RETAIL ENVIRONMENT

THE
THE RETAILER’S
RETAILER’S ENVIRONMENT
ENVIRONMENT

• EXTERNAL ENVIRONMENT
– Everything outside a retail organization’s boundaries-
economic, legal, political, socio-cultural, international,
and technical forces.
– General environment is a set of broad dimensions and forces
in an organization’s surroundings that determine its overall
context.
– Task environment is composed of specific groups and
organizations that affect the firm.

• INTERNAL ENVIRONMENT
– Conditions and forces within an organization.
 The
The Retailer
Retailer and
and Its
Its Environments
Environments

Demographic
dimension
Technological
dimension
International Competitors
dimension

Owners
Regulators Customers
Political- Employees
Physical environment
legal Board of directors
dimension Culture Economic
dimension
Strategic Suppliers
partners

Sociocultural
Internal environment
Dime-nsion
Task environment External
General environment environment
 THE
THE GENERAL
GENERAL ENVIRONMENT
ENVIRONMENT

Political-Legal Factors

The political arena has a huge influence upon the regulation of businesses,
and the spending power of consumers and other businesses. Issues to be
considered are:

1.How stable is the political environment?

2.Will government policy influence laws that regulate or tax the retail
business?
3.What is the government's position on retail ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
 THE
THE GENERAL
GENERAL ENVIRONMENT
ENVIRONMENT

Economic Factors.

Retailers need to consider the state of an economy in the short

and long-terms. This is especially true when planning for international
retailing.
Factors to be considered are:

1. Interest rates.
2. The level of inflation.
3. Employment level.
4. Long-term prospects for the economy. Gross Domestic Product (GDP).
5. Personal savings rates.
6. Business savings rates.
 THE
THE GENERAL
GENERAL ENVIRONMENT
ENVIRONMENT

Socio-cultural Factors

The social and cultural influences on business vary from country to

country. It is very important that such factors are considered.

1.What is the dominant religion?

2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
 THE
THE GENERAL
GENERAL ENVIRONMENT
ENVIRONMENT

Technological Factors

echnology is vital for competitive advantage, and is a major driver of

lobalization. Retailers consider the following points:

. Does technology allow for products and services to be made more

heaply and to a better standard of quality?

.Do the technologies offer consumers and businesses more innovative

roducts and services such as Internet banking, new generation mobile
elephones, etc?

.How is distribution changed by new technologies e.g. books via the

nternet, flight tickets, auctions, etc?

.Does technology offer companies a new way to communicate with

onsumers e.g. banners, Customer Relationship Management (CRM), etc?
 THE
THE GENERAL
GENERAL ENVIRONMENT
ENVIRONMENT

Demographic Environment

Demography focuses on population structure, processes and dynamics.

Retailers monitor the population, because population make up markets.

They are interested in the size and growth rate of population in cities,
regions and nations; age distribution and ethnic mix, educational levels,
household patterns, and regional characteristics and movements.

Demographics involve study of :

•Population size
•Age structure
•Geographic distribution
•Ethnic mix
•Income distribution

Each group has certain specific wants and buying habits. Food,
clothing and furniture retailers direct their products and promotions to one
or more of these groups.
 THE
THE GENERAL
GENERAL ENVIRONMENT
ENVIRONMENT

Natural Environment

Retailers need to be aware of the threats and opportunities associated

with four trends in the natural environment:

1. The shortage of raw materials, especially water.

2. The increased cost of energy
3. Increased pollution levels

The soap industry had to increase its product’s biodegradability; the

automobile industry had to introduce expensive emission controls in cars.
 THE
THE TASK
TASK ENVIRONMENT
ENVIRONMENT

The Task Environment

Specific groups affecting the organization

• Competitors seeking the same resources as the retailer.
• Customers who acquire a retailer’s products or resources.
• Suppliers that provide resources for the retailer.
• Regulators (agencies and interest groups) that control,
legislate, or influence the retailer’s policies and practices.
• Strategic partners (allies) who are in a joint venture or
partnership with the retailer.
McDonald’s
McDonald’sTask
TaskEnvironment
Environment
 INDUSTRY ENVIRONMENT

• Five competitive forces directly influence a retailer and its competitive

actions and responses.

• Interaction among these factors determine an industry’s profit

potential.

Five forces are:

• Threat of new entrants

• Power of suppliers
• Power of buyers
• Product substitutes
• Intensity of rivalry
 Five Forces Model of Competition

New Entrants

Intensity of Suppliers
Buyers
Rivalry

Substitutes
 Threat of New Entrants

The retailer experiences reduced threat if barriers to entry are present.

Barriers to entry exist if there are/is:

• Economies of scale
• Product differentiation
• High capital requirements
• High experience or learning curve
• High switching costs
• Firm’s control access to distribution channels
• Firm’s control access to raw materials
• Government policy
• Expected retaliation (full-scale counterattack)
Bargaining Power of Suppliers

Supplier power is high when:

• Products in the selling industry are unique (high switching costs, no

substitutes)
•The selling industry is concentrated

Bargaining Power of Buyers

Buyer power is high when:

•The buying industry is concentrated

•Size or volume of purchases are large
•Products are standardized
•There are low switching costs
•Threat of backward integration is high
•Buyers industry is price sensitive
Threat of Substitute Products

Substitute products are a threat when:

• There are low switching costs
• Substitutes have high performance or value/price
• The substitute product is lower priced

Intensity of Rivalry among Competitors

Rivalry is high when:

• There is low industry growth
• There is equality of size and power product
• The product lacks differentiation
• There are high exit barriers
• There are high fixed costs
• Diverse set of competitors (no rules)
 THE
THEINTERNAL
INTERNALENVIRONMENT
ENVIRONMENT

Conditions and stakeholder forces within an organization.

– Owners with legal property rights to a business.
– Board of directors elected by the stockholders to oversee the
general management of the firm to best serve the
stockholders’ interest.
– Employees who work for the retailer and have a vested
interest in its continued operation and existence.
– Physical work environment of the organization and the
work that people do.
KEY ASPECTS OF INTERNAL ENVIRONMENT

RESOURCES

Tangible and intangible assets that the company uses to implement

strategy.

Tangible resources
•Observable assets and easily quantified
•Plants, offices, raw materials, patents, etc

Intangible resources
•Harder to observe and more difficult to quantify
•Knowledge, organizational culture, R&D etc.
Tangible Resources

•Financial resources

•Physical resources
-Plants, equipment etc.

•Technological resources
-Patents, trademarks etc.

•Organizational resources
-Formal planning, control systems.
Intangible Resources

•Human resources
-Refers to knowledge, trust and talents.

•Innovation resources
-Skills needed to develop new and innovative products
SWOT ANALYSIS

Strengths, Weaknesses, Opportunities and Threats (SWOT).

SWOT analysis is a tool for auditing a retailer and its environment.

It is the first stage of planning and helps retailers to focus on key issues.

SWOT stands for strengths, weaknesses, opportunities, and threats.

Strengths and weaknesses are internal factors.

Opportunities and threats are external factors.
In SWOT, strengths and weaknesses are internal factors.

A strength is something a retailer does well or an attribute that

enhances its competitiveness.

For example: A strength could be:

•Specialist marketing expertise.
•A new, innovative product or service.
•Location of business.
•Quality processes and procedures.
•Any other aspect of business that adds value to product or service.

A weakness is something a firm lacks, does poorly, or a condition

placing it at a disadvantage.

A weakness could be:

•Lack of marketing expertise.
•Undifferentiated products or services (i.e. in relation to competitors).
•Location of business.
•Poor quality goods or services.
•Damaged reputation.
In SWOT, opportunities and threats are external factors.

For example: An opportunity could be:

•A developing market such as the Internet.
•Mergers, joint ventures or strategic alliances.
•Moving into new market segments that offer improved profits.
•A new international market.
•A market vacated by an ineffective competitor.

A threat could be:

•A new competitor in home market.
•Price wars with competitors.
•A competitor has a new, innovative product or service.
•Competitors have superior access to channels of distribution.
•Taxation is introduced on product or service.
ROLE OF SWOT ANALYSIS IN CRAFTING A BETTER STRATEGY

The most important part of S W O T analysis is not developing the 4

lists of strengths, weaknesses, opportunities, and threats, but rather-

•Using the 4 lists to draw conclusions about a company’s overall

situation and

•Acting on the conclusions to

-better match a company’s strategy to its resource strengths and
market opportunities,
-correct the important weaknesses, and,
-defend against external threats.
THE LIMITATIONS OF SWOT ANALYSIS

• Strengths may not lead to an advantage

• SWOT’s focus on the external environment is too narrow
• SWOT gives a one-shot view of a moving target
• SWOT overemphasizes a single dimension of strategy
NIKE SWOT ANALYSIS

Strengths - Nike is a very competitive organization. Phil Knight (Founder

and CEO) is often quoted as saying that 'Business is war without bullets.

'Weaknesses - The organization does have a diversified range of sports

products.

Opportunities - Product development offers Nike many opportunities.

Threats - Nike is exposed to the international nature of trade.