Retail Industry in the UK and Future Challenges - TESCO - Case Study Example

Retail Industry in UK and future Challenges Introduction Retail Industry is the of discussion given its impact in the UK economy. It has estimated 2.9 million of people working in it and close to 350,000 shops with 1/3 of its operators in physical shops. The retailers businesses have grown from local to international scenes, from hyper stores to small shops. Challenges A spiral of challenges affects the Retail Businesses. As per the national statistics, they range from political, social, economical, cultural, and technological factors. To start with, political and legal factors such as government instability, taxation law, legislation law, employment law, safety regulation, and foreign policy regulation. It is already been observed that future political decisions, such as alteration to taxes, will affects the trade of these retail businesses. As this is not enough, the retailers have found themselves following safety regulation policies (Carpenter, 2011:74). The report released by Reuters Business Insight shows that retail businesses continue to grow, but economic challenges seem to heighten up. The records on inflation rates, unemployment ratios, collapse of the global economy have characterized the industry. The Reuters have narrowed this trend as resulting in worldwide change in trade economies. The same conclusions carry the load of blame for the resultant changes in the retail industry. Notably, the financial instability affected sales of expensive product and consumer spending rate cut down. During recession, according to Euro monitor Market Research, inflation is inevitable hence affecting the trend in market prices of goods (Amato and Amato, 2012:436). Social factors still pose as a challenge to the Trade Industry. According to Reuters Business Insight, population statistics, lifestyle changes, consumer trends, and income distribution ratings have all influenced the Retail Industry. Even though the inclusion of technology comes as a boost in Today’s world, it has influenced the modalities of Retail Industry. The speed of technology, use of the internet, and innovation of new technologies in everyday business world create a challenge to the Retail Business. This has affected the supply chain since the promotion, and supply chain management links innovative come too quick to some retailers. Majority of them though offer their products through online (Newman & Cullen, 2002:120) Moreover, environmental factors hamper the development of these Retail Industries. Through company reports, the issues related to sustainability, environmental protections, desertification, and recycling impede their progress. Competitive Environment The internal competition in the retail industry is inevitable given the existing market and foreseeable innovations. The diversification of the market has rendered it so competitive, and this has seen the installed independent retailers overpowered by the continual rise of chain stores. In order to reach a wide variety of customers, the retailers have resulted in stocking large in these chain stores. This creates a barrier for the beginners. The industry is mature enough in terms of the industry life cycle making it impossible for fresh entrance to survive with the already existing stores. In addition, the power of suppliers has created a relevant competition, especially the bargaining power between retailers and suppliers on prices and supply. The probability of existing retailers taking more from existing and new suppliers is much possible as you compare this with any new vendor. Suppliers can easily establish links with existing product manufactures leaving an open chance to the power of buyers on the same product. Because of available alternatives, the buyer is able to go for the best available alternative. This results from standardization and undifferentiated products in the markets leading to lowering of products (LOUIS and Christie, 2012:438). Substitution of product is another way through which competition has entered the UK Retail Industry. Substitution reduces the demand of products as they are on high in the UK Retail Industry. The substitution revolves around product upon a product or substitute in different needs. In order to prevent customer hopping, the retailers reduce prices creating competition among themselves in order to prevent customers prove choosing available alternatives. In addition, the retailers offer homogenous products, meaning the products in the stores are all the same. This makes this retail business competitive in nature. The competitiveness and the future of Retail Industry in the UK are much dependent on the relationship of market variables such as consumer income and preference. For example, the more money customer’s have the more purchase retailers witness and vice versa. Thus, retailers surviving and economy depends largely on customer sales. 2. Retail Industry Business Strategies As the Retail industry in the UK continues to expand, it has become more competitive. In response to this, TESCO have mapped out strategic plans on how to sustain and keep their businesses relevant. Since it is a competitive business environment, key strategies on focus, cost leadership, and differentiation have been in place. This has helped this Retail Industry to maintain their competitive advantage and profitability. According to Porter, buyers are always willing to buy value resulting from lowered prices than those of competitors (Porter, 1985:2-3). For TESCO Retailers, they have to deliver the same benefits as its competitors but at a lower cost. Thus, the competitive strategies are much relevant. Differentiation strategy This applies when a company charges minimum price for its available goods for sale. To TESCO Groceries, it is an effective strategy although the company would incur an extra cost to meet the approach. For example, better service levels to customers and better product performance in the market have seen the business retain its relevance in the Global market. This should come in relation with other competitors. One of the ways the TESCO retail business in the UK has applied this is by advertising. Even though it is an extra cost, promotion leads to increase of product image. For example, the TESCO brand has sold out due to differentiation strategy. Focus Strategy This involves a retail company to offer a product to a specified group of customers in a particular market at the lowest market price compared to others. For example, where least amount of competition is discovered that is the niche for the retailers. In Retail Industry in the UK, this comes as a survival strategy. This is the only way these retailers achieve the competitive advantage when their focus singles out a specified niche. For example, for TESCO groceries even though the area of focus or niche is restricted or may not cover a large area, the retailers target on cost advantage for their products in, that market. They have even distributed their product to reach the global customers in uprising markets of the world at a specified cost cut for the goods delivered. Cost leadership strategy. In this strategy, the aim is to create relevant production cost in order to gain bigger market share or higher profits over other competitors over the same product. It is a means through a retailer can drive product competitors out of the market. For the TESCO Retailers, the lowering of prices in particular products is what attracts customers’ interest to their products and this translates to continual purchases (Carpenter, 2007:12). For example, TESCO approaches its customers through segmentation system. This is where products supply reflects customers’ age, geographical location, and population coverage. TESCO stands as an example of a price risk leader in the retail industry hence more popular to its customers. Just like TESCO, any retail dealer has to adapt ahead of other competitors in order to reap benefits and detect customer behavior for this will make their product relevant to the market and customers a means TESCO has adopted to remain competitive. 3. Resources and capability The retail industry has seen a numerous use of resources and capabilities characterized this industry. The industry’s competitive environment and the need to keep relevance has seen TESCO groceries resulted into application of reliable resources that could maintained its worth in the United Kingdom Retail trade. First, the brand TESCO has formed a formidable force, a resource that has seen its growth increase spontaneously (Richard and Neil, 2011:23). The brand name is the largest asset, and its products have reached the global markets. TESCO retailers are globally accessible as over one million workforces from diverse backgrounds and age participate in marketing. Because of this brand, TESCO recorded an internal growth of 13%. This came even as the world retail economy experienced a meltdown. This makes the products of Tesco more reliable to the customers. Away from the United Kingdom markets, Tesco stands at a 26% profit growth internationally, a reason, which has seen it claim the best retail awards. The services of TESCO are at their best for they qualitatively operate to meet the customers demand and the corporate standards. Because of the established brand, TESCO has the power to open several international stores to serve its customers. Allocation of Club Card as an incentive is another idea, a resource helping the growth of TESCO retail dealers in United Kingdom. It is capable of providing clear targets in the magnitude of sales done in a retail business. For example, as part of the major supermarkets in the UK, only TESCO has invented loyalty card schemes to its darling customers. The cards go for as low as one-dollar transactions spend in purchasing at TESCO stores. The reward n this scheme is that all the customers’ can collect their points by purchasing using Tesco Credit Card or by Tesco Broadband. It is an acceptance idea given that the target of businesses improvement remains relevant (Newman & Cullen, 2002:63). Alternatively, Club Card points get converted into coupons, upon which a customer can gain cash totals or extra point. This resource innovation has helped TESCO growth to a multinational retail business. Moreover, TESCO’s Steering Wheel of 1997 is a key resource in establishing the performance of its products. This strategy aims at broadening the scope of TESCO businesses. As a result, strong links emerge through following customers into newly expanding markets hence creating a strong sustainable growth. In this way, Tesco has ventured into European markets, Asian and even in the American frontiers (Hussein et al, 2012:156). This creates product knowledge and customer taste qualitatively maintained. The practical sense in this idea is that customer service and selling contribute to the growth of the TESCO retail businesses. Internet marketing strategy comes as another resource TESCO retail business rely for high sales of their products. Likewise, the retail businesses in United Kingdom have followed the same technique. It is a means through which customers get with quality products and qualities. Internet marketing helped Tesco in pricing their goods competitively. Marketing has greatly provided customers with value for money since most of the products are similar in the market thus the quality of the products is high. It also serves to create a strong brand of a particular product as this reinforces the value and position of the business in the competitive economy. Another important resource is the Tesco Direct. This is the recent and among the foreseeable capability for the business growth. It serves as an important tool to increase the sales margins of the business. For example, using catalogue and online shopping through technology on purchase of non-food products has diversified in saving the retail space in the competitive markets of U.K (Diaz, Magni & Poh, 2012:65) Tesco direct has also reached a variety of customers. As a result, this necessitated the innovation of TESCO Mobile since 2008. This castigated further growth of this business as they aspire to reach new frontiers through the resources they have. Therefore, the exponential growth and high turnover sales and returns in TESCO are results of proper utilization and use of the resources. Even though the company faces current challenges due to global recession, the innovative strategies give TESCO the capability to overhaul them into beneficial opportunities. The focus of Tesco is meeting the demands of its customers and corporate world in retail operations. Bibliography Abhay, S., 2007. Strategic Groups In Retailing Based On Porter's Generic Market Based Strategies. Marketing Management Journal, Spring, 17(1) p. 151-170. Amato, L., & Amato, C., 2012. Retail Philanthropy: Firm Size, Industry, and Business Cycle. Journal of Business Ethics,107(4), p. 435-448. Bourlakis, M. A., & Weightman, P. W. H., 2003. Food supply chain management. Ames, IA, Blackwell Pub. British Retail Consortium, 2007. British Retail Consortium 2007. London, British Retail Consortium. Carpenter, M. A., 2011. Handbook of research on top management tea. In Krafft, M., & Mantrala, M. K. 2010. Retailing in the 21st century: current and future trends. Heidelberg, Springer. ms. Cheltenham, Edward Elgar. 'Competition: Best Buy's Entry Into the U.K. Adds Insult to Injury' 2010, Black Book - Dixons Retail: Ambitious Self-Help In The Midst Of Structural Pressure, pp. 77-93, Business Source Complete, EBSCOhost, viewed 3 December 2012. Diaz, A., Magni, M. & Poh, F., 2012. From oxcart to Wal-Mart: Four keys to reaching emerging-market consumers. McKinsey Quarterly, 96(4) p. 58-67. Doherty, N., & Ellis-Chadwick, F., 2009. 'Exploring the drivers, scope and perceived success of e-commerce strategies in the UK retail sector', European Journal Of Marketing, 43(9/10) p.1246-1262. Hill, C. W. L., & Jones, G. R., 2012. Essentials of strategic management. Mason, Ohio, South-Western/Cengage Learning. Hussein, A. et al., 2012. Determinants Of Capital Structure In The UK Retail Industry: A Comparison Of Multiple Regression And Generalized Regression Neural Network. Intelligent Systems in Accounting, Finance & Management,19(3), p. 151-169. Kossowski, A., 2007. Strategic management: Porter's model of generic competitive strategies - theory and analysis. Mu?nchen, GRIN Verlag GmbH. Luo J, Ba S, & Zhang H., 2012. The Effectiveness Of Online Shopping Characteristics And Well-Designed Websites On Satisfaction. MIS Quarterly, 36(4), p. 1131-A9. Newman, A., & Cullen, P., 2002. Retailing: environment and operations. Australia, Thomson Learning. Pam, L. & Howard, T., 2007. The Linkage between Strategy, Strategic Groups, and Performance in the U.K. Retail Grocery Industry. John Wiley & Sons: Strategic Management Journal, 11(5) p.385-397. Richard, G. & Neil M., 2011. Is Retail Category Management Worth the Effort. Journal of Marketing, 75(5), p. 18-33. Sadler, P., & Craig, J. C., 2003. Strategic management. London, Kogan Page. Tim, D., 2002. U.K. Retail Real Estate and the Effects of Online Shopping. Great Britain. Journal of Urban Technology, 9(3) p. 19-47. Yupal, Shukia, & Gadhavi Dharmesh, 2012. Advances in Management. 20 Retailing and Innovation: A Study in today's Global Retail Market, 5(5) p. 9-20. Read More