PESTEL / PESTLE Analysis of The Retail Industry
Just
like every other industry, the retail sector is affected by the six principles
of PESTLE / PESTLE analysis.
The retail
industry is comprised of the process where retailers sell their final products
and services to the end consumers. Retailer is the person who carries out the
function of processing many small orders, rather than one big order like in
wholesale, governments, and corporations.
The retail
industry operates at the bottom of the supply chain management system of
distribution, where the retailer completes the selling process. In other words,
retailer plays a key role in the selling; it wouldn’t be possible without him.
The
retail industry comprises of shops, stores, shopping streets and malls, and
e-commerce stores; where buyers visit such stores either by going there
physically or online. The aim is to complete the transaction, and it could be
about anything like; food, clothing, electronic equipment, cables, telephones,
etc.
New
forces and trends are shaping the retail landscape. Particularly, it is the
technological and economic trends that are having the deepest effect on it.
However, with time the competitive pressure is also growing which is because of
the growth in the number of players and proliferation of the e-retail. 2015 was
an year of whopping growth for e-retail. Amazon has grown by leaps and bounds.
Since the recession passed, retail sales globally have kept growing.
Political:
Political factors like government policies and
regulation of the retail industry affect its revenue and profitability. The
political environment affects so many things including economic environment of
a nation and international supply chains of businesses. Political stability means
better business because political disruption leads to the disruption of supply
chain and sales. Moreover, political issues can also become hindrance to
smooth business operation. In all the nations, the business environment is
affected by the political landscape. The Asian economy is growing at a faster
rate than other parts of the globe. However, the government and Red tape can be
a big problem in the Asian nations. For the big International retailers, it can
be quite difficult to expand into the Asian countries. India still has
difficult laws and restrictions on Foreign Direct Investments. All these
factors can make it difficult for the retail brands to operate profitably in
the international environment.
Economic:
Economic factors are always very important in
the context of trade and business. The state of the world economy decides the
state of sale and profits for the industry. The world economy has rebounded and
is growing. Economic growth means that people are going to spend more on
shopping. However, even in the time of recession, the retail industry had
maintained impressive sales. In 2015, it achieved global sales of $20.8
trillion. Based on the economic scenario worldwide, the retail industry has
grown to $28 trillion by 2020. The labour market and the economy
both are in very good shape and an increase in disposable income has also
boosted consumer confidence. All of these are very good signs for the retail
industry. The better the shape of the economy, the higher will be the
revenue and profits for the retail brands. Better economic scenario means a
growth in sales and overall better shape of the retail sector.
Social:
Social trends are also a major impact on the
retail sector and its profitability. Demographic changes and changing consumer
preferences are going to have a deep impact on retail sector. The millennials (new
generation) have different preferences than the previous generation. When it
comes to customer service, they want more personalized service. Retailers will
have to change the way they serve their customers and design their service
experience better to lure in millennials in higher numbers. Demographic changes
have also affected the popularity of products. the technological products are
in more demand than ever. The demands of the new generation are much different
than the older generations. The importance of customer service is growing
and a lot of retailers’ popularity will depend on how well they have crafted
their customer experience. More focus shall have to be on customer engagement.
Technological:
Technological
factors are now all the more important whether in terms of supply chain,
customer service or sales. The growth of digital technology has also increased
the number of players in the retail industry. Technology affects several things
including user experience. If e-retail has enjoyed exponential growth then it
is because of the additional convenience provided by technology. More and more
retailers are trying to make better use of technology to make the customer
experience better. A number of new technologies like AI and cognitive
intelligence are going to change the retail landscape in the coming years.
Even cloud computing, IoT and Distributed intelligence are going to have
a deep impact on the retail sector. In the coming years several more things
will be determined by technology which will remain at the centre.
Environmental:
Like
the other industry sectors, the retail sector is also affected by the
sustainability concerns. Packaging, waste reduction, renewable energy and
several other concerns related to sustainability are there before the retail
sector. The big brands like Amazon and Walmart have already invested a lot in
reducing their carbon footprint and in renewable energy. Apart from that
the focus is also on packaging and sourcing in an environmentally responsible
manner. Amazon is always driving improvement in packaging sustainability
across the entire supply chain. It is focusing not just on reducing its carbon
footprint but also on achieving 100% renewable energy usage in the long term.
Legal:
The
legal factors are also just as important for the retail sector. There are
so many laws related to business and employment that affect it. Labour laws are
particularly a big pain for the retailers who have to maintain low prices to
remain competitive. Walmart has had so many tussles with laws over labour
related issues. Apart from that, the other laws like product and packaging
related laws also apply to the retail sector. Overall, the legal scenario
is quite complex and retailers have to be cautious since any violation can
result in big fines. Both Amazon and Walmart have had to deal with their fair
share of legal issues in the past. These laws and the level of legal scrutiny
differs from nation to nation and everywhere the retailers have to be cautious
about compliance.
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