Various Issues Surrounding Retailing - Case Study Example

Issues in Retailing 0 Introduction: There are various issues surrounding the various retail companies in the UK. While these issues affect the working of the retailers in general, the retailers are taking steps to mitigate these issues so that they will be able to turn their operations into profitable ones. PricwaterhouseCoopers1 have identified these issues include: Constant reduction in prices due to competition and rising costs Growing tendency of mergers and acquisitions Management of an efficient supply chain and an adequate inventory control Sourcing of the material requirements overseas and compliance with corporate social responsibility Increased legislative and disclosure requirements with respect to accounting and financial and non-financial reporting Changing trends in the demography and consumer preferences Issues connected with the human resources management and Income and other taxation issues Each one of the above issues poses different problems to the retail companies which hinder the expansion of their business. Despite the problems four major retailers account for almost 75 percent of the food and non-food retailing in the UK. Apart from the above issues there are ethical issues specific to particular retailers that also have a major role to play in the development of the respective businesses. This paper makes a report on the ethical issues being faced by Tesco, a major retailer in the UK. 2.0 Key elements in the Ethical Issues being faced by Retailers in the UK: One of the key elements that have been identified in the ethical implications of the retail industry in the UK is with respect to the issues in the supply chain management especially those encountered by them in sourcing from overseas markets. Several groups of stakeholders have evinced greater interest in this phenomenon. "This interest by the media, investors, consumers, employees, the Government and NGOs has led companies to explore how they can best control and manage the ethical implications of increased sourcing from overseas markets."2 In order to ensure that the supply chain management of the retailers is an effective social compliance model from the ethical point of view the retailers specify that the manufacturers' facilities meet the local regulations concerning the compliances or they follow the codes of conduct specified by the retailers in this connection. For monitoring this, the retailers make use of the external agencies specialized in this area or some of them even employ their own full time specialist executives. This issue can as well be related to the term 'Ethical Trading'. Though there is no consensus on the definition of ethical trade at least in the UK context ethical trading refers to sourcing of products from companies that ensure better labour and human rights standards to their workforce which are part of the social compliance. Another key element in the ethical sphere that has a close connection with the retail industry can be identified in 'Fair Trading'. Fair trade has more development oriented specific aim of "[contributing]towards change in international relations in such a way that disadvantaged producers can increase their control over their own future, have a fair and just return for their work, continuity of income and decent working conditions through sustainable development."3 Though fair trading started with increased focus on the socio economic issues, with the passage of time there has been a shift in the focus towards meeting the environmental standards. Although the Ethical Trading Initiative (UK) does not mention anything about the environmental standards, several retailers have started to monitor the environmental performance of their suppliers. "For instance, through the Assured Produce scheme used in British agriculture and supported by many multiple retailers also involved in the Ethical Trading Initiative."4 It is often stressed that the ethical trading should not only focus on the socio-economic issues but also should cover the environmental issues as a part of the ethical requirements of retail business. There are different approaches that retailers may follow in doing an ethical trading. The first approach involves categorization of the products. By specifying the different categories of products that the retailer would deal in like for example organic food items there is a possibility that the retailer might make the manufacturers adhere to certain ethical standards. Another possibility is developing a kind of trading partnership between producer and buyer based on a long-term commitment, stability in the prices being offered and a larger involvement of the producer in the marketing efforts. However it must be remembered that ethical sourcing though sometimes refereed to as ethical trading is just concerned with the managing the social conditions of production but not looking through the trading relations. 3.0 Response to Ethical Issues by Tesco: In response to a letter in the Guardian newspaper Lucy Neville-Rolfe the Executive Director Corporate and Legal Affairs of Tesco has asserted that Tesco has two over-riding priorities with respect to 'ethical trading'. They are the welfare of the workers in their supply chain and ensuring a sustainable environmental impact5. In the recent months there have been quite a number of reports complaining about the poor pay and other working conditions of the workers in the retailers supply chains based especially in the developing countries and the reason for such poor working conditions is attributed to the way in which the retailers operate with those suppliers. However Tesco by establishing suitable standards in these areas and undertaking periodic auditing to ensure compliance of the terms set is able to attend to these issues in a positive way. The company also helps the suppliers to maintain their performance in complying with the standards and with the support from Tesco the suppliers are also able to improve upon them. 3.1 Standards adopted by Tesco on Ethical Trading: Being a founder member of the Ethical Trading Initiative (UK) (ETI) Tesco makes use of the base standards of the ETI as their standards to evaluate the performance of the suppliers. The base code of ETI incorporates the following standards: "Employment is freely chosen Freedom of association and the right to collective bargaining are respected Working conditions are safe and hygienic Child labour shall not be used Living wages are paid Working hours are not excessive No discrimination is practised Regular employment is provided No harsh or inhumane treatment is allowed"6 3.2 Grounds for Ethical Risks of Tesco: Tesco has identified the following risk areas affecting the ethical trading with the various suppliers in the supply chain and is trying to find solutions to mitigate the effect of these risks along its functioning. The risks identified by Tesco are: There are risks inherently associated with the location of the suppliers. Tesco makes use of a country matrix to identify the nature and extent of these risks and get them verified by independent external ethical consultancy agencies. There are also risks associated with the industry and nature of employment within the industry. Examples may be found in employing seasonal workers, home workers and subcontractors Based on the past relationship with the supplier Tesco is able to identify risks peculiar to the particular suppliers. Based on the above risk assessments Tesco forewarns the suppliers to take serious steps to adopt the ETI ethical standards to overcome the evil effects of these inherent and acquired risks. It is claimed that Tesco has conducted about 3000 such risk assessments covering nearly one million workers of its supply chain. 3.3 Other Ethical Issues of Concern for Tesco: There are numerous other issues concerning the progress of Tesco in the matter of meeting the ethical standards expected of a major retailer like Tesco. A brief description of these ethical issues is summarized below: 1. Corporate Social Responsibility (CSR): There have been criticisms about the CSR compliance and reporting by Tesco to which Tesco responded citing their splendid performance in the Business in the Community (BiTC) index and the popularity gained by them in the various opinion surveys. 2. The second issue relates to the suppliers' relationship where some of the practices adopted by Tesco are being observed as 'operating against the public interest' by the Competition Commission in the year 2000. Tesco has responded that they have taken the supermarket codes very seriously and practicing them to the maximum extent possible. 3. In the matter of support to British Farming "Tesco state that they are British agriculture's number one customer. Tesco's size no doubt means that this is the case"7 4. As regards the treatment of overseas workers there are a number of criticisms leveled against Tesco in the form of various reports like Oxfam's Trading Away Our Right's report dealing with the working conditions of farm workers in South Africa, Action Aid's "Rotten Fruit' report claiming on the payment of minimum wages for the workers in the African Fruit Farms and Banana Link report claiming a large scale violation of ETI base codes in the banana plantations of Costa Rica. On all these issues Tesco has taken serious steps in eliminating the complaints and improving upon the conditions complained upon. 5. In the matter of employment Tesco claims that the number of people working in retail has increased considerably and also claims that small grocery shops employ proportionately larger number of people than large retailers. This is evident from the fact that "In 2004, UK small grocery shops had a turnover of around 21 billion and employed more than 500,000 whilst Tesco, with a 29bn turnover, employed just 250,000 people."8 6. The other ethical issue being faced by Tesco is the community impact created by opening up of new Tesco stores. For instance in Hove by opening a new store Tesco has attracted more than 30,000 shoppers and this has affected the sales of local traders. However Tesco responds by stating that their presence can regenerate local communities and they make this claim based on research studies. 7. Another major issue that Tesco confronts is the environmental impact that extends to the increased use of energy, use of carrier bags by the customers, packaging wastage created by the retailer, usage of hazardous chemicals, offering genetically modified animal food and sourcing of palm oil and thus creating deforestation. In all these areas Tesco is taking considerable efforts to counter the claims and complaints being made against them. 4.0 Conclusion: From the foregoing it appears that a retailer simply because of its size and the magnitude of the business being undertaken by it is subjected to so many ethical issues whether to its liking or not. Hence it becomes absolutely essential for the retailers to give the same priority to the ethical issues as their financial goals as these issues are always catching the attention of many segments of the society most importantly the NGOs and the media. Bibliography: Fairtrade Foundation, Fairtrade Foundation Operating Manual Friends of the Earth (2005) 'Briefing the Tesco Takeover: Tesco's response to Our Report' http://www.foe.co.uk/resource/briefings/tesco_takeover_response.pdf Mike Blowfield 'Ethical Trade: A Review of Developments and Issues' http://www.nri.org/NRET/3wqart.pdf. Pricewaterhousecoopers 'Industry Issues' http://www.pwc.com/extweb/industry.nsf/docid/A2CF579DF3F025E08025709D004A3D66 Pricewaterhousecoopers 'Sourcing Overseas for the Retail Sector' http://www.pwc.com/uk/eng/about/svcs/PwC-SourcingOverseasPt2.pdf Tesco ' Talking Tesco: How We Compete' http://www.tesco.com/talkingtesco/news/page=article6 Read More