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The Retail Environment



Learning outcomes

By the end of the lesson students will be

able to:

� Describe the key MACRO environmentalfactors that affect retailers

� Explain Porter¶s Five Forces analysis



Macro Environment

DEFINITION:

Includes the economy, technology, society,government and the competitive

environmental factors that can influence an

organisation but are outside of its direct

control.



The MACRO environment

� Retailers are subjected to externalevents and developments of which theyhave no control.

� These developments can include:

1. Changes in housing market

2. Variations in employment levels

3. Changes in consumer and businessconfidence

4. Current economic climate



Impact of Government policy in the

retail environment� Sunday Trading Act 1994 governs a

shop¶s legal right to trade on a Sunday

� Larger stores of more than 280 squaremetres are restricted to six hours (10am ±

4pm)



Government Policy Planning:

PPS6 (planning policy statement)The core principle of PPS6:

1. Planning for Town Centres is

sustainable development leading tovital and viable town centres.

2. Planning must follow a sequentialapproach

3. Town centres are to be the first choicefor new developments.



Sequential approach cont.

� The sequential approach of searching for

sites in an order of preference:

1. Town centres2. Edge-of-town centre

3. Local centre

4. Out-of±town location



Matalan is one of a small number of retailers whoseµconcept¶ requires that they operate exclusively from aparticular format of store, which they claim needs to beon a large out-of-centre site.

Unlike some warehouse clubs, Matalan does not claim tobe anything other than a retailer. However, their argument is that, because of the nature of their retailoperation, it is not feasible to operate from town centre

locations.

What arguments would Matalan use for an out of townlocation?

Question: Matalan



Answer: Matalan

Matalan argue that the only way it can afford to sell qualitygoods at low prices is by selling in bulk, and takingadvantage of economies of scale.

This requires a large store, which is very difficult to locate

in a town centre.

The heavy discounts offered also require the lower costbase offered by an out-of-centre location.

If the sales were disaggregated into smaller stores in town

centres, each one µwould not be a Matalan¶ ± priceswould be forced up, and it would be impossible toguarantee satisfactory levels of stock upon whichMatalan currently relies.



Office of Fair Trading (OFT)

� Body established by the Enterprise Act

2002, which enforces both consumer

protection and competitive law.

� The OFT¶s goal is to make markets work

well for consumers by ensuring vigorous

competition



Society

� Demographical implications which impact UKsociety.

� Ageing population from last 2001 census morepeople aged over 65 than under 16.

� Decline in traditional family structure.

� Single ± person households and co-habitationhave risen

� Retailers need to offer pack sizes for singlepersons not just µfamily packs¶.

� More people drive which has increased thenumber of retail parks. Consumers prepared totravel.



Competitive environment

� Barriers to entry are obstacles put in theway of entering the marketplace.

� Entering the market will rely on marketingand financial muscle.

� Some sectors of the economy are moreeasy to enter than others.

� If you wanted to open a hair & beautysalon then the capital requirements arelow and training can be achieved quickly.



Competitive environment

� If we compare this with supermarkets then

clearly large companies benefit from

economies of scale.

� This makes it difficult to enter the market.

� Wal-Mart decided it would be too

expensive to build new stores in the UK.

� It entered the market by buying ASDA.



Mobile population

� The increase in the mobility of the

population is creating retail opportunities in

retail.

� The number of people who drive continues

to increase

� Retail outlets adapt to this very lucrative

market



Motorway service area (MSA)

� Currently over 100 MSA in the UK

� Open 365 days a year 24 hours a day

� Restricted on size; cannot sell alcohol nor can they advertise their brands

� Major retailers have µtapped¶ into this

market



Railway stations

� Passenger numbers on national rail

network are rising.

�Increase in convenience stores

� Retail experimentation attracting health &

beauty operators such as Boots, The Body

Shop and Superdrug

� Some busy ferry ports are developing in a

similar fashion



Airports

� The airport is developing into a hub for

commerce.

� Similar to the traditional city and outer suburbs,

the airport presents retail opportunities.

� Also known as µAerotropolis¶

� No longer for duty free

� Diverse range of shops to cater for workers andeven residents surrounding the airport



Porter¶s Five Forces Analysis

� Similar to the PESTLE the focus is on the

environment.

� Tends to focus on a single, stand alone,business

� Five key areas such: threat of entry, the

power of buyers, the power of suppliers,

the threat of substitutes, and competitive

rivalry.



The threat of entry.

� Economies of scale e.g. the benefits

associated with bulk purchasing

� The high or low cost of entry e.g. howmuch will it cost for the latest technology?

� Will competitors retaliate?

� Ease of access to distribution channels



The power of buyers.

� This is high where there a few, large players in a

market e.g. the large grocery chains.

� If there are a large number of undifferentiated,

small suppliers e.g. small farming businessessupplying the large grocery chains.

� The cost of switching between suppliers is low

e.g. from one fleet supplier of trucks to another.



The power of suppliers.

� Tends to be a reversal of the power of

buyers.

� Where the switching costs are high e.g.Switching from one software supplier to

another.



The threat of substitutes

� Where there is product-for-product

substitution e.g. email for fax

� Where there is generic substitution e.g.µWeetabix¶ to Asda¶s own µWheatbisks¶



Competitive Rivalry

� Likely to be high where entry is likely;

there is the threat of substitute products,

and suppliers and buyers in the market

attempt to control.

� This is why it is always seen in the center

of the diagram.

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