External Analysis in the US Retail Industry

Introduction

This paper offers an external analysis of the retail industry in United States of America. The main players in the industry are Wal-Mart, Target, Kmart and Seaway. The main focus in on the pest analysis, competitors’ analysis, the five force analysis and the market segmentation and future financial position of the industry. The company of choice is Target the second in the retail industry.

This analysis is mainly the possible effects from the external issues that may affect the retail firm. The study focuses most on financial implications, market implications, future growth and performance of the firms in the USA retail industry.

PEST Analysis

When carrying out a pest analysis, we examines the factors in the environment which in one way or another impacts on the industry. These include the social political, economical and technological factors which may affect the industry a positive or negative way.

Political conditions

They are the political factors which affect the retail industry. For instance, the ability of players in the industry to expand to new market depends to a large extent on the political environment and political goodwill in the target market. Changes in laws and regulations such as taxation laws and environmental laws may have an impact in the industry. Political climate in USA and other parts of the world have an influence on the ability of players in the industry to transfer capital across the borders in new and potential markets. The US retail market is full of political influence since it includes the people and the people are the building blocks of all politics. Politicians are normally ready to support any realistic projects that involve retail market all over the USA territory. The US political sector is currently stable and has a good record. This shows that political instabilities may not affect the retail industry in the USA.

The economic conditions

In the market have adversely affected the industry. Major world economies of the world are experiencing recession which in turn weighs down on consumers. The customers’ ability to purchase has been largely affected resulting to a decrease in sales due to a low purchasing power and spending levels. To cushion against this, a player in the industry need to lower the operational costs so as to be in a position to offer competitive and affordable services. Despite the recession, the industry is still optimistic of growth especially with increased government efforts to bring the economy back on track. The retail industry in the United States of America is very sensitive to economic changes. The government is always on track of the economic movements in order to safeguard the citizens against harsh economic conditions. However, the industry experiences major shifts in prices, supplies, demand and level of technology. This is because the country is a super power and its currency is largely in use all over the world.

Major investors in America are diversified (come from different places), thus it is difficult to control major changes in currency movements in time. The retail industry involves goods and services that are diversified, that is: local and imported goods, locally acquired raw materials and externally acquired raw materials, goods and services sold by citizens and foreigners etcetera. This means that whole data could be heteroskedastic and major trends are difficult to establish/estimate. Any retail firm must be very smart to master all trends in the economy such as inflation, demand changes due to international trade, demand changes due to population changes, supply movements due to industry evolution and so on. The industry is generally vibrant and lack of enough information could lead a strong firm to lag behind.

In the social aspect

The focus in on the dynamic attitudes and lifestyles exhibited by both current and potential customers. For instance, retail stores have been stocking non-alcoholic beverages which have been performing rather well. However, many Americans are becoming increasingly conscious of their health and are closely watching their diets. On the same note, the increase in juvenile violence has led to parents in America to shy off from places that sell fire arms related stuffs like toys. Player such as Target has cushioned itself against this challenge by not stocking such products. America is exposed to diverse people of different religions, cultures and backgrounds. The retail industry must take note of this issue and try to embark on products and services that do not bring conflict in the society.

In the United States of America, people are divided into social classes according to wealth. Retail firms will often set special outlets for each class of people at different locations. This enhances the pricing techniques, branding, promotion, payment methods and delivery policies if the firms. Other retail firms normally specialize in serving specific areas that are densely populated with a specific class of people. There is also the option of opening subsidiary companies to serve each class of people. Each firm must consider the impacts of serving each class by itself, the advantages and the disadvantages.

The industry could utilize the social movements in America due to the vibrant changes that occur daily. Every firm should note the social issues like increased use Facebook, Tweeter, Yahoo and Google. These are target places to interact with potential customers, know their tastes and preferences and evaluate their level of satisfaction. The media in the United States of America is also very active and influential. The industry is always on the verge to utilize the communication media to advertise their products and to educate the public on new/improved products.

Other social issues like social icons are being used by companies to gain attention of the public. Every firm especially in the retail industry is contracting social icons like successful businessmen, artistes, Facebook icons e.g. Justin Beiber, strong investors, writers, journalists among others to use them to gain attention of people. This markets the firms and creates awareness of their products and services.

Other trends in the social sector are seen with the entertainment sector. Firms in the retail industry will introduce their products in movies, games, sports, social meetings, songs and documentaries to create more awareness of their products and services. They will feature, sponsor and/or host such activities all for marketing, advertising and competition.

The retail industry also features in community projects especially the ones involving the local community. This involves production and consumption of ecologically friendly goods and services. They normally do this to get a personal touch with the community (potential customers). The retail firms are always on the upper hand when it comes to social issues like sports, local social clubs, gymnastics, libraries, churches among many others. This makes them to gain trust, goodwill and to close the gap between the firms and the customers.

Technological innovations

In the world have impacted positively on the retail industry. For instance, the internet has enabled players in the industry to practice e-commerce. This comes with a number of advantages with the main being ability to reach out to wider and larger markets. Major players such as Target, Waymart and Kmart are able to offer online trade for goods to customers (Farfan, 11). One just needs to visit their websites to shop for commodities. The industry is exposed to a very good forum for feedback from stakeholders. This is because the firms offer direct services to clients. This information is then used with the firms’ experience and policies to make technological advances. This is usually in the urge to develop their brands, introduce new brands and to create more customer satisfaction.

The industry faces competition from countries all over the world in terms of technological advances. This is because their currency is strong and in application all over the world. Funding of projects in the USA is simple since investors are always looking for opportunities to cash in. This means that ideas from other countries are adopted and used against dominating firms in the USA. Any retail firm in the USA must keep on evolving with technology continuously to keep on being competitive. This proves why firms in the USA have very strong and expensive research and development teams.

The retail industry is faced with technological problems of technological plants becoming obsolete before they reach the payback period. This means that any firm must select a level of technology that is durable and flexible. A good example is Microsoft Office word. Any changes are always constructive but not destructive. They normally build on the current technology.

Technological advances in the financial sector have also impacted in the retail industry in the United States of America. This involves the use of ATM cards, online banks like Paypal, credit cards, money transfer services using mobile phones and so on. This has ensured easy and efficient access to monetary services. People can now make payments for goods and services easily and cheaply. The payment methods have been advanced in the industry and any young company should consider the most efficient methods of receiving payments.

Five Force analysis

Every player in a given industry is driven by a goal. In the retail industry, the main goal and objective is to make profit. To achieve this, there a number of forces that affects the profitability of a company (Mallon, p. 20).

Intensity among the rivals

The retail industry is not a monopoly but has a number of players which makes it more competitive. With an increase in competition, customers are assured of competitive services and products as well a range of buying options. However, small retailers are at risk of being driven out of the market by the bigger brothers such as Wal-Mart, Target and Seaways who are able to offer a wide range of products at cheaper rates.

Entry by new competitors and the threats they pose to existing layers. The retail industry is an open one where new competitors can come in. The existing players may not enjoy the competitive advantage which means that they are at a higher threat from new rivals. Issues of patent rights and brand royalty do not affect the industry as the products offered are wide and varied. The current players are exposed to high risk of losing the market due to the dynamic nature of the products they offer. There is also the issue substitute goods and increasing technology. However, many players have gained trust and good perception from the community. They have built good customer relations and have emphasized on market dominating products. These are products that are universally accepted by the whole community and in common use.

Pressure from substitute products

The industry operates in an environment where different products keeps on coming in. the new products may prompt the customers to switch. The cost of switching is high to a company. Hence, retail stores should ensure that whenever there is threat of new products, they should price their products in such a way that they retain their customers. This calls for a keen watch of how not only the competitors are fairing but also how the substitutes are performing in the market (Reference for Business, p. 98). The market is very dynamic and introduction of new high quality products is always very possible. Key players should increase their research and development capacity to develop their products and introduce new ones if necessary. They should endeavor to nurture royalty from their customers to avert switching (Akridge, p. 10).

Bargaining power of the customers falls under two categories: The first one is their response to the prices of similar products where they choose a product in terms of its cost. On the other hand, they can negotiate for lower prices with the firm for lower prices especially when they have leverage with the company. A company dealing with new buyers is able to sell at higher prices as compared to existing and large buyers (Mallon, p. 2). The customers are sometimes supported by the government about lower prices and high quality products. A good example is the food sector. Other customers will form consumer groups that help them gain more bargaining power.

The last of the Porter’s forces which affects the profitability of companies in the retail industry is the supplier power. Some corporations such as Wal-Mart and Target are much larger than some of their supplier and make their purchases in large quantities, the supplier have little power to negotiate (Akridge, 2). On the other hand, when there are many suppliers the buyer is able to make a choice based on the price. For instance, many retail shops stocks groceries and have a wide source of supply which enables them to select the less costly supplier (Akridge, 2).The retail industry in USA is faced with a great supply challenge. This is because other countries are always willing to supply them with their products. Excess supply brings the aspect of quality to an upper hand in the retail market. This means that any entrant in the market must have high quality products at low prices. (Akridge,2). This is a big challenge in the industry.

Integrity Reporting

The company’s reporting is done in the highest integrity levels with all the necessary controls put in place to ensure this. Such include financial reporting, accounting, environmental healthy, safety as well as other various internal control procedures and policies through which the company’s compliance with community standards and regulatory requirements are checked.

Assurance that financial statements are authentic, correct and fair is done in writing by the Executive Director Finance and the Managing Director.

Improvements and changes to the company’s processes, procedures and controls are identified using internal audits. The financial statements are audited annually by an external auditor. The auditor also reviews the half- year financial statements for the company.

Analysis of major competitors

Target Corporation is the second largest discount shop after Wal-mart (the other main competitors are Kmart and Seaway in the United States. It has managed to create a niche for itself as a market leader due to its ability to offer credit to its customers both in the over 1,750 stores and also online (Target, p. 29). It has put in place credit facilities that endear it to the market- an example is the proprietary Target credit card. Wal-mart has also managed to remain ahead of its rivals by offering relatively low priced commodities.

Ability to recover from crisis and adapt to the dynamism of the industry and economy at large is another key aspect in the industry. The global economy has of late experienced problems such as the global recession that left many corporations in financial woes. However, Target has been able to reverse the downward spiral through expansion and diversification. For instance, the company has embarked on a rigorous process of growing its grocery business through its subsidiary Target Super. However, it’s facing stiff competition from Wal-Mart which is the largest retailer in grocery in America (Bianco and Zellner, p. 100).

Wall-mart has managed to rebrand itself as a place where customers can save an extra penny. It laid plans to offer bonuses to its employees to motivate them, a move which saw the corporation record solid financial records despite the American economy being in recession (Bloomberg Business week, 2003). Despite the high competition, the market is very good since a good percentage of the goods and services offered are recurrent i.e. they are requested frequently. People cannot avoid using such goods thus the returns are very promising. The main key is to make a good market and consistency in service provision.

The company has managed to offer competitive products at relatively lower prices compared with its rivals. This is has been strengthened further through the more up-scale, fashion-forward merchandise, placing it at a competitive edge over wall-mart, seaways and Kmart its fiercest rivals. To counter this, Wal-Mart launched a new Supercenter concept in Plano Texas. Brand names are also very important in the retail industry. A firm with high profile branches will gain high number of customers due to the human nature of egoism. Many people will want to shop at outlets that are famous, large, perfectly located and with high quality services like parking and free delivery.

For a company in the retail industry to attain more growth and profits, there is a need to expand its market base. There exists a wide market that not exploited not only in the US but also in the neighboring and far nations. This offers potential market for Target and has in the process embarked on an expansion program in Canada. On the other hand, its greatest challenger wall mart has already established itself in the market outside United States with successful stores in over 15 countries which are economic giants in their own self. The expansion policies help a company analyze differences and different challenges encountered by the outlets thus, improve its service delivery systems. More market can be gained through opening new branches, introducing new brands, changing service delivery systems, promotion, marketing and advertising.

Corporate social responsibility is a key aspect that determines how successful a company can be in the industry. Wal-Mart for instance has established itself as a market leader conscious of its corporate social responsibility. This has been made possible due to its huge profits which enables it to engage in various social corporate ventures. For instance, after the Hurricane Katrina the corporation donated money, food stuffs and free merchandise. This was a venture which few of its rivals could master.

The cash donation amounted to over $20 million with a promise of a job back for all its displaced employees. To achieve this, a player in the industry requires an elaborate scheme of logistics which wall mart enjoys. This creates a good perception of the firm from the potential customers. Corporate social responsibility creates a long lasting relationship between the clients and the firm. This helps a firm to hold its customers firmly and avoid competitors.

Cultural, ethical and norms values consideration is another determinant of how successful a company can be in the retail industry. For instance, Target doesn’t stock tobacco products and fire arms unlike its chief rival wall mart. This enables it to attract many customers who are against tobacco products as well as firearms and violence. This is an aspect that affects the overall perception of the firm. When managed properly, it helps the firm to gain trust from potential clients and make more sales. This may absorb a particular group of customers due to the uniqueness and stand of the firm.

Industry segmentation and product demand

The retail industry deals with merchandise of all types ranging from foodstuffs, electronics, clothing, groceries, furniture, health and beauty products, women and men products, as well as entertainments. The diverse range of products offered by the retail industry offers a diverse market segments. Example of market segments includes the gender, household, low income segment, interest and religion segments as well as location. The gender segment offers the biggest market together with the household (about 60%).

There are merchandise for male and female with the female ones selling at a higher rate mostly due to the fashion-consciousness of ladies. The household segment combines with other segments such as levels of income, interests and religion. For instance, low income households are compelled to shop in retail shops such as Target and Wal-Mart which offers low priced products. There is the market segment that’s driven by religion. A religious grouping might prefer one retailer over the other depending on how the operations of the store affect their beliefs. The market segment is divided into price segments with each individual segment characterized by the ability to purchase a given commodity.

The retail industry is a multi-billion empire currently estimated at over $ 4.13 trillion (Farfan, p. 76) which is expected to shoot to about $7 trillion in the next five years. This leave Target Company better placed to increase its market share in the U.S. as it continues with its planned expansion beyond the borders. There is also need to maintain a good customer relationship aspect (Brand and Meir, pp. 8-9 ).

The industry could be further segmented into children, youth and elderly customers. This will commonly follow the location of the premises. Major players in the market will orient their products and services according to the population structure of all potential customers. For example, an outlet near schools and universities will stock products that are youth oriented. Other premises within cities will concentrate more on the children goods and services. This segmentation helps firms to make high sales in specific locations.

Segmentation has also been evidenced according to the nature of goods and services. This means that the industry could segment the market into various types of products offered. For example: foodstuffs, cutlery, electronics and electrical products. Cardozo and Wind (162, 163) points out the need for players in the industry to employ market segmentation as a foundation for planning and control of marketing programs

Identifying and Managing Risk

Having identified the value of the company at the face of the competitors, Target aims at maintaining a consistent approach of managing risks through:

• The understanding of the existing environment.
• Keeping a framework of risk management that guides on managing risks.
• Ensuring consultation and clear communication.
• The continuous review of risk profiles and control plans.
• Regularly reporting to the Risks Board and the Management.
• Ensuring the use of an explicit, structured and systematic process of assessing risks.

The board is responsible for risk management policy development while the management deals with the design and implementation processes. The effectiveness of the implemented system of risk management is assessed by the Risk committee and Board Audit.

Reporting to the board on the design and implementation is done by the Executive Director Finance and Managing Director.

The Chief Risk Officer reports to the Executive Director Finance, Risk Committee and Board Audit and manages the company’s program of internal audit and risk management.

Performance in accordance with the programs of risk management and internal controls is also done by the Chief Risk Officer with the assistance of external.

Conclusion

This paper has looked at Target Company in line with her major competitors and gave a distinct analysis. The paper has been written as an external analysis in the U.S. retail industry. This has been done by giving a pest analysis, five force analysis, an analysis of the major competitors and the industry segmentation and product demand. As part of the main strategies by the company to remain in competition, the paper has researched into the company’s mode of identifying and managing risks.

This paper has offered the external analysis of the retail industry in United States of America. The main players in the industry who have been included in the discussion are Wal-Mart, Target, Kmart and Seaway. This analysis has been used as a clear indicator of the possible effects from the external issues that may affect the retail firm. The study has focused most on financial implications, market implications, future growth and performance of the firms in the retail industry in the United States of America.

Work Cited

1. Akridge, Jay et al. Industry Analysis: The Five Forces. Purdue University. 2011.
2. Bianco, Anthony, and Wendy, Zellner, “Is Wal-Mart Too Powerful?” Business Week, 2003. Print.
3. Bloomberg Businessweek, 2003. Is Wal-Mart too Powerful.
4. Brand, Jakob & Meir, A. Mass Customization. University of Fribourg. 2008.
5. Cardozo, Richard and Wind Yoram. Industrial Market Segmentation. Amsterdam: Elsevier Scientific Publishing Company. 1974. Print.
6. Farfan Barbara. Retail Industry Information : Overview of Facts, Research, Data & Trivia. 2011.
7. Porter, Michael. (a) Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press, 1980. Print.
8. Porter, Michael. (b)Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press, 1985. Print.
9. Reference for Business. Industry Analysis 2^nd ed. 2011.
10. Target. Company Profile. 2011. Web.