Retail Industry in the UK - Essay Example

?Retail Industry in the UK Word Count: 2,590 Table of Contents Table of Contents 2 INTRODUCTION 3 FINDINGS 3 REVIEW OF RETAIL INDUSTRY FOR THE LAST QUARTER OF 2011 4 ANALYSIS OF COMPETITION, MARKET DEVELOPMENT, PROFITABILITY AND CONSUMER SPENDING AND BEHAVIOUR 6 Competition in UK Retail Industry 6 Market Development and Profitability 7 Consumer Spending and Behaviour 7 POTENTIAL OR PROBLEMS FOR RETAILERS 8 CONCLUSION 8 REFERENCES 10 INTRODUCTION Retail industry in the UK is one of the biggest industries and it is still growing notwithstanding the economic conditions in the region. In the year 2009, retail sales in the UK amounted to over ?285 billion and the total amount of sales kept growing in the later years. In the year 2010, total value of retail sales in the UK were ?293 billion. From the trend it can be inferred that the industry is growing with the passage of time. The retail industry in the UK is also one of the biggest sources of employment in the region. In the year 2010, the industry was responsible for the creation of additional 12,750 full time jobs and the total number of jobs increased by 2.1% in comparison with the previous year. The total number of people employed by the industry in the year 2010 was 2.9 million which roughly accounts for the 11% of the total workforce in the UK. From this fact, it can be inferred that the retail industry holds a very prominent position in the economy of the UK. From economic activity to employment, the retail industry affects a number of factors in the economy of the UK. In 2010, there were 286,680 retail outlets in the UK and the number has grown in the year 2011. More than a third of the total consumer spending the region goes through shops. Retail industry generates around 5% of the Gross Domestic Product of the UK. Consumers are also taking interest in shopping over internet and the sales over internet account for around 7% of the total retail sales and the number is estimated to grow significantly. FINDINGS Retail industry is one of the strongest industries in the UK. The industry has witnessed significant growth in the recent years. Every industry is influenced by certain economic and social factors and in case of retail industry the most important economic factor is inflation. With the rise in inflation, the prices of consumer products also rise. Thus the consumers refrain from buying and the overall retail sales go down. Other social factors that may influence the retail industry may be the prevailing trends in clothing and the weather conditions. Such are the indicators that help the retailers take steps proactively in order to save themselves from any significant impact. The following review of the retail industry in the UK would also focus on the impact of such economic and social factors in the last quarter of the year 2011. REVIEW OF RETAIL INDUSTRY FOR THE LAST QUARTER OF 2011 The start of the last quarter of 2011 was slow for the retail industry in the UK however the sales grew significantly towards the end of the quarter. There were a number of economic and other factors responsible for the trend of sales observed in the last quarter of 2011. One of the most important factors behind this trend of sales volume was Christmas which always impacts the retail industry positively. A boost in the internet sales was also witnessed in this quarter. Following is the month by month review of the retail industry in the UK for the last quarter of 2011. Retail Industry in October 2011 The overall retail sales volume increased by 0.6% in the month of October as compared to the previous month. This increase was higher than what was expected by the economists. The absence of any social factors to cause an increase in the sales volume led the economists to estimate a decline in the sales volume in comparison with the previous month but the sales volume increased. The benefit of this increase in sales was enjoyed mostly by the small retailers while the large stores had to lose their overall sales volume. The increase in the sales volume of the small retailer increased by 5.3%, on the other hand large stores had to witness a decline of 0.3% of the sales volume. According to the British Retail Consortium (BRC), the overall increase in the sales volume was caused by food. Statistically, 4.9% of the growth in sales was because of the increase in sales of food while only 0.2% of the overall increase was represented by non-food products. It was also reported by the BRC that items having high monetary value such as clothing and footwear had to suffer the most because of the unseasonably mild weather. The sales of items such as homewares were also driven by deals. Uncertainty regarding the financial conditions drove the consumers to opt for essential items and the discretionary items were not given any importance by the consumers (Retail Economics 2011). If inflation is taken into account, it can be inferred that the overall sales volume declined sharply as compared to last year. However, in comparison with the previous month, retail inflation dropped to 2.1% from previous month’s 2.7%. This rate of retail inflation was the lowest since December 2010. This decline in the rate of inflation was caused by the decline in the rate of food inflation. This drop in inflation could account for the increase in monthly sales volume however the trend of consumer spending was more towards the essential products. The trend of consumer spending declined for four quarters and retailers faced a challenge to bring the sales volume to normality and had to offer huge discounts to the consumers (Retail Economics 2011). Retail Industry in November 2011 The overall retail sales volume in November fell by 0.4% as compared to the previous month. In this month, small retailers continued to perform better than the large retailers. The industry also witnessed an increase in the sales over internet. It was estimated that the overall online sales accounted for 12.2% of the total retail sales which was the highest proportion of online sales recorded till then. With comparison to the previous year, the overall retail sales grew in respect of small retailers and online sales however the retail sales continued to declined with respect to large retailers. Due to the uncertainty regarding jobs and income, retail sales of products like clothes and footwear fell marginally. Retail sales of food also declined in the month of November. The poor retail industry statistics in the month of November can be related to the deteriorating economic scenario of the region. The rise in unemployment, weak consumer confidence and the continuous decline in the household disposable income are the major economic factors responsible for the decline in the retail sales in the month of November (Retail Economics 2011). Due to the prevailing recession, inflation rates continued to fall. In the month of November, shop price inflation fell to a comparatively low rate of 2.0%. This fall in the rate of inflation was caused by the falling food inflation. The reasons behind the continuous fall in food inflation were reported to be fierce competition in the grocery sector and the resulting supermarket wars. As a result of the competition in the market, a number of commodities such as sugar, wheat and cocoa fell in price year on year while other commodities also declined in prices sharply. In case of electrical items and clothing and footwear, discounting remained to be the only tool to keep the sales going, mostly through internet sales (Retail Economics 2011). Retail Industry in December 2011 December witnessed a revival in the retail industry as the sales volume picked up better than the expectations. In the month of December total retail sales increased by 4.1%. This growth in the retail sales was the strongest witnessed in year 2011. The overall increase in retail sales was expected in comparison with the last year’s increased because of severe snow disruptions last year. However, the actual growth in retail sales in December surpassed the expectations of the economists. Considering the continued pressure on the consumers due to the prevailing economic conditions and the limitations on the household budgets, the growth rate in the month was not expected to be such sharp. The trend of sales was high with regard to all kinds of items due to the Christmas Eve. Joining the previous trend, food sales picked up in this month as well however the increase in this month was rather sharper. Non-food sales also improved but once again the sales were driven by promotions and due to the expenses of promotions, the sales did not turn much margin for the retailers (Retail Economics 2012). The non-store sales i.e. sales through internet, mail order and phone picked up sharply in the month of December. The increasing trend in the online sales is caused by the increasing availability of internet services through smartphones. People are able to access the online store services more easily than before. With the increase in smartphones and mobile internet devices, the online sales have witnessed a sharp increase and this trend is expected to increase even more in the near future (Retail Economics 2012). The shop inflation continued to fall as the trend suggests. The rate of inflation fell to 1.7% from 2.0% of November. This fall in the rate of inflation was led by the fall in inflation of non-food which fell to 0.3%. According to experts, competition in the market and significant discounts are responsible for the steep fall in the non-food inflation. Food inflation rose against the falling trend. Food inflation rose to 4.2% from 4.0% from the previous month (Retail Economics 2012). ANALYSIS OF COMPETITION, MARKET DEVELOPMENT, PROFITABILITY AND CONSUMER SPENDING AND BEHAVIOUR Due to a large number of firms in the industry, retail industry is highly developed in the UK. Following is analysis regarding the competition, market development, profitability and consumer spending and behaviour in the UK retail industry. Competition in UK Retail Industry The retail industry in the UK is a highly competitive industry due to the presence of a large number of retailers in the market. In order to survive in the industry, the large retailers follow their competitive strategies which results in a highly competitive environment. Some of the top retailer in the UK are; Tesco Plc, Asda Group Ltd, J Sainsbury Plc, Wm Morrison Supermarkets Plc, Marks & Spencer Plc etc (Retail Economics 2011). All these names are known all around the globe and this popularity explains the size of operations of these retailers. These retailers have a large number of outlets throughout the UK and some of the retailers are the subsidiaries of other multinational retail companies. Tesco Plc, for example, has 2,545 stores all around the UK while Marks & Spencer Plc has 690 stores. This large number of retailers in the UK and even larger number of total stores explains the high competitiveness in the retail industry in the UK. Due to the high competitiveness in the industry, the large retailers are only able to survive in the industry with an effective competitive strategy. The competitive strategies mostly include extensive promotions and huge discounts. In the recent past, most of the sales have been driven by such promotions. However, these competitive strategies are causing the retailers to shrink their overall margin. Market Development and Profitability Due to the presence of a large number of firms in the industry and the extensive promotional strategies, the market is sufficiently developed. Market developed in the retail industry is also driven by the essential items such as food. While the market development of the non-food products is mostly based on the marketing strategies and promotions. The profitability of the industry is high but the recent economic scenario in the region has impacted the retail industry severely. The sales volume is mostly based on discounts and promotions therefore it leaves minimum margin for the retailers. Thus the retailers are unable to derive optimum profits from the sales. The sales value is also affected by the overall competitiveness of the industry, thus the discounts offered by supermarkets impact the overall prices of products in the market. Consumer Spending and Behaviour Consumer spending and behaviour are driven by a number of factors. Economic factors such as; inflation and taxes impact the consumer spending significantly. Social factors such as prevailing fashion trends and weather also affect the consumer spending trends. Other factors that influence the consumer spending and behaviour are the promotions and discounts offered by the retailers. From the analysis of the last quarter of 2011, it can be inferred that consumers only opt for essential items while the discretionary items are not given any priority due to uncertainty regarding employment and income. The sales of discretionary items are driven by promotions and discounts. The consumer spending trend rose towards the end of the quarter due to the Christmas Eve however this increase is only confined to that specific time and it is bound to decline again. POTENTIAL OR PROBLEMS FOR RETAILERS There are a number of factors that pose significant threats to the retailers. Such factors include economic, social, technological and legal factors. From economic perspective, any change in the rate of inflation affects the overall sales volume thus it impacts the retailers. Any change in tax rates changes the disposable income of the consumers thus influencing their purchasing power. Any change in the economic conditions poses significant problems to the retailers and as a result, retailers need to modify their strategies accordingly (Newman & Cullen 2009). For example; retailers may need to offer further discounts if the sales of any category of products are affected by the rise in inflation. Any unforeseen change in social trends also poses a problem for the retailers. For example; in case of clothing and footwear, the inventory may become slow-moving if the social trends change and the available inventory loses its demand among the consumers. Legal factors such as any change in the regulations relevant to the business of retailing may pose problems for the retailers. Therefore, retailers may need to modify their strategies proactively in order to avert any upcoming crisis. CONCLUSION It can be concluded that the retail industry in the UK is one of the most important industries of the region as it generates a significant proportion of the overall economic activity. The retail industry in the UK is one of the largest employers in the region. The retail industry, despite its huge size, is still expanding and due to the expansion of the industry, new employment opportunities are being created in the UK. The retail industry in the UK is significantly impacted by the prevailing economic conditions in the region. The online sales are also increasing at a rapid pace due to the availability of mobile internet devices and smartphones. Consumers are able to access online stores easily thus there has been significant increase in the online sales. From the analysis of the last quarter of year 2011, it can be inferred that for the months of October and November, the overall sales volume did not increase by any commendable number. This was because of the uncertainty among people regarding employment and income therefore consumers opted to spend only on the essential items and the discretionary items were left behind. The sales of food were driven by the discounts offered as a result of the supermarket wars. The overall sales volume was driven by promotions and discounts. However, in the month of December, the rise in retail sales volume surpassed the expectations of the economists and there was rise in the sales of both food and non-food items. The competitiveness in the retail industry in the UK is very high because of a large number of firms operating in the industry. REFERENCES BRC. (2011) Retail Stats and Facts. [Internet]. Available from http://www.brc.org.uk/brc_stats_and_facts.asp [21 January 2012] Newman, A., Cullen, P. (2009) Retailing: Environment & Operations. Cengage Learning. RetailEconomics. (2011) Top 10 UK Retailers. [Internet]. Available from http://www.retaileconomics.co.uk/top-10-retailers/ [21 January 2012] RetailEconomics. (2012) Retail Inflation – December 2011. [Internet]. Available from http://www.retaileconomics.co.uk/retail-inflation-december-2011/ [19 January 2012] Retail Economics. (2012) Retail Sales – December 2011. [Internet]. Available from http://www.retaileconomics.co.uk/retail-sales-december-2011/ [19 January 2012] Retail Economics. (2012) Internet Retailing – Christmas 2011. [Internet]. Available from http://www.retaileconomics.co.uk/internet-retailing-christmas-2011/ [20 January 2012] RetailEconomics. (2011) Retail Inflation – November 2011. [Internet]. Available from [19 January 2012] Retail Economics. (2011) Retail Sales – November 2011. [Internet]. Available from [19 January 2012] RetailEconomics. (2011) Retail Inflation – October 2011. [Internet]. Available from < http://www.retaileconomics.co.uk/retail-inflation-october-2011/> [19 January 2012] Retail Economics. (2011) Retail Sales – October 2011. [Internet]. Available from < http://www.retaileconomics.co.uk/retail-sales-october-2011/> [19 January 2012] Read More