Growing Power of Retailers in the UK - Essay Example

Introduction: The growing power of retailers in the UK and the scale of competition and fight for market share have led the UK retailers to cut back on costs and margins, affecting the wage earners or the suppliers at the bottom line. The aim of the assignment is to identify the lobbyists and understand the conflict between them and the retailers examining various sources and cases. The paper will also reveal cases and data oriented to this issue to reveal the authenticity and bring out a clear understating of the current situation. Most importantly it will also adjudge the validity of the claims made by both the retailer and lobbyist. Time and again Non profit organizations have raised issues against the big retailing giants especially Tesco and Asda. Find below news published in the various dailies A group of Britain's leading authors has accused Tesco of using "deeply chilling" tactics to silence its critics. The Times, April 29, 2008 Tesco in Thailand is suing a second columnist from a Bangkok business newspaper for 1.6m in libel damages. The Guardian, 18th April 2008 Tesco has been accused of unleashing an "unstoppable invasion" of the high street by stepping up the pace at which it opens neighbourhood stores. Evening Standard, 15th April 2008 More than 1 of every 7 spent on the UK High Street goes to Tesco. BBC News online, Monday, 14 April 2008 The above tag lines give us an understanding of the overpowering position of a retailer. However, let us take a detailed look into the aspect. Body: The allegations and accusations of various NGO's and papers on ethical and socialist issues against the retailers are a recurring occurrence right from the early 1900's. The trade unions, Human rights activists, consumer protection right activists, organizations that safe guard the interests of small farmers and suppliers, and the small entrepreneur's organizations, are all in their own way trying to protect their interest by constantly seeking help from the media and the government regulatory bodies to support them in their cause. The goal for this paper as stated in the beginning is to identify, investigate and validate this lobbying and come to a consensus based on the findings. Let us go through a few statistics before we get deeper in the issue. The giants Tesco and Asda are always in the spot light on any of the allegations that comes from any corner some of the allegations are based on statistical data from various sources which is detailed below: In Term of unhealthy food: 35% of Tesco's promotions are for fatty and sugary foods which is only 14% in the case of fruits and vegetables. (National Consumer council Survey 2005) Undermining worker's rights. Asda Wal-Mart offered a 10% pay rise 340 of its drivers and warehouse workers in Durham if they left the trade union GMB. Asda was subsequently fined for these offerings as it was illegal inducements to its workers. Sharing the benefit: Tesco announced 2.5 billion in the year 2007 17.9 million was the total annual pay to the 16 board of directors in Tesco, one of the most expensive boards according to the Ecologist in May 2007. The Tesco chief received a 25% pay hike in 2006 taking his income to almost 4 million. A Tesco employee with an average salary will have to work for 345 years to get that income. Eroding competition and the impact on independent retailers: These large retailing giants have simply rung the death bell for small and independent entrepreneurs and most importantly deprived consumers of choices. During the 1960's independent retailers had a 60% market share which in now reduced to 6%. Almost 2000 independent retailers close shop each year. 7337 independent retailers shut down between the years 2000 and 2004. 'According to the High street Report 2015 - All parliamentary small shops group' -By 2015 all independent and small convenience stores would have disappeared. The issues mentioned above are extremely critical and vital. Health, rights, choice and fair price for the goods sold (suppliers). Let us look at the pressing issues one by one. Retailers Vs Sweatshops: A NGO by the name 'War on Want' is campaigning against the way in which their suppliers of retailers run their units in the Asian countries. The garment export units are basically units which are filled with women who work to produce branded clothes for Tesco, Asda and Primark . The average wage paid is 14 a month with a 14-16 hour work a day. The extremely poor working conditions with absolutely no benefits have outraged the international community and have brought Primark into spot light. 'The Independent' reported this "The low-cost British fashion retailer Primark has dropped three of its Indian suppliers for sub-contracting embroidery work to companies which use child labour. All orders with the firms, based in the southern state of Tamil Nadu, have been cancelled and all clothing supplied by them has been removed from Primark's 170 UK branches. Associated British Foods, which owns Primark, said: "We take this lapse in standards very seriously indeed. Under no circumstances would Primark ever knowingly permit such activities, whether directly through its suppliers or through third-party sub-contractors." There are quite a few similar sweatshops run across the globe. These are cost cutting measures adopted to provide quality clothing at a cheaper price which in turn increase the company's profit share. The retailer may have ignored this labour exploitation or may have overlooked at it but the suspension of the supplier once the issue was made public is a clear victory for the lobbyists. Independent Retailers Vs Larger Retail Corporations: The business of Retail a one that was flourishing during the early 1970's have dwindled down in number as large corporations with their giant footing have stepped all over and engulfed the small retailers. The spirit of entrepreneurship and the choice of products and shops for consumers have certainly reduced in large numbers. According to the NACS (National Association for Petroleum and Convenience Stores) The UK independent retailers knock the Tesco report. The website of the organization published the following news "British retailers reject the claim in Tesco's latest Corporate Responsibility Review that an investment by Tesco, England's largest grocery store chain, in a town will "benefit" the area. Tesco's report identifies several locations where "Tesco stores have been demonstrably good for the neighbourhoods." However, local retailers in these areas claim that the arrival of Tesco has detracted from consumer choice and several have spoken up about the problem, according to the Association of Convenience Stores (ACS). Independent retailer Nigel Dowdney owns a shop in Norfolk and told the ACS he felt threatened by Tesco. "The detrimental effect that Tesco had on the town centre was apparent immediately," he said to Freshinfo. "Within weeks of the actual opening, the local co-op closed and then a variety of food and non-food shops started to disappear, many of whom had operated in the town for decades," added Dowdney. "We have proven a reduction in [foot traffic] in Stalham town center in excess of 55 percent overall, and in some parts of the town up to 90 percent, since Tesco opened. I no longer believe their corporate statements and would say that it is far safer not to." The only source of support that the independent retailers can turn to is the Competition commission. The IRC or the Independent retailers Confederation in their submission report to the Competition Commission has stated that "The IRC members are generally disappointed with the Competition Commission's interim findings IRC members are generally disappointed with the Competition Commission's interim findings, and look forward to engaging closely with the Commission in the run up to the publication of the final report in May 2008. The IRC is extremely concerned that the Commission has cast doubt over whether there has been a trend of decline in the small shop sector in recent years. The IRC fundamentally disagrees with any suggestion that there may actually be a trend of increase. We believe their finding is wrong because of the particular dataset utilised for the report. Retailers, wholesalers and commentators involved in the small shops sector believe that there is a trend of decline in the sector. There has been an undisputed decline in the number of retail specialists (for example butchers, bakers and green grocers) in the market place. The concern is that the Commission is silent about the implications of this for consumers." The issue of diminishing independent retailers run far and deep and The British Retail Consortium the Government and the Competition Commission together have to ensure a healthy co existent market condition for the big and small. Suppliers Vs Retailers: The sweatshop supplier is pushed to run one because of the extreme price negotiation done by the retailers. The Giant Tesco is constantly in the spot light for their tough no negotiation policies with the farmers for the agricultural products the following news published in the "Australian Food news" speaks volumes about the Supplier exploitation . "With Britain facing its sharpest economic downturn in 30 years, the National Farmers Union (NFU) is calling on the country's largest retailers to take the lead in a new approach to corporate social responsibility, which would see fair pricing for both customers and suppliers put at the heart of their retail policy. The plea comes after accusations of major supermarkets becoming more aggressive in their demands of suppliers. Mr Kendall will make the call for greater responsibility in a speech to the Cardiff Business Club in Cardiff today (November 17). "The global economic turmoil we are currently seeing means Britain is facing its sharpest downturn for a generation, driven largely by short term greed in the financial sector. This has resulted in real damage in people's confidence and belief in the free market system," he will say. "The retailers, led by Tesco as the biggest and most successful, could go a long way to restoring public confidence in that free market system by demonstrating a new, fundamentally more responsible approach to retail policy. "It is not inappropriate to ask, in the wake of the damage done by unfettered, greed-motivated behaviour by some in the financial sector, whether Tesco should continue to chase every last pound of dividend for shareholders at the potential expense of massive damage to the rural infrastructure in this country." Tesco has come under attack in the UK in recent weeks after changes were reportedly made to their trading terms. It has been alleged that they have offered alcohol suppliers 'take it or leave it' terms as they seek to reduce costs, as well as increasing, by 30 days, the time of payment to non-food suppliers. The UK's largest retailer has been seeking to counter the impact of discount grocers in Britain, which threaten their market share, while also trying to make further inroads in the US and Asian markets. "Competitive pricing for its customers can be achieved without resorting to the crippling squeeze tactics on suppliers which are yet again rearing their ugly head," Mr Kendall adds. "We are receiving all too many complaints from suppliers, frightened of taking up their issues direct, who have had unilateral price cuts and demands for back payments and over-riders. Frankly, some of these can only be described as outrageous, bully-boy tactics, and they must not continue as we head into recession." "While we fully recognize the plight of consumers and their need to buy good value food during the credit crunch, there is enough flexibility in the margin taken by retailers to offer competitive pricing without reducing the price paid to farmers, growers and other suppliers. A continuation of this policy will see the agricultural production base in this country irreparably eroded with diabolical consequences for suppliers," The supplier exploitation was one big issue which the giant M&S very seriously and the retailer is still recovering from the same. Retail today in the UK What we have seen so far are the various areas of conflicts that a retail unit can have, also their manifestations in different forms. The issues are raised from various NGO's independent organizations, papers and confederations. The charges and accusations made by these organizations may not be 100% true and closing giant retailers or asking them to function strictly by the norms of the activists are impossible. A solution that will ensure a minimal friction between the forces should come into effect and this should cover all the aspects of retailing and ethical business. In the wake of an economic recession in the UK retailers both big and small face huge threats of closing down. A recent report from the BBC says "10 chains face closure in 2009' It further reports "The warning comes from Nick Hood, a partner at Begbies Traynor. "Not a lot of them are profitable because of the discounting at a time when they would normally generate all their profits for the year," he said. It comes as research from accountants PricewaterhouseCoopers suggests that 82% of retailers are discounting their merchandise this weekend. The figures are compiled from London's Oxford Street, where many of the country's top retailers have stores. One month ago, only 52% of them were cutting prices." The ongoing recession has extremely high impact on the retail industry. The British Retail Consortium reports of sales reveal the declining trend in sales and the extremely high competition and heavy discounting that is currently prevailing in the retail industry in its latest news it states "Official figures confirm retail gloom"- it further states "As the UK officially enters recession, retail sales figures today (Friday), confirm how tough December was for many retailers, said the British Retail Consortium (BRC). Office for National Statistics (ONS) figures show the total value of sales fell 0.8 per cent compared with December 2007. That compares with a fall of 1.4 per cent recorded by the BRC's Retail Sales Monitor published last week. After several months of unexpectedly strong official retail sales figures, a sharp drop from November's positive year-on-year growth means the ONS figures are now painting a similarly gloomy picture to the BRC's own results. The ONS report also confirms non-food retailers suffering most with sales largely driven by price cutting, food retailing proving more resilient and online sales boosted by Christmas. Stephen Robertson, Director General of the British Retail Consortium, said: "The official figures are now painting a more realistic picture of how tough conditions are for customers and retailers. "A poor Christmas for retailing overall hides the contrast between sectors. A triple whammy of dramatically declining sales, margin-crushing discounts and rising costs hit non-food retailers hardest overwhelming some businesses and destroying retail jobs. Food sales were more resilient - we all have to eat. "Our own results show most people believe we have been in recession for months and have been behaving as if we were for some time. With customers already budgeting defensively as job fears mount, confirmation of recession can't weaken confidence much more." Conclusion: It is evident that the UK's retail industry is being crushed from all corners. The fact is the larger corporations are clearly in the spot light for the wrong reasons; the small firms disappearing in number and the ones in between are scrambling to make ends meet in the tough competition and ongoing recession. Clearly it shows the lack of clear policy and role the competition commission or the Fair trade organization is playing in the various issues. The learning to be taken here is the retailer does not operate in a vacuum. For example the suspension of suppliers by Primark does not solve a larger problem. It is just a corrective measure taken for an outrage .The larger problem lies in identifying another supplier at the same cost. The promotion for sugary and fatty foods out blows the promotion for fruits and vegetables because the maintenance, storage and transportation of fatty and sugary foods are cheaper when compared to fruits and vegetables. The solution to this will is a policy which will enhance or induce the retailer to promote fruits and vegetables too. Above all a political system which does not give into the luring of the large organizations and a one that works towards promoting free and fair trade in the true sense. References: (2007) "Facts and Figures" The no mill road Tesco campaign Available from http://www.nomillroadtesco.org/resources/facts-and-figures/ [accessed on 25/01/09] (2009) "Sweatshops in Bangladesh" War on Want Available from http://www.waronwant.org/overseas-work/sweatshops-and-plantations/sweatshops-in-bangladesh [accessed on 24/01/09] Arnott Sarah 2008. 'Primark drops three Indian Suppliers for using child workers' The Independent June 17 Available at http://www.independent.co.uk/news/business/news/primark-drops-three-indian-suppliers-for-using-child-workers-848564.html [accessed on 24/01/09] (2008) 'The Independent Retailers Confederation submission to the Competition commission inquiry into the UK groceries market' The Independent Retailers Confederation Available at http://www.competition-commission.org.uk/inquiries/ref2006/grocery/pdf/responses_prov_findings_third_party_irc.pdf [accessed on 26/01/09] (2007) 'The UK independent retailers knock Tesco report' NACS online June 5. Available at http://www.nacsonline.com/NACS/News/Daily_News_Archives/June2007/Pages/nd0605074.aspx [accessed on 26/01/09] Palmer Daniel 2008. 'UK Farmers call for greater retailer responsibility amid claims of aggressive tactics' Australian food news November 17 Available at http://www.ausfoodnews.com.au/2008/11/17/uk-farmers-call-for-greater-retailer-responsibility-amid-claims-of-aggressive-tactics.html [accessed on 25/01/09] (2009) 'Official Figures confirm retail gloom' British Retail Consortium January 23 Available at http://www.brc.org.uk/details04.aspid=1503 [accessed on 26/01/09] Read More