this new technology.
The UK is one of the most international countries in the world and every year receives thousands of new people. For the home retail industry these are potential costumers who need to supply necessities with their new homes. * Technological factors One of the new developments that smartphones and the internet have brought are the “on the way purchases. ” Now with applications on smartphones phones, people can see during their free times what? s new or something they need or just browse for new purchases. This happens just with one click and the costumer can pick up an item at any branch on his way or send it directly to his home. Environmental factors With the global warming problem and the over contamination in cities, industries have to pay more attention to their ways of producing products due to the increase of CO2 emissions. In addition, companies need to be aware of the amount of resources used day-by-day in their “in side” operations such as the excess of paper and garbage recycle. * Legal factors VAT, (value added tax) in the UK is one of the highest in the world. It? s around 17,5% and in most retail shops it must be included in the value shown to the costumer. This is one of the main reasons why products are more expensive and affect costumer purchases.
On the contrary, labor laws are very strict with companies in the UK what makes them reduce the employment due to high rates. As a consequence, companies prefer to hire low-skilled people that have some experience, as it is cheaper, than giving the opportunity to high-skilled and inexperienced people. With out a thought, the home retail industry must be aware in its massive production because somehow, those new products they sell, will get damaged or become old and useless increasing the amount of garbage and wastes. Each day, people are becoming aware of this and like companies that are socially and environmentally responsible.
These issues must be the key driver for change. Scenarios | High market consciousness | Low market consciousness| Rapid enterprise change | Reduce contamination levels. | Different ideas may not help reducing contamination levels and there might be customer loss. | Slow enterprise change | Company may lose its potential costumers, as they are not working with environmental and social consciousness. | Environmental levels will increase substantially. | Table 2: Scenario framework analyse business environment and its uncertainty variables, either for rapid change or complexity. Forces * Potential Entrants “…Are the factors that need to be overcome by new entrants if they are to compete in an industry…” Home retail in the UK is very big, developed and competitive industry. It has well-known companies that are recognized for style, price, and costumer services. A new competitor can get easily to the market competing with better services, design products and price. But economic and legal aspects may be a reason for potential entrants to refrain to enter into the UK market as it represents a fairly large investment.
Potential entrants need to penetrate into the market with a new kind of service or product. Example: Argos use catalogues to make sales through the market. IKEA, is known for selling ready-to-ensemble products. * Substitutes Most of the home products are essential for having a good life style. For example, there is no substitute for: a sheet, a pillow, a blanket, a desk, lamp etc. , and the same store will offer any kind of product in large scale of models. The “substitution” here will be rather in price or style than other competitor can offer. * Buyers “Buyers are the organization? immediate customers, not necessarily the ultimate costumer. ” For example, most of the retail shops such as Argos, Ikea or Habitat are the last costumer for a pillow producer company. These companies produce in large scales and need to sale the entire product through these main and well-known channels. These distributing channels have the power of negotiation and have the ability of switching between on supplier and other when ever the price or negotiation is too high. However, their final buyers that are thousands of costumers will look for the best deal, price, service and designed product.
A change in any of these variables will easily modify a costumer’s decision, switching to other retail who will satisfy their requirements. This effect is known in economy as demand elasticity. * Suppliers “…Are those who supply the organisation with what it needs to produce the product or service…” Home retail stores try to reduce the supply chain to its minimum expression for getting the better price and offering the best deals in the market. Much of them try to produce their own products, creating a new brand and competing with those that as well supply them. Competitors Rivalry “…These are organizations with similar products and services aimed at the same costumers group…” Companies that works in a very competitive market need to offer different kind of service that offer value to the costumer making it unique. These are some of the companies who work in the home retail industry and each of them have a different way of selling and products: Ikea: “…is a Swedish privately held, international home products company that designs and sells ready-to-assemble furniture such as beds, chairs, desks, appliances and home accessories.
The company is the world’s largest furniture retailer founded in Sweden in 1943…” Argos: “…is a catalogue merchant based in the United Kingdom and Ireland. With over 800 stores, it is the largest general-goods retailer in the UK…” Wilkinson: “…is a British high-street discount chain with over 300 stores, selling primarily homewares and household goods founded in 1930…” BoConcept: “…BoConcept is the brand name of Denmark’s most global retail furniture chain with 295 sales units in 58 countries around the world. [It is known for its high design, quality and style products]…” Strategic groups
Graph 1: shows the strategic group in UK for the retail home industry depending on their product design and their prices. HIGH HIGH -IKEA -BHS -DFS -IKEA -BHS -DFS -Harrods -Selfridges -Bo Concept -John Lewis -Harrods -Selfridges -Bo Concept -John Lewis DESIGN DESIGN -Home Base -Habitat -Wilkinson -Home Base -Habitat -Wilkinson -ARGOS -B & Q house -Homebargains -ARGOS -B & Q house -Homebargains LOW LOW HIGH HIGH LOW LOW PRICE PRICE “Strategic groups are organizations within an industry or sector with similar strategic characteristics, following similar strategic or competing on similar bases. Probably two main variables that may affect this industry are price and design. The more is the design, the higher is the price. We organized into four main groups depending on the products they offer and the market they are focused on. As the price and the design are higher, the market and its costumers are different. Home retail industry is conformed by many companies that make it highly competitive and is easily for costumers for shop between one and other. Conclusion | Strengths (S) * Products are not readily substitutable. Weaknesses (W) * High levels of contamination. | Opportunities (O) * Big, strong and well-known communication channel. | SO Strategic OptionsCostumers need different home products for a better lifestyle that are difficult to substitute and the best choice for buying them are the different home retails. | WO Strategic optionsPeople consume more and more each day which leads to more and more contamination| Threats (T) * Really competitive market. | ST Strategic OptionsThis industry is a high competitive market.
Costumers can’t supply on product by another one but they can change where to buy it. | WT Strategic OptionsFor having a competitive advantage, companies need to reduce levels of contamination what attracts costumers. | Table 3: Shows a SWOT analysis showing the strengths, weaknesses, opportunities and threats of the UK home retail environment. The SWOT analysis helps us getting some conclusions of all the different frameworks used above. As an opportunity we have identify that companies who work in this market are a big, strong and well-known communication channel.
Not only because they attract new costumers each day, but also because they are the best way in which a producer or a supplier can sell their products. In this market products are not easily substitutable and that is way this issue becomes strength. Costumers can’t supply a pillow, a sheet or a lamp with anything else and the best and affordable choice for buying them are this massive sellers. Now a days the contamination issues are becoming more and more important not only for companies but also for costumers because they like to work or buy in a place who have environmental and social thinking.
One of the most important things that this work have shown to us, is that companies need to be aware of this problems reducing the amount of waste, creating recycle campaigns involving costumers to through their old and useless products that they have in their homes, in a safe place were it can be recycle. Retail stores, can work as these collection places and use this as a competitive advantage. Finally, we have seen that this industry is a high competitive market, what for a new possible entrant, might not be a barrier, but it is a high threat.
As we as previously stated, each of this retail stores are known for a specific product or way of selling which gives them sort of advantage. A new company need to penetrate the market with a really good idea and being conscious of all the variables just said above for gaining some of the market share. Sources and References * J. Garry, R. Whittington, K. Scholes. Exploring Strategy. Text and cases. Ninth Edition. Prentice Hall. * History of retailing. Source: http://www. questia. com/library/economics-and-business/business/industry-studies/history-of-retailing * Home retail group. Corporate responsibility 2007.