The Global Retail Industry - Essay Example

Name: Topic: The Global Retail Industry Institution: Date of submission: Instructor The Global Retail Industry Introduction Retail is the final phase of any economic activity. Therefore, by virtue of this fact, retail occupies a prominent position in the global economy. In an endeavor to grasp the scope of the term retail, several meanings of the term have been examined. Philip Kotler defines retail as all the activities involved non-business or I selling goods as well as services to the final customers for private. He further describes a retailer or store as any business enterprise wholesale volumes comes mainly from retailing (Pradhan, 2009 p.4). Retailing can for that reason is understood as the final stage in which producers get their goods to the consumers. Take an example of the supermarkets that are supplied with goods by the suppliers and then sale these products at a profit. It is essential to have in mind that in a complex world of trade today, retail would include sale of goods as well as provision of services to the end customer has access to. In the modern day business context, the customer is king and marketers are focusing more on customer delight that is the primary aim is customer satisfaction. The global retail industry has been growing slowly but surely in recent years. This growth is expected to continue with the growth estimated to be at the rate of 4%. From the consumer’s opinion, the retailer serves them by providing the goods that they need at the required place as well as time. From an economic standpoint, the role of a retailer is to afford utility to the consumer (Clapp and Fuchs, 2009 p.32). The paper will focus on the industry is profitable the factors that are driving up the profitability. The other aspect that the paper will focus on is how these factors will change in the future as well as how this may change profitability. The study will focus on current literature on the retail industry. The research will be presented in a logical sequence that will ensure a thorough analysis as well as critique of the industry. In addition, the paper will also include an analysis of one element macro environment. Discussion Just a few years ago, manufacturers came up with a product, advertised it themselves and made sales of it without the input of retailer. What is more, the manufacturing firms bad more economic power as compared to the retailers. This is because the manufacturers were large than the retailers. They determined prices of the price of products that that the retailer could stock and the retailer margins. The manufacturers would independently advertise for their goods and in case of any disputes with the retailers, the manufacturer would discontinue supplies to the retailer. On the other hand, much has changed today as the retail sector has emerged as a function of its own. This is attributed to various factors in the retail industry. These factors also impact on the profitability of the retail industry. In the global retail industry, proximity to the customer mainly impacts on the profitability of the industry. Today, with the coming up of large supermarkets and hypermarkets, the retailer is closest to the consumers. This view is supported by Bhutta and Hasan (2013) who did a research on the firm specific factors that impacted on the profitability of a company. In an age of global manufacturing as well as selling, a retailer may be based in one part of the world but retail in several other parts to enhance its profitability. Moreover, the retailer is the first contact point that the consumer has with the product. All the same, I tend to disagree with this assertion given that some of the manufacturers sometimes sell their products directly to the consumers. For example, car manufacturers at times tend to sell their products directly to the consumer. The rise of consumerism also impacts on the profitability of the global retail industry. Retailers are part of the dynamic world today; the retailer faces a more knowledgeable and demanding consumer. Moreover, businesses exist to satisfy the needs of the customers and the demand and expectations of the consumers have often forced players in the retail industry to change their format and product offerings. This affect the profitability of the retail industry as every retailer will have to meet the needs of its consumers if they have any chance of being profitable. In addition, consumers demand convenience and a particular level of comfort while shopping. This has led to the rise of experts and increase of services offered by the retailer (Rogut, 2007; Kumar, Shah and Venkatesan, 2006). For example, the petrol pump in the modern business context retails not only petrol and diesel but also has an ATM. In my view, this aspect entirely affects the profitability of the retail industry since the retailers are changing day by day to ensure that they meet the needs of the consumers. Besides, the several services that are provided by the retailers are done in an effort to remain profitable. The other factor that impacts the profitability of the global retail industry is the introduction of the private label. An increasingly large number of retailers globally currently decide on what products to stock. They decide on what brands to stock since the retail shelf space taken by these brands is of prime importance. These labels cater specifically to the needs of their targets customers. This factor has made some retailers to begin producing some goods in house. This in turn will save on purchasing costs and lead to the profitability of the retail industry. However, I am of the opinion that not all retailers can be profitable just by introducing the private labels. Retailers should do a lot of market research to ensure that the introduction does not fail and lead to losses on the part of the company (Bhutta and Hasan, 2013 p.24). There is no way one can leave out technology when talking about the profitability of the global retail industry. With the ever-rising application of technology, for example application of the 'point of sale' scanning systems and the barcode, more information is now available to the retailer. This information enables the retailer to understand the consumer profile for their store. Moreover, retailers have developed their customer cards that help them track purchases and know more about the lifestyles of the various consumers that visit their outlets. This impacts on the profit of the retail industry as the players in the industry can stock specific products that are required by the consumers. Recent reports by two auditing firms also support the fact that technology has an impact of the profitability of the retail industry. Social media such as Facebook as well as Twitter as well as other online shopping platforms had the most impact on the profitability of the global retail industry (Kpmg.com, 2013 p.3). In addition, technology has enabled more customer-based transparency hence leading to the profitability of the retail industry (pwc.com, 2013). On the factor of technology, I am of the view that it both has an impact on the profitability of the retail industry. Additionally, technology also has a negative impact for firms that fail to adapt to the technological changes since customers will avoid them. Having determined the factors that impact on the profitability of the global retail industry, it is now essential to determine the profitability of the retail sector. This determination will be done by using Porters Five Forces Model. The global retail industry is composed of many firms with each firm involved in its diverse activity. i. Barriers to Entry With the competitiveness in this industry, there are only a few barriers of entry. This therefore means that the threat of new entrants into the market exists in this kind of industry. However new entrant often face particular barriers that include things such as the economies of scale. A majority of the existing players in the retailing industry have the economies of scale that make it hard for new entrants to succeed in this industry. The other barrier is the access to the distribution channels; new entrants into the global retail industry face this barrier since the existing firms have an already established channel of distribution. Government policy and the cost advantages that the existing firms have also tend to eliminate the threat of new entrants (Mann & Buyn, 2011, p.7). On the other hand, I tend to think that this risk exists in the retail industry even though there are many barriers. For example, new entrants can take advantage of technological advancements to compete effectively with the rest. ii. The Power of Suppliers The power of suppliers in this industry is relatively high. However, it is worth noting that the power of these suppliers is dependent on their concentration in the place where the consumers are located. For example, if the supplier has a highly concentrated base in an individual country, then their power will be high. The other reason for the high supplier power in this industry is because of the vendors can sometimes choose which retailers to give will sell their products (Mann & Buyn, 2011). iii. The Power of Buyers The power of buyers in the retail industry is also very high. This is because of the rise in consumerism and the fact that consumers take a lot of time before deciding which products to buy. Moreover, the decision on whether to purchase a product or not in the retail industry lies entirely with the customer. However, the players in the retail industry do a lot of activities to influence the decision of the consumer. The activities include promotional campaign with the manufacturers of the product. Through these campaigns, the retailers are able to attract more customers to their outlets hence boosting their profitability. iv. Threat of Substitutes products The threat of substitute products in the retail industry can be evaluated in terms of the accessibility and performance the substitutes. In the retail industry, the customers do not incur any switching costs when they opt for a substitute product. Moreover, the unique structure of the retail market structure means that the threat of substitute products is very high as compared to that of other industries. Consumers opt for high performing products at a competitive price hence the retailers have to ensure that they get a product that the consumer requires from the suppliers. Moreover, the products that retailers provide in the retail industry have close substitutes. However, a retailer can solve this by ensuring that their products are not only differentiated but also branded differently from those of their competitors (Mann & Buyn, 2011, p.10). If a retailer is able to differentiate their products, then chances are they will be more profitable than the others will. v. Rivalry among the existing Competitors Rivalry in the global retail industry is very high. The firms try to outdo each other by setting competitive prices and using other means of promotion. Moreover, this rivalry enables each company to differentiate itself from the rest (Richard & Hamilton, 2005; Connor, n.d.). What is more, the firms that are more concentrated ten to have an edge over the rest of the companies. Take an example of Wal-Mart that is one of the global biggest retailers both in terms of sales and in terms of revenue. The company sets its prices very low attracting large number of consumers. The factors that affect the profitability in the retail industry are bound to change and this is bound to have an effect on the firms. For example, the factor of the proximity to the consumer is bound to change as more and more retailers will want to be nearer their consumers unlike before. This is already a trend as some for retailers are building outlets in residential areas. This enables the users to get access their favorite products without having to go far (kmpg.com, 2013 p.6). As this factor changes, the industry will also have to change to be more profitable. Furthermore, firms that ignore this factor will also face the risk of being faced out since the other firms will be more competitive. Moreover, the rise in consumerism is not set to change much since consumers in the current retail industry are knowledgeable unlike in the past. In the current retail context, consumers do some background checks before making a decision on whether to buy a product or not. This will impact on the retail industry since consumers will have to stock what the customers require and provide all the information about the products. A good example of this is the Amazon that is an online retail giant. All the information about the products it sells is provided in their websites. Furthermore, the opening up of international borders is making the world a global village. Developments in technology, the readily available information that that the consumers now have access to has had a significant impact on the retail industry. The need to expand not only regionally but also globally has led to the field of retail witnessing many mergers. For example, the merger of Careforu and Promodes made one of the largest global retailers (Pradhan, 2009 p.5). This means that more firms will merge in the future to enhance their competitiveness. Conclusion. To conclude, the retail industry is one of the most profitable industries in the world. As discussed in this paper, there are several factors that impact on the profitability of this industry; moreover, these factors change very often hence they are bound to impact on the profitability of the industry in future. The impact that these factors have on the industry and how they will impact on the profitability of the industry have been discussed extensively in this paper. Nevertheless, two factors came out as the ones that had the most impact on the profitability of the industry. These factors are technology and the rise of consumerism. Recommendations Based on the above information, this paper therefore makes the following recommendations Given the changing climate in the retail industry, companies that provide the similar retail services can merge to increase not only their customer base but also enhance their profitability. The inclusion of social services; although some players in the retail industry have already adjusted o this need by consumers, other are still lagging behind. It is the view of this paper that the companies that have not done this should do so or face the risk of being unprofitable. Moreover, some countries have barriers that restrict some consumers from doing business in them. This paper, therefore recommends that these restrictions should be relaxed to to open up the retail industry in those countries. The retail industry should adopt the policy of selling goods that are only environmentally friendly. This will ensure that the producers also provide products that do harm the environment in any way. Bibliography Australian Retailing Trends. (2007). the Australian Centre for Retail Studies. Available at: http://www.buseco.monash.edu.au/acrs/index/australian-retailing-trends-ex-sum.pdf [Accessed 12 Apr. 2015]. Clapp, J. and Fuchs, D. (2009). Corporate power in global agrifood governance. Cambridge, Mass.: MIT Press. Connor, J. (n.d.). Evolving Research on Price Competition in the Grocery Retailing Industry: An Appraisal. SSRN Journal. kmpg.com, (2013). 2013 Retail Survey Outlook: Technology Innovation Leads to bright Future. Available at: http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/retail-outlook-survey.pdf [Accessed 13 Apr. 2015]. Kumar, V., Shah, D. and Venkatesan, R. (2006). Managing retailer profitability—one customer at a time. Journal of Retailing, 82(4), pp.277-294. Pradhan, S. (2009). Retailing management. New Delhi, India: Tata McGraw-Hill Education Pvt. Ltd. pwc.com, (2015). Retailing 2020: Winning in a polarized world. 1st ed. Available at: http://www.pwc.com/en_US/us/retail-consumer/publications/assets/pwc-retailing-2020.pdf [Accessed 12 Apr. 2015]. Tariq Bhutta, N. and Hasan, A. (2013). Impact of Firm Specific Factors on Profitability of Firms in Food Sector. OJAcct, 02(02), pp.19-25. Wrigley, N. and Lowe, M. (2010). The Globalization of Trade in Retail Services. 1st ed. [ebook] Available at: http://www.oecd.org/tad/services-trade/46329746.pdf [Accessed 12 Apr. 2015]. Read More