The Strategic Analysis of the John Lewis Departmental Store - Case Study Example

Strategic Management Table of Contents Introduction 3 Industry Analysis 3 John Lewis 5 Resource Based View 5 The Dynamics of Competition 6 Organization structure and management systems 6 Analysis of Competitive Advantage 7 Corporate Strategy 7 Conclusion 8 Works Cited 9 Name of Student: Name of professor: Course Number: Date of Paper: Strategic Management Introduction The research paper elaborates the strategic analysis of the largest departmental store in Great Britain, John Lewis. The company belongs to the retail industry, which is growing at the fastest pace. The paper highlights researches that have been executed to get a clear picture of the retail industry in United Kingdom (UK). John Lewis, being a successful company, has adopted several strategies, which have rendered them unique in the retail industry. The paper elaborates strategies that are undertaken by the company for operating in areas of UK and outside London (“The John Lewis model and what others could learn from it”). Industry Analysis The retail market in United Kingdom is distinguishable from all other markets of Europe. It operates in a definite manner and has distinctive features that are unparallel in nature. It is a compact island market, where around 60 million people reside in 25 million households. UK market is regarded as an open economy with large numbers of non-national retailers operating in it. The governmental interventions, which are levied on the retail industry, have supervised de-regulation and have guided towards a free market economy. The restrictions that were imposed on the opening hours were removed in 1994; maintenance of resale prices of the book were eliminated in 1995; and rules and regulations for pharmacy licensing was amended during 2004. The store locations in Great Britain are supervised by applying zonal procedures, which develops the general policy for land use and planning. The figure below elaborates the whole sale and retail market of UK: Figure 1: Whole sale and retail market of UK (Source: “Retailing in the United Kingdom – A synopsis”) From the above figure, it is evident that output generation in the retail and wholesale industry has been quite attractive. The employment generation is also high, which reflects that the retail industry have recruited more and more employees throughout 2011. Figure 1: Sales in UK (Source: “Retailing in the United Kingdom – A synopsis”) The above figure indicates the total sales, taking place in the retail market in United Kingdom, during 1997-2013. When total retail sales are observed to be increasing, the volumes are expected to be boosted at the same rate. After 2008 and 2009, however, the trend was observed to diverge. The value of sales increased at a rate of 3% and 5% in each quarter, during the year 2010 and 2011, respectively. Even so, the volume of retail sales grew at a smaller proportion or even fell at the same rate, during the period of time. The reason behind slower growth in volume was the effect of higher inflation then. The money of consumers was not valuable as their ability to purchase high volume had declined at an alarming rate. Nonetheless, in 2012, the inflation rate decreased and patterns of value and volume of the retail sales converged again. The increasing rate of volume and value of the retail sales, however, fell alarmingly, during the second half of 2012 and then, rose slightly at the early hours of 2013 (“Retailing in the United Kingdom – A synopsis”). John Lewis John Lewis is regarded as a chain of expensive departmental stores, which operates throughout UK. This chain of departmental stores is owned by John Lewis Partnership. The first store of John Lewis was established in 1864 in Oxford Street, London. The chain has been well-known for the renowned policy that it follows, “Never Knowingly Undersold”. This has been used since 1995. There are around 43 stores throughout Scotland, England and Wales. It also includes ten new At Home stores and flexible stores, which are of flexible format in Exeter. The store operating in Cardiff is the one outside London and is operated by John Lewis Partnership. The Oxford Street store of the company was awarded Royal Warrant from the Queen, as it was regarded as the largest supplier of household goods and haberdashery (“Governance”). Resource Based View There have been clashes of opinions regarding outperformance of the competitors by John Lewis, which outlined the main strategies of the company. According to Julia Finch, John Lewis is not a profitable company and is also not the best run business in UK. It has been noticed that Next, the fashion group, makes higher profit than John Lewis. The recession had affected the spending of consumers and thus, the business of John Lewis also suffered to a great extent. The consumer demand had fallen and products were held in inventory. The fall in the house prices and lack of job security had given rise to lack of confidence in spending money. The credit cost was higher and there was also lack of available credit. The recession has caused huge problems for John Lewis, since the demand fell due to competitive pricing of the products. John Lewis basically focuses on high quality. Therefore, it is quite difficult for the company to fight for the price that helps to make brands cheaper and appear more attractive. Then again, the recession has also impacted John Lewis Partnership in a good way. Generally, recession leads to higher demand for value for money. Even so, for John Lewis, it came with excellent service and expertise, rather than aiming to offer cheap prices. John Lewis is considered as a highly reputable business, since its customers are brand loyal and this has motivated them to work harder and efficiently (Poitras 34). The Dynamics of Competition It is incorrect to infer that competition is good and playing the game of monopoly is bad. The reality of the situation becomes more complicated, when imperfectly competitive markets are evaluated; since, the existing companies have authentic market power to create prices for their customers. The following are characteristics of a competitive market, which John Lewis has to encounter, in order to operate successfully: 1) John Lewis products have reasonable pricing, since there are innumerable large firms. The suppliers encounter elastic demand curves and if there is increase in price of products, then demand will fall and so will the revenue. If there is high cross price elasticity of demand for a product with respect to price change of another, then it is likely that consumers will switch their demand to competitive priced products, which are available in the market place. John Lewis had charged lower prices for products during recession, since there were high chances for consumers to shift to cross price elastic products (“The Dynamics of Competition”). 2) When there are lower barriers to entry, companies find it easier to enter markets in search of abnormal profit. These entries of new firms have posed threat to the existence of John Lewis in the long run (“Governance”). Marks & Spencer is one of those firms, which have entered United Kingdom much later and have posed threat to the business of John Lewis. 3) True competition is a process, rather than a condition, that prevails in a particular market. To reduce the competition and sustain in the long run, John Lewis needs to indulge in competitive activities, which denote innovation and invention for driving the market forward. 4) Economic efficiency ensures competition among firms for minimizing cost and move towards the stage of product efficiency. The threat of competition lead to faster technological diffusion, which is why firms need to respond quickly to the changing needs of consumers. It is known as dynamic efficiency. John Lewis takes into consideration the faster technological diffusion, which has made them eligible for the market (“The Dynamics of Competition”). Organization structure and management systems The board of John Lewis has the responsibility to manage commercial activities and develop strategies for the purpose of business as well as of product development. The board members are recruited by Chairman of John Lewis Partnership. Analysis of Competitive Advantage The competitive advantage of the company lies in the objective to serve multi-channel customers, which the others have not thought of. The company’s success lies in innovation and thus, they prepare themselves for any complexities in future. There have been profound changes in retail sector as well as severe technological modifications, which led to innovation and investment. The changes came in the form of short-term profit and placed the company in a good situation in 2013. John Lewis has spent £ 21.3 million for improving operating structures, so that they can deliver future gains effectively. The company invested £43 million centrally, mainly for modernizing and maintaining the IT platforms. It also invested £20 million for the online business (“Our Strategy”). Hence, it can be inferred that John Lewis is not afraid of taking risk of innovating new products. The retailer has brought in online experience in stores, where it has supplied virtual fitting room screen, thereby helping customers in selecting products. Lisa Byfield-Green, the analyst at Planet Retail, has deduced that John Lewis invested a lot of money for a prosperous future, where they can collect cash with a click from consumers by providing them with online experiences. They have also concentrated on including mobile operations, which have set other players aside. The forward looking strategy of the company has drawn efforts in understanding the need of customers in 2012 (“Governance”). Corporate Strategy The reputation of John Lewis has its foundation in uniqueness, in terms of ownership structure as well as commercial success that it has achieved. The main purpose of the company is to make members happy; and the environment worthwhile and satisfying for employees; so that they can give in full effort in their work (Dransfield 10). The success of the company is measured by evaluating their ability to enhance and sustain their position as an outstanding retailer and also, as an employee ownership. The corporate strategy of the company is based on three interdependent objectives. They are mainly the partners, profit and customers, who together make a successful business. The partners gain personal satisfaction as they become the members of the enterprise. They are satisfied with their job since they get job security and gain in the operational process of the company. They devote their full effort for betterment of the company. The company retains their loyal customers by boosting their confidence with offerings of high quality products. The customers are found to stick to the brand, since they get higher value, service and honesty from the company (Thompson 16). The company makes adequate profit for sustaining the commercial distinctive and vital characteristics. This allows consistent development and distribution of profit among the partners and investors. The objectives help in developing the structure of co-ownership and emphasizes on building good appetite of demand for innovation, improvement and enterprise, directed at the purpose of maintaining dynamism of commercial capability of the company. In addition, the company also stresses on different levels of corporate governance with the help of corporate social responsibility, audit and risk committees. Thus, achieving the three objectives is essential for the company in order to demonstrate the advantages of behaviors and co-ownership, which differentiates them from others. The ability to battle against the conservative companies and outperform them is the main approach of the company for attaining effective position in the market (“Our Strategy”). Conclusion John Lewis is a well-known company, which has developed its business by applying successful corporate strategies. The strategies have helped them to satisfy customers, employees and have also earned huge profit for the company. The organizational structure is headed by the Chairman of John Lewis Partnership, who has the responsibility to manage all activities related to the business. The strategic analysis of the company, therefore, foregrounds the fact that John Lewis has captured recognizable position in the market by delivering best quality and reasonable price to the consumers. Works Cited Dransfield, Robert. Corporate Strategy. Oxford: Heinemann Educational Publishers. 2001. Print. “Governance.” John Lewis Partnership. John Lewis Partnership, 2014. Web. 19 Feb. 2014. “Our Strategy.” John Lewis Partnership. John Lewis Partnership, 2014. Web. 19 Feb. 2014. Poitras, Geoffrey. Commodity Risk Management: Theory and Application. London: Routledge, 2013. Print. “Retailing in the United Kingdom – A synopsis.” European Retail Research. European Retail Research, 2013. Web. 19 Feb. 2014. “The John Lewis model and what others could learn from it.” Guardian. Guardian News and Media Limited, 2014. Web. 19 Feb. 2014. Thompson, John. Understanding Corporate Strategy. London: Thomson Learning. 2001. Print. “The Dynamics of Competition.” Kort Explores. Overall Technology Inc., 2013. Web. 19 Feb. 2014. . Read More