Pestle analysis retail industry australia

Strategic Management - Strategy Formation And Implementation

Executive Summary

This report will enable us to conduct a strategic analysis of Myer in the retail industry. Firstly, it will examine 6 macro-environment factors and impact on future growth of industry using PESTEL analysis. Secondly, it will examine 5 competitive forces and attractiveness on the industry using Porter’s Five Forces. Finally, it will examine which strategic capabilities allows Myer to gain unfaltering competitive advantage using activity systems and VRIO.

Table of Contents

Executive Summary……………………………………………………………1

1. Background Information…………………………………………...…………3

2. Macro-Environment Analysis………………………………………………3

3. Industry Analysis……………………………………………………………5

4. Internal Strategic Capabilities Analysis………………………………………7

5. Conclusion……………………………………………………………………9

6. Reference List………………………………………………………………10

MYER

1. Background Information

Myer (2017) is the biggest department store company in Australia with 11 main product sections and about 60 over retail establishments at strategic area in the country. Myer is fixed on being an inspiration to all stakeholders. Myer has many unparalleled stores stocked with prominent brands, assisted by its e-commerce platforms. This allows Myer to introduce a noteworthy omni-channel experience for customers regardless of shopping preferences. Myer’s strategy is aimed at providing a modern presentation of its brand, a pertinent and re-vitalised range of products, improve customer service and enhance retail experience via a solid omni-channel (Myer 2017). Myer’s profits in 2016 is $60.5 million (News.com.au 2016). Conversely, David Jones’s profit is about $168 million (McCauley 2016). Thus, David Jones has a competitive advantage over Myer.

2. Macro-Environment Analysis

According to Johnson et al. (2013), macro-environment comprises of six environmental aspects that affects almost every organisation. Thus, PESTEL framework will assist in examining issues arising from environments that will impact on organisation hereafter.

Political

According to Powell (2015), Trans-Pacific Partnership is formulated for commerce and growth of economy in Australia and 11 nations. It is a substantial free-trade agreement that reduce financial levies and duties of products, facilitating investments and growth of cross-border industries through minimising regulations (Powell 2015). The TPP ensure that products manufactured by foreign suppliers meets U.S. standards, and eliminates high toll of business transactions with TPP nations (National Retail Federation 2016). Thus, TPP presents Myer an opportunity to save trading costs and ensure foreign supplier provide quality goods.

However, TPP provide a threat to retailers, as it popularises e-commerce, prohibits forced localisation and provides e-commerce businesses greater access to Australia’s consumers (Thumm 2015). Thus, the prospect of increased online competition will threaten Myer’s profitability from its retail and online businesses.

Economic

Over the last few years, Australia has been experiencing steady economic growth. As reported by Australian Government (2016), real GDP growth has increased by 2.8% and rate of unemployment has decreased to 5.6% in 2016. This shows that Australia’s economy is in good position and therefore not much changes in consumers’ purchasing power, therefore presenting a good opportunity for Myer to maintain its sales revenue.

However, exchange rate has dropped due to declination of Australia’s trade associating with export to import price ratios (Australian Government 2016). This presents a threat to Myer as imports will be costlier, and affects profitability because Myer source most of its products overseas. In light of US withdrawal of TPP, it might culminate in trade wars among TPP nations, making imports even more expensive.

Social

Consumers are highly concerned with environmental issues nowadays, and this altered their shopping habits, because they would sub-consciously avoid a product or brand that harms the environment (Kennell 2015). This presents a threat to Myer as issues culminating from foreign suppliers’ products might affect Myer’s reputation. Therefore, Myer should ensure their products do not present a risk to environment.

As the world becomes more developed, more people are connected to internet, leading to rise of e-generation, who are people that grew up with internet and generally more tech-savvy (AMP Capital 2013). This presents both an opportunity and threat to Myer, as market shifts to capitalise online market affects sales in brick-and-mortar outlets.

Technological

Technological changes will affect retailers’ business operations, as society embracing of technology via smartphones and internet, will compel retailers to adapt and be competitive, by doing businesses online, while not neglecting performance of retail outlets (Mack 2016). As customers reside in a homogenous world between online and offline, retailers are mandated to ensure their presence in medium where these people exist (Abidi 2012). Therefore, Myer must adapt retail strategy to a modern business method, through integration of retail and online experiences via omni-channel.

Environment

Environmental issues have moderate impact on retail businesses, as it depends on level of Corporate Social Responsibility that businesses partake. Some businesses focus on profit maximisation whereas others are more environment-friendly. CSR is a debatable but Myer have excelled in this aspect as they incorporated green practices into business benefiting all stakeholders. As stated in Myer (2016) annual report, Myer is concerned with quality and ethical sourcing of products. Myer also take initiatives to reduce energy usages and is a champion of recycling programmes. Therefore, Myer’s focus on environmental issues is good opportunity to show they are ‘green company’ while reducing costs of running businesses through energy savings.

Legal

Exclusivity clauses are sometimes stipulated in written contracts to prevent suppliers from providing products to competitors (Arts Law 2013). According to Ruel (2013), this form of contract is prevalent in retail industry, as Myer and David Jones entice brands to supply products exclusively for them. Thus, a department store that stocks exclusive brands could lure shoppers to patronise their stores, resulting in higher sales. This provides good opportunity for Myer to differentiate from its competitors, leading to higher profitability. However, Sydney fashion designer, Kym Ellery, breached an exclusivity contract with Myer, by provided apparel collection to Myer’s competitor David Jones (ABC News 2013). This present a threat to Myer as they might lose a popular brand to its rival.

Overall Conclusions and Implications

After analysing all the factors, only social and technological factors have a significant impact on Myer, as they revolutionise the way retailers do businesses. Political, economic and environment factors present a moderate impact as it depends on circumstances. Legal factor presents no significant impact as supplier breach of exclusivity contract is uncommon. Overall, environmental factors present no significant impact on Myer. Therefore, Myer should focus on its business online as the retail industry grows towards e-commerce.

3. Industry Analysis

According to Porter (1979), an industry level of competition is dependent on five fundamental forces, whereby the cumulative strength of these forces determines attractiveness and profitability of an industry. He proposes that weak cumulative forces allows a company to attain higher level of performance and vice versa. Hence, Porter’s five forces framework is used by corporate strategist to identify company’s strategic position in the industry, to safeguard against or influence these forces to its advantage, and also understanding the root cause of competitive pressure (Porter 1979).

Rivalry Between Competitors

As reported by Smith (2015), department stores in Australia are in a highly competitive industry, with Myer and David Jones firmly establishing their retail presence in Australia. Both Myer and David Jones have reduced the number of fashion apparel brands, as a major transformation of their strategies, that pinpoint a targeted group of consumers for greater industry growth (Carrington 2015). However, retail industry is in mature phase and faces prospect of competition with international brands and e-commerce, a huge blow to major retailers (Smith 2015). Therefore, high rivalry in retail industry will affect profitability for Myer.

Threat of Entry

According to Smith (2015), leading department stores in Australia are able to create high entry barriers, as they utilised economies of scale to cement a strong industry concentration and ensure financial stability. As a department store need sizable retail spaces in prominent areas to gain competitive advantage, scarcity of retail spaces that new entrants faced, will discourage them from entering the retail industry (Smith 2015). A new entrant is unable to replicate a similar scale as established department stores to realise comparative cost advantage (Luenendonk 2014). Thus, Myer should invest a lot of money to create a high barrier of entry and reduce threat of new entrants.

Threat of Substitutes

A department store faces low threat of substitutes, as they stock a variety of branded manufactured goods in various product categories (Channon, Henley & Neel 2015). Wilkinson (2013) describes substitute goods as goods coming from different industry that deliver identical advantages to customer as goods manufactured within the industry. As Myer is a department store in up-market retail industry, they have an assortment of products, and therefore do not face threat of substitutes outside of the industry.

Bargaining Power of Buyers

Even though prices of retail outlets products are fixed, buyers could still exert their bargaining power through decision to purchase product from a certain store or to patronise another competitor’s store, and this affect retailers’ profit (Zhuang, Herndon & Zhou 2003). Chanon, Henley and Neel (2015) claims that buyers are fixated on real bargain of product instead of what a particular retail offer, and since retail competitors operate outlets around same shopping malls, there is low switching costs involved for buyers. This shows that buyer’s bargaining power is relatively high compared to Myer, as alternative purchases affects Myer’s profitability.

Bargaining Power of Suppliers

Suppliers have to come to terms with unequal relationship in dealing with dominant retailers in retail industry (Sutton-Brady, Kamvounias & Taylor 2015). Chanon, Henley and Neel (2015) states there are average close to 170 different suppliers for department store. This means if supplier pitches its products to department store at an uncompetitive price, department store might drop interest in their products. Hence, suppliers have to price products lower to entice retailers, as department stores have many suppliers and do not rely on a few to operate (Channon, Henley & Neel 2015). Therefore, low bargaining power of suppliers made retail industry more attractive for Myer, resulting higher profit margin.

Overall Conclusions and Implications

The mature retail industry is attractive for Myer and unattractive for new entrants in future. As porter’s competitive forces show, Myer’s main concerns are competitive rivalry and bargaining power of buyers, whereas conditions are unfavourable for new entrants. Myer have resources to compete while new entrants lack capital to scale their business. Thus, the retail industry is good for existing players and bad for new entrants.

4. Internal Strategic Capabilities Analysis

The activity system of organisation can assist in understanding how resources are utilised in an organisation, are actually developed from activities that organisation engaged in (Johnson et al. 2013).

Features of Products and/or Services Provided

As reported in Myer (2016) annual report, Myer has an assortments of products and stocks many desirable brands. They have 60 over retail outlets in strategic locations, and provide customers with smooth continuous shopping experience, integrating retail and digital platforms experiences via omni-channel. Myer’s customer loyalty program has more than 5 million registered members, and is the most successful retail membership in Australia, accounting for estimated 70% of total sales (Smith 2013).

Value Chain Activities and Processes

Myer’s supplier management has implemented “New Myer” strategy in consolidating number of desirable brands via a method of measuring sales figure (sales/m2) for decision-makings in allocating retail spaces and eliminating undesirable brands from portfolio (Greenblat 2015). Meanwhile, Myer’s logistic management have a dedicated warehouse for online logistics purposes enabling faster delivery, giving them an edge over its competitors (Cummins 2013).

Resources and Competences

According to Barney (1991), a firm’s capacity to maintain prolong competitive advantages is dependent on four criteria of resources: 1) there ought to be a value involved to capitalise on opportunities or nullify threats, 2) rareness among competitors, 3) inability to copied and 4) non-equal substitution. However, Jay Barney developed VRIO in 1995, replacing ‘non-substitutability’ with ‘question of organisation’, meaning for firms to achieve prolong competitive advantage, it needs to organised to capitalise on its resources and competences (Barney 1995).

Applying the VRIO Framework (Barney & Hesterly, 2008, p.92)

Myer’s Supplier Management and Competitive Advantage

Valuable: Yes; Provides faster delivery for customers.

Rare: Yes; Not every department store has a warehouse to support online logistics.

Costly to imitate: Yes; Requires a warehouse.

Exploited by organisation: Yes; Myer is organised to support these capabilities.

Competitive implications: Sustained competitive advantage.

Myer’s Logistic Management and Competitive Advantage

Valuable: Yes; Provides desirable brands to customers while removing unpopular brands.

Rare: Yes; Unique method of measuring sales figures as part of “New Myer” strategy.

Costly to imitate: Yes; “New Myer” strategy.

Exploited by organisation: Yes; Myer is organised to support these capabilities.

Competitive implications: Sustained competitive advantage.

5. Conclusion

The strategic analyses for Myer allow us to examine opportunities, threats and strength of organisation. Through this, Myer will discover its weaknesses and seek to turn it into an advantage. An examination of Myer’s mission statement states that Myer provides high quality service and often meet customer’s expectations, therefore this will bode well for Myer in the future.

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6. Reference List

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