Strategic Retail Management in Competitive Environment - Essay Example

? Strategic Retail Management in Competitive Environment Table of Contents Table of Contents 2 Introduction 3 1.Competitive Environment of UK Retail Industry 3 Porter’s Five Forces Analysis of UK Luxury Retail Sector 4 PEST Analysis 5 2.Strategic Retail Management (Theoretical View) 7 3.House of Fraser 10 Overview of the Company: House of Fraser             10 Retail Strategy and Management of House of Fraser 10 Controllable Factors Affecting Retail Strategy 12 SWOT Analysis of House of Fraser 12 4.Harrods 14 Overview of the Company: Harrods 14 Retail Strategy and Management of Harrods 15 Controllable Factors Affecting Retail Strategy 16 SWOT Analysis of Harrods 16 5.Comparison 17 6.Conclusion 18 Strategic Retail Management in Competitive Environment 1. Introduction Advancement in technology and emergence of new markets due to globalization has significantly changed the outlook of the retail industry from the past few years. Perception of many people from brand name has moved towards product quality cost and service delivered (Experian, 2011). This has motivated several new retailers to enter into the already competitive market. This has raised survival issues for many new and old retailers, and demands for new strategies and activities to sustain their position in the market (Experian, 2011). The culture of buying has shifted largely towards online viewing and ordering. People visiting the store are easy to urge towards company’s product, and they are the ones who gives the company greater revenue than the online buyers (Experian, 2011). However, this ratio has also taken a 180 degree change in many of the top retail stores, including the ones discuss in this paper, where online buyers makes around 80% of the total income of the company (Experian, 2011). 1. Competitive Environment of UK Retail Industry The retail sector of UK is the only largest private recruiter because it employs around three million people. This sector covers a prominent percentage of employment in UK because more than half of the UK population work part time in retail stores. The retail industry of UK is immensely supportive for the economy of the region as it generates abundance of revenue to sustain the economical position of UK. Therefore, the in order to evaluate the environment of this sector Porter’s five forces analysis and PEST analysis of the industry are being done (Obitz, 2009). Porter’s Five Forces Analysis of UK Luxury Retail Sector The analysis of the retail industry of UK is significant for accomplishing the purpose of the paper. Therefore, when it comes to analyze the competitive environment of any industry, Porter’s Five Forces Model appears covering all the areas required for evaluating a competitive environment. i. Threats of Substitute The threat for substitute products in the luxury retail market of UK is quite low as non-food items sold by luxury retailers do not have major substitutes. This is due to the fact that buyers purchase luxury items as a result of their perceived luxury associated with their purchases and therefore they do not substitute these products. The threat of substitute is not apparent and the actual threat is only limited to the pricing offered by different retailers for similar products (Nwankwo & Gbadamosi, 2011). ii. Threats of New Entrants In the luxury retail side of the market, there are lower threats of the new entrants in the industry. This is due to the high level of barriers for developing brand and then high level of investment is required for developing brand recognition and its positioning in the luxury brand market. It is difficult for new market entrants to offer product differentiation in the cloth retailing and also change buyers’ attitude which keeps them loyal to already existing luxury brands. Moreover, it has been noted in the luxury retail market that existing brands place barriers for the new entrants by increasing their marketing activities and also undertaking other initiatives that could affect the ability of new entrants to introduce designs and similar products. For foreign retailers attempting to enter the market could become difficult too due to their lacking of knowledge related to the market (Groucutt, Leadley, & Forsyth, 2004). iii. Level of Competition In the non-food retail sector of UK, the level of competition is always high, due to the existence of world’s largest retailers in the market and also due to the diversification of the existing businesses in the non-core businesses that is adding to the competition. Companies are not only facing competition in the non-food retailing but also premium food retailing market. The level of competition is becoming further intense in the UK market because of highly active marketing and branding by luxury brands which are involved in product differentiation and developing close brand-customers relationships (Research, 2004). iv. Bargaining Power of Buyers In the region of UK, retail sector shows a high power of buyers’ bargaining. In those cases, where products offered by the retailers are standardized and do have minor differentiation buyers in UK switches easily from one brand to the other. There is no doubt that every customer is attracted by the low priced products; therefore, by using the facility of online shopping, people easily compare the prices and select the most economical retail services (Obitz, 2009). v. Bargaining Power of Suppliers Throughout the region of UK, bargaining power of suppliers is truly low. The situation is due to the fact that suppliers want to keep their contracts with large retailers and they remain in fear of losing their contracts. Therefore, the large retailers have strength to influence the suppliers; thus, it can be said that they do have a beneficial edge to attain the advantage of lowest possible price (Skjott-Larsen, 2007). PEST Analysis i. Political In retail industry of luxury products, there is an increase of support from the government of UK after the financial crisis that hit the world. As the industry contributes a major part in the economy of UK, the local bodies mutually help in its support and limited barriers are enforced. The role of the Office of Fair Trading and UK Competition Commission is significant to watch out the key competitors of this industry. ii. Economic By considering the luxury products retail industry in UK, a robust increase in the buying patterns of consumers have been reported due to the increase in the spending of people living in UK. The past three years of this industry were economically not that sound, which is due to the slow recovery from the financial crisis (Drummond, Ensor, & Ashford, 2007). It has been observed that economically the industry is not that influenced on seasonal basis; however, during the Christmas time, there is a slight growth in sales can be observed (Drummond, Ensor, & Ashford, 2007). iii. Social The region of UK is more inclined towards buying the top luxury brands, which could be adored by people. By observing the trends of the market from 21 century, it has been observed that an influx of people purchasing luxury products that are often made by top designers for satisfying their inner desires. The people are also seen becoming more experimental towards their fashion and changing the brands quite frequently. iv. Technological Technologically, the luxury products retail industry of UK is supported by various tools that can help a person in acquiring their desired product from their homes through online purchases and mobile applications. Mobile commerce has ultimately increased the growth of luxury products and has helped people to compare prices in UK. The trend has shifted consumers’ buying decisions and their interest (Fernie, Fernie, & Moore, 2012). 2. Strategic Retail Management (Theoretical View) The Concept In modern appearance retailing has become a dynamic business operation where there is maximum amount of change and diversity. Driving competition and intrusion of technology has broadened the concept of retailing and retail management (Pradhan, 2006). In this the culture of 24/7 has added the influence, whether there are simple merchandisers or brands related to luxury all have to be proactive in order to meet the modern customer perception (Pradhan, 2006). Retail management is a process of stemming up, which means underpinning with respect to retail components (Pradhan, 2006). The components of the system include manufacturers, wholesalers and consumers where retailer brands stands out in the middle to create the balance. There are two ways in which retailers respond to consumers, via wholesalers or directly through manufacturers. This is how a strategic cycle is developed and maintained between manufacturers, wholesalers, retailers and consumers (Pradhan, 2006). The Uppsala Internationalization Theory According to Uppsala International Model, a company which is holding a strong position in the domestic market needs to explore on the international level. The more the company gets internalized, the more is the chance that it grows and compels with a diversified market range. The opportunity for trend setting is also there when a company jumps onto international business domain (Forsgren, 2008, pp.106). The same applies to retail brands which are mainly on fast running goods and have the potential to meet the international market customer. The model suggests retail brands which are highly localized “Harrods and House of Fraser” that they should expand on global market level and meet the international customer perception (Forsgren, 2008). This will internalize their label, their name and will give them the chance to meet changing customer needs and demands. Uppsala Model also reduces the risk of one market reliance which means that when company gets highly internalized it has the chance to move on with alternatives (switching to other markets). This saves company from market saturation or stagnation as there are other routes (markets) to get explored and build the demand (Forsgren, 2008). The Eclectic Paradigm Model According to Dunning Eclectic Paradigm Model (2001), a company gets true competitive advantage if it is advanced in knowledge and practice over other competitors. True knowledge is an asset, an asset that comes from experience and by spending time with market rivalries. On further the model emphasize on internalization (Dunning, 2003). The model suggests that when a company becomes globalized, the internalization benefits (brand image and brand equity) are its core competencies, which after attaining the company is able to set a true competitive advantage over the rivalries. In retailing sector receiving competitive advantage is a complete process, a process in which every brand has to pass with (Dunning, 2003). Theories of Retail Change According to cyclical theory, change is definite when a retailer knows its strengths and weaknesses within the market. Giving a low price appearance, establishing the place in the market, and retrieving high customer value are all stages of retail cycle (Pradhan, 2006). This is how retailers evolve and attain competitive advantages in high competitive markets (Pradhan, 2006). Innovation plays a decisive role in highly competitive markets especially when there is conflict between rivalries and there is a need to bring out change and differentiation. In retailing, innovation is a blend of two formats bringing out the third new one to dominate market segments. It is often that retail brands operate on similar products and this is what brings the conflict in the market (Pradhan, 2006). The conflict (competition) can be managed when brands are persistent on innovation and modification. This may require the true understanding of the environment that is integral part of brand system and innovation (Pradhan, 2006). For retailer brands, environments are very important including factors of politics, legislations, economics and the market in which they are operating (Rao, 2009). All such factors influence the brand position especially when the brand is shifting from one business phase (inception) to another (maturity). Hence retail strategists have to come on adjustment with the environment, as by sketching the outer big picture they are able to produce sound internal management policies (Rao, 2009). Features of Retail Management For developing an overall impact it is needed that retailers improve at all side of the business. Improvement in key functioning areas including logistics (fast moving), IT (better service) and inventory (better stocks) is all part of retail management strategy (Pradhan, 2006). Continuous improvement is essential which comes after continuous updating and modification. Apart from all, pricing is the most important stage because price is the only factor that holds major influence for customer perception (Pradhan, 2006). Customer perception can inevitably be changed if price is relativistic and according to the buyers’ price assessment. In pricing there are many options opened for retailers as there is a huge product diversity and mass customer population to accept the price change. A right product mix that fits to retailing is one which addresses buyer’s perception, behaviour and affordability characteristics (Pradhan, 2006). 3. House of Fraser Overview of the Company: House of Fraser                      House of Fraser (HF) is a renowned name in the retail market, with 62 stores all over the United Kingdom and Ireland (House of Fraser, 2013). HF does not manufacture its own bran, but acts as the distributor for several brands. The range of brands includes household items, sports good, cloth wear and many other varieties of products. One reason of the huge popularity of its stores is because of its retail management strategy, which helps companies to reach more people with fewer efforts (Experian, 2011). The company is doing business since 1849 and has taken a significance place in the market over the years. Its headquarters in London and other stores over UK shoes that it chooses prime locations which can earn the company with immediate growth and profits. House of Fraser has started its new service on online buying by the name of “Buy and Collect” which has also proved to be a great innovation in giving ease to customers and therefore, ensuring further success (House of Fraser, 2013). Retail Strategy and Management of House of Fraser The retail strategy of HF can be marked distinct from its competitors, which plays an important role in the company’s tremendous expansion and standing different from the others in the market. Some prominent features of its retail strategy and management include its value chain and quality management. Value Chain Management The value chain management is one important feature in the success of HF. Having a strong hold in the retail market with enormous of suppliers it is hard to satisfy demands of each one. However, HF had adopted several strategies over the years to effectively collaborate and deal with its suppliers. Its recent aid from Accenture, in the acquisition process with Jenners, enabled the company to marvel further in the retail field, getting the power of merger and opening room for further expansion. In addition to this, its Inovis technology has helped in building better communication channel with its suppliers, where the supplier will have complete information about their product’s prices, location and quantity in their stores (Accenture, 2009). To further assess the value chain management of the HF, we can incorporate the “Gaps Model” as proposed by Levy and Weitz. According to this model, the gap between customer expectations and management perception of customer’s expectations can prove costly for the company. HF has maintained its core competency of ‘luxury’ and thus minimizes this gap between customer and management. Moreover, promoting and selling others product, there always remains a threat of customer diversion, if the brands it is promoting are not able to maintain their standards. For this reason, HF has adopted a quality assurance procedure, with which it verifies the standard of the product, before promoting it in its stores (Gary Akehurst, 1995). Quality Assurance Management Unlike the testing procedures followed in some of HF’s major competitors like Cruise and The Flannels Group, the testing and quality assurance procedure in HF is well structured and systematic. Other than this, HF products justify the set of regulations introduced by the HF Quality Assurance Committee. In addition to this, the concept of strengths highlighted in the cyclic theory, is closely related in retail business where managing the number of suppliers and keeping a track of emerging brands is one of the greatest strengths in the retail industry (Pradhan 2006). This gives an upper hand to HF over its other competitors in the market as it targets the brand companies, before other retailers (National Association of Health Stores, 2009). Controllable Factors Affecting Retail Strategy HF has placed a great importance to its HR, to strengthen its internal and external communication links and work force. The quality assurance measure, as mentioned above, not only provides satisfaction to its customers, but also creates a safety environment for its workers. The human resource management of HF keeps updating its suppliers with customer’s demands and complaints, which saves many emerging suppliers from conducting costly surveys of customer interests (Retail Week, 2011). In the retailing industry, convenience to customers is of high importance, which HF achieves with its advance information technology incorporation. A recent report of sales of HF shows that its online sales increased to around 92% in 2012 in comparison to the previous year. Moreover, it has enlarged the captions and tags in its website, which provides more ease to customers in finding their desired product of the desired company (Hadfield, 2012). In HF, and in all other retail stores, pricing holds a fundamental place, which defines the profit margin and revenue of the company. HF stands distinct in its product pricing, and that gives it a lavish advantage to its image (Barnett, 2011). In comparison to many of its competitors, prices set in HF are quite higher, and this is one reason that people who buy from the house of Fraser are considered royals. A report in the Marketing Week says that the HF is 17.7% more expensive in its clothing sector than the averaged clothing merchandisers in the UK. This depicts that the company attracts it customers by its pricing, with gives the impact of better quality and improved customer services (Barnett, 2011). SWOT Analysis of House of Fraser Strengths Its Inovis Data Synchronization service has provided a single point of communication for data accusation, reducing the time and mistakes that occurred in collecting and synchronizing product data (Supply Chain Europe Magazine, 2013). It has adopted the fashion trend of UK in its clothes wear, which has further lifted its luxurious image (House of Fraser, 2013). With its IT technology, it has given the ease of online buying, ordering and reviewing product list of the newly launched products. The company has enhanced largely in its in-house merchandizing and order management, both from the supplier and customer side (SEO Concult, 2011). Weaknesses The company has to bear a large price for managing its online database and e-ordering. The factor of recession is forcing the people towards cheaper products, thus diverting from the product range of HF. Several other cloths and beauty products retailers in UK, offers more reasonable prices for almost the same product quality and brand name. The company relies on companies for media advertisements of their products, and has no such campaign to make customers feel good and valued, when they buy the same brand from the House of Fraser (Scott & Walker, 2008). Opportunities The company can use their good reputation to expand their stores beyond UK (Forsgren, 2008).There is always an opportunity of attracting more customers by cutting down the retail profit margin, and compensating it through massive sales (Pradhan, 2006). The company can open multiple stores within one city, in a less developed area, to further tighten the retail market competition (Pradhan, 2006). Threats Commoditization can allow other competitors offering lowers prices to win over the market share of the company (Experian, 2011). The cost on opening new stores can hurt company’s revenue if it fails to adapt with the retail strategies and socio-political environment in those regions (Scott & Walker, 2008). 4. Harrods Overview of the Company: Harrods Harrods is one of the biggest department stores throughout the Europe, as the department store covers 5 acres. The department store of Harrods is located in London and it is run by the Harrods group of companies. The Harrods group of companies has other business, in which Harrods Bank, Harrods Aviation and Harrods Estate are the most prominent businesses of this group. It is one of the emerging luxury departmental stores of Europe, as it serves its consumers with top quality luxury items. The store is quite convenient for the residents of London because it covers everything, including furniture, food, sportswear and fashion. Additionally, the store consists on a seven-storied height building, though everything related to house and luxury is available at the store (General Books LLC, 2010). As the store of Harrods sell its own brands and it does not keep other brands at its department store; therefore, its management holds a greater responsibility when it comes to keeping store and brand’s position prominent among the retail competitors of UK. On the other hand, this retail company is not multinational and runs its business by holding an approach of business localization. This retail company has around 5000 employees to control and operate its business functions. The store cannot be compared with Marks & Spencer and Sainsbury because it sells its own brands at its store; however, other retail stores sell other brands though they have to keep their store services effective to attract the customers. Harrods has been striving in the field of retailing for the last 162 years and has earned successful reputation across the world, through its luxury brands (General Books LLC, 2010). Retail Strategy and Management of Harrods Harrods, being a London-based retail organization has been running its business operations with holding localized marketing strategy. As the company has gained successful recognition throughout the London; therefore, it spread its business approach in digital channel as well. Value Chain Management When it comes to choose a strategic approach and planning of the resources, value chain management influences both of the activities. As Harrods is an exclusive department store, runs its activities through making links with its merchandize. Being a discount retailer, organization attains the competitive advantage by making its linkages with its suppliers to support the offerings of lower cost, which later supports the lowest price offering. Moreover, in order to fulfil the purpose, Gaps model has been found significant to assess the retailer of Harrods. The existing gap between customer expectations from the company and management perception about customer expectation is controlled and monitored through small surveys. The company is found inclined to gain the feedback of its consumers to remove the existing gap if any (Levy & Weitz, 2011). Quality Assurance Management In Harrods, Quality Assurance Management system is truly effective to ensure the quality from product development to the services at its store. Suppliers are the main supporters when quality assurance functions are to be done by the organization. Every product is tested and assessed in Harrods by its quality assurance management to deliver the quality from product manufacturing till the services. As the company has strategic management; thus, its quality assurance management also runs its function in strategic ways. Controllable Factors Affecting Retail Strategy When it comes to controllable factors in Harrods’ retail strategy, Human Resource Management, information technology and pricing are the factors that serve in implementing the retail strategy of Harrods successfully. The recruitment process in Harrods is thoroughly strategic, as hiring is done on the basis of its own standards designed for its employees. On the other hand, convenience providence is the main purpose of an organization; therefore, use of information technology in the stores and factories is necessary to make the products and services effective for its consumers. Pricing is also controlled by the authorities in order to be competitive in the retail market. Price of the products is solely controlled by the executive management of the store, which is determined after assessing the cost of raw materials of the products along with measuring the cost of the services provided by the store (Gary Akehurst, 1995). SWOT Analysis of Harrods Strength One of greatest strengths of Harrods is its rich history and heritage. The company also has broad merchandize selection, which serves in attracting all the consumers. Both of the product and service quality are higher in all ways. The store of Harrods can serve its consumers with a magical experience. Moreover, the company also has quite effective connection with global designers because sit ensures the presence of the Harrods products in United States too (General Books LLC, 2010). Weaknesses The retail company of Harrods has a lack of vendors and distribution channels; therefore, it cannot offer its widest range of products to the other region of the world. As the company keeps its own brands in the store; therefore, inclination of the people also vary according to the personal choice (Tolga, 2010). Opportunities After achieving appreciations from UK, company always has an opportunity to open its stores in other parts of the world. By doing so, brand can get good recognition and well reputation in other parts of the world as it is a significant initiative for enhancing the economic growth of the company (General Books LLC, 2010). Threats Every retail company always has threats from the ongoing competition in the sector. It has been seen that the company has been facing threats of policy changing in UK retiling terms. Moreover, new entrants in the UK market can also be threatening for the store of Harrods (Gillespie, 2001). 5. Comparison While comparing the retail organizations of House of Fraser and Harrods, one of the common approaches held by them is the implementation of the strategic management. The theory of internationalization has been adopted by House of Fraser; however, Harrods is still is quite away from the application of this theory. Both of the organizations have different nature of the business, as Harrods sell its own brands; however, House of Fraser keeps others brands at its stores across the UK. Therefore, there are various differences sin there approach, but when it comes to deliver quality services at stores both of the retailers are found keeping their IT usage at top to serve their consumers with convenience at every step (Levy & Weitz, 2011). 6. Conclusion By the development of the paper, many of the significant information have been collected about the retailing, strategies and retail environment of UK. It has been analyzed that the retail sector of UK is quite competitive, due to the presence of top retailers of Morrisons, Sainsbury’s and Walmart. On the other hand, two of the retail companies of Harrods and House of Fraser have also been analyzed in the paper, which gave significant outcomes about their individual business nature. It has been evaluated that Harrods has quite a different business nature than House of Fraser, because this company is runs its business on localization approach and sells its own retail brands. While, House of Fraser has been observed running on internationalization approach, as it operates its 61 stores throughout the UK. Additionally, House of Fraser is observed selling the others brands, though it is purely a service based company. However, while comparing both of the retailers, threats faced by them are found quite similar due to the existence of multinational retailers in UK. List of References Accenture, 2009. 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