Overview of Retail industry
The retail industry sales in the UK reached £249 billion in 2005 with 184,695 different businesses operating and 278,630 shops in the UK, which constitutes 11% of all UK businesses, stated in the BRC. The retail sector is made up of diverse markets and different store formats, including convenience stores, supermarkets, superstores, hypermarkets, market traders, discount stores, retail cooperatives, department stores, mail order companies and warehouses - each providing consumers with a different offer.
The retail sector in the UK employs 3.1 million people. Over the last 5 years the retail employment has grown by 300.000, 11% of the working population, or one in nine jobs and small retailers, through family owned businesses, provide more jobs per sale than large retailer.
England retailing is the single largest employer with 480,000 employees and owners. A further 200,000 employers and employees are supported by wholesale enterprises. Retailing thus provides employment for 15.5% of people who work in England, stated in the All party group High street report, 2005.
Company Profiles
Boots
Today Boots have become the leading health and beauty and a well-known brand name in the UK. Boots in one of many high street shops with 2600 stores in the UK and employ approximately 69,631 people in the UK and internationally.
Boots and Alliance UniChem have decided to merge to create one of Europe’s leading pharmacy-led healthcare group with just under 2,700 owned pharmacies and wholesale network serving over 88,000 outlet. Boots feel that by this acquisition it will enable to gain competitive advantage and tackle the stiff competition from supermarkets gain Tesco, Asda and etc… It will also enhance to cost savings at least £100m, growth opportunities and create revenue opportunities in the long run.
Ikea
Ikea offer a wide range of home furnishings with good design and function at prices that are low so that as many people as possible will be able to afford them. Ikea was first opened its first store in 1987 in the United Kingdom and now the UK holds up to 11% of Ikea sales with 14 large stores throughout the UK.
Ikea is the third biggest furniture retailer in Britain and its second biggest market after Germany. With the positive profits and sales within the last few years Ikea have decided to take on a huge expansion in the UK, creating 20 new stores over the next 10 years and creating 10,000 jobs.
Marks and Spencer
M&S is one of the UK’s leading retailers, with 15 million people visiting our stores each week. Its offer customer’s high quality, great value clothes, food and home products in easy to shop stores.
It employs around 65,000 people in 399 UK stores and offices. Even though M&S sales were up slightly, the management have decided to restructure their retail supply chain due to gain tighter operation. This means reducing its supply chain with job cuts and closures of distribution and warehouse centres.
GlaxoSmithKline
GSK is one of the world's leading pharmaceutical and healthcare research retail companies, it is committed to improving the quality of human life by enabling people to do more, feel better and live longer.
GSK employs 25,000 people at its factories in the UK. Recently they have merged together with Glaxo Wellcome and SmithKline Beechams. The main reason for this merge is to gain repeated success of its profits and sales. However the cost of making a new drug/product is estimated at $1bn, with the cost of such high investment and the cost of research is a key of the merger wave.
Changes in the retail environment
As the retail environment and the dynamics are changing, retailers need to examine the opportunities and strategies that are available to them. Looking at today current affairs it shows an increase in competition becoming fiercer and companies need to act to remain in the retail market. Below I have selected the most common strategies in which companies are operating and leaving an impact on the UK employment rate.
Relocation
Location is one of the most important determinants of retailer success. The cost of property development, rents and other operating charges represent a major financial element for retailers. More specifically where these multinational companies operate is designed to meet consumer needs and to gain competitive advantage.
In 2006 Boots decided to build a new automated warehouse in Nottingham, which will replace 17 old sites. This would allow Boots to implement changes in their retail supply chain and cut operating cost by approximately £60m a year by 2010/11.
This means that Boots are planning to cut up to 2,250 jobs from it supply chain operations over the next three years, although there is a three-year timescale for the changes it gives a opportunity to minimise redundancies through natural wastage.
Once the changes have been implement it will allow Boots to redeploys and relocate workers, this way the retail supply chain would have an impact on log term job security for it employers
Acquisitions/Mergers
The main implication of mergers and acquisitions is that companies find it hard to find considerable time, financial support, difficult to purchase, and are indeed of greater bargaining power over suppliers. Therefore some companies require restoring in profitability companies as the cost of buying into more successful companies with strong management teams would allow a strong future for multinational companies.
Glaxo Smith Kline (GSK) employs 25,000 people in UK factories. In 2001 it announced GSK plans to cut more than 2,000 jobs (see appendix) due to Glaxo Wellcome and Smith Kline Beecham merging. A factory producing asthma inhalers in northwest England will close with the loss of up to 500 jobs because the company wanted to eliminate duplication and rationalise operations and would be able to make savings of £750m a year.
This would enable the company’s manufacturing network to be more flexible and adapt to the constant changing environment in which the company operates as this one of the reason why some plants in the UK is being closed
Another 400 jobs will be lost in County Durham plants because operations will be transferred to other sites. Another 720 employees will be cut in Scotland as they plan to sell the plant due to duplication. GSK also will close the healthcare-manufacturing site in Plymouth and Devon, which will add another loss 170 jobs.
Although this acquisitions would eventually create more jobs in Ireland and the UK as the jobs will go in drug and consumer product manufacturing plants, it has also been enable to secured over 10,000 UK manufacturing jobs.
Expansion The main purpose of expansion is to increase existing commercial activity based on modernization, replacement, upgrade, or increased workload and at the same time increase operating cost. An expansion of an existing commercial activity is an increase of 30 percent or more in the activity's operating costs or total capital investment. (www..com)
The UK retail sector has supported the growth of international retail operations () that way the giant Swedish company Ikea decided to expand their retail outlets through the UK over the next 10 years, as they believe there is still a high demand for its goods.
Ikea plans are to build 20 new stores and to create 10,000 jobs in Manchester, Coventry, Glasgow, Wales and London, at the moment Ikea employs 5,000 people in the UK. The plan is to build eight stores within five years and the other will follow at a estimated cost of £300m.
Ikea predicts with the expansion it could double the sales and bring down prices by about 20%, as this is one of the key components to decreasing prices further. Ikea has managed to keep price low and gain total sales in the UK £584m in 2000 and are expecting to exceed over £700m in the future.
Operational controls
Companies must review and evaluate the operational control, to ensure that the business activities support the aims and objectives and also to ensure it is met through the business process to maintain stability.
It is important for companies to annually review its activities, products or services to determine whether operational controls (either technological or administrative) are needed for those activities, products or services.
In 2005 Marks and Spencer decided to cut approximately 400 jobs, as M&S distribution centre in Tunbridge wells will be closed down which would lead to tighter operation controls.
After M&S conducted a review of the retail operation chain, the management decided to minimize stock-holding requirements in conjunction with alternation in the ways of servicing M&S’s stores. Although there would be a large number of redundancies, but it will enable to have more control and tighter operation of the supply chain.
For the company to help to maintain a dynamic local economy, the company is committed to help to achieve the best future of its employees and put in the effort to find alternative employment and provide ongoing support services for its staff.
Re-structuring
Some multinational companies are being held back from strategic success because the traditional structures and roles do not match a future strategy that’s ways companies reviewing and evaluating the whole structure of the firm.
In 2004 Boots reported to cut 2,000 jobs as part of its restructuring programme that would enable them to save more than £100m over three years, which is part of they cost-cutting strategy.
In 2005 Boots reported to merge with Alliance Unichem and to be called Alliance Boots. For this merge deal to be successful it needs to be restructured, although this mean that a large amount of jobs will go, but once the merge have been successfully reviewed and evaluated in terms of restructuring, it would start to create more jobs.
Outsourcing/Offshoring
This relates to taking internal company operations or jobs and paying an outside firm to handle them or taking them overseas. Outsourcing and offshoring is done to save money, improve quality, or free company resources for other activities. Today this is to be seen are the wave of the future.
GSK have linked up with India’s largest pharmaceutical Ranbaxy, to collaborate on drug development. For GSK it would accelerate the development of new products at lower cost, but for the UK economy it mean the employment rate would the steadily, which leaves the skilful scientist looking for opportunities.
SWOT Analysis
SWOT analysis is part of the business situation analysis, which provides a systematic evaluation of the company’s strengths and weaknesses, plus the opportunities and threats within the competitive environment. The opportunities and threats are part on the external issues with relevance to strategic planning and implementation, on the other hand strengths and weaknesses are part of the internal aspects of the company.
Strengths/Weaknesses
- Retailers diversify into wider ranges of products that have not been successful due to lack of buying and marketing capability (Retail Review, 1996).
- In the long run mergers will have the chance to be successful due to the increase of strong and larger operations and wider product ranges.
- When these multinational companies have reorganise their retail operations it would enable them to have a stronger buying power for its resources and use professional agents or networks outside. Also these retailers would be able to gain a healthy return of investment, working capital and other total assets.
- By reducing the number of employees it has enable multinational companies to adapt to the new flexible structure, providing training to the remaining employees, which will help to increase the level of skills.
- More multinational companies are focusing on market research and research development, as being a retailer advertising effectively and ensuring the right skill are put into merchandising.
- With the closures of distribution centres and warehouses it has reduce the stock level which can sometimes lead to out of stock levels and can take a longer period of time to order stock in.
Opportunities/Threats
- Unemployment level are up, with the regards to the way retailer are chaining their operations.
- Recently Interest rates have not been favourable, as the retailers are struggling with weak January sales this year and February sales was up just 0.6% (British Retail Consortium)
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Research from Ernst & Young retail analyst said, that the disposable incomes of most households are lower as, higher fuel, utility bills and credit card levels have made consumers confidence very low.
- Today consumers buying behaviour can changed as, they enjoy looking for bargains and sales items, while retailers are forced to extend their sale periods and are left with low profits.
- At the moment the competition remain strong on the High Street with cut prices and promotions to encourage shoppers, while the retail margins are being affected
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- According to market analyst Verdict, it showed online shopping was up 25% between 2004 and 2005, it showed online competition had a large impact and had to time restriction.
- Pension schemes are becoming too expensive for companies and are offering a less alternative to its current employees.
- UK retailers are facing more VAT by paying 2.5% on non-cash payments (credit or debt cards) Although retailers can argued that this fee should be exempt from VAT but HM Customs did not agree. This will not affect the customers, but retailers' profits are likely to be hit.
Conclusion
Overall the UK retail industry is changing, companies have started to operate in different ways as being part of a very high and strong competitive environment, whilst effecting the UK employment and unemployment rate. For retailers to survive and to gain repeated success it must respond to the current levels of competition and that’s why companies are relocating, restructuring, expanding, creating tighter operation controls, outsourcing/ offshoring, merging and etc…
As competition is providing consumers with high quality products at low prices and wider product range, retailers have started looking at ways in which they can cut cost and find cheap resources to develop/ manufacture goods. Including cheap labour.
One of companies main and long running cost is labour, as companies are finding it hard to keep up with the cost of UK workforce without the help of high sales and profits it is restricting them to be competitive. Reducing the number of employees in the UK and using labour outside the UK such as India, China, Eastern Europe and other countries with cheap labour and resources has enable them to gain competitive advantage while the UK employment rate is suffering.
Consumers buying habits is another factor, with the increase of household bills and a average earned income, it is weakening consumer’s retail spending as they are only buying essentials products, which is a major issue to UK employment. The basic cost of living has doubled in the last two years and people are spending more time working to gain a better earning whilst it is affecting the High Streets.
Online shopping has increase as retailers are advertising their products and promotions on the Internet, allowing consumers to enjoy and relax without any time restrictions, which relates to low demand of staff on the High Streets
Therefore it is true, today the UK employment has been effected from multinational retailers companies because they are forced to change due to the conditions in the environment and retailers cannot afford to employ the number of people they do today.
Bibliography
Textbooks
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Kent, T. and Omar. A, (2003) Retailing. 1st ed. Palgrave Macmillan
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Alexander. N, (1997) International Retailing. 1st ed. Blackwell Business
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Slack, N., Chambers, S. and Johnston. R, (2004) Operation Management. 4th ed. Prentice Hall
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McGoldrick. P.J, (2002) Retail Marketing, 2nd ed. McGraw Hill.
Websites
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[Accessed 28 March 2006]
Articles
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BBC News Poor retail sales spark job cuts [Online]. Available at <http://www.bbc.co.uk/1/hi/business/4758768.stm> [Accessed 26 March 2006]
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BBC News Drug giant cuts 2,000 jobs [Online]. Available at <http://www.bbc.co.uk/1/hi/business/1388661.stm> [Accessed 26 March 2006]
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BBC News 400 jobs may go at M&S warehouse [Online]. Available at <http://news.bbc.co.uk/1/hi/england/kent/4472947.stm/. > [Accessed 26 March 2006]
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BBC News Ikea expands in UK [Online]. Available at <http://www.bbc.co.uk/1/hi/business/.stm> [Accessed 26 March 2006]
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BBC News Boots set to cut up to 2,250 jobs [Online]. Available at <http://www.bbc.co.uk/1/hi/business/4804496.stm> [Accessed 26 March 2006]
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BBC News Ikea warehouse to create 300 jobs [Online]. Available at <http://www.bbc.co.uk/go/pr/fr/1/hi/england/suffolk/3160958.stm > [Accessed 26 March 2006]
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BBC News Boots announces £7bn merger deal [Online]. Available at <http://www.bbc.co.uk/go/pr/fr/-/1/hi/business/4303570.stm> [Accessed 26 March 2006]
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BBC News UK drugs giant in India tie-up [Online]. Available at <http://www.bbc.co.uk/go/pr/fr/-/1/hi/business/3207169.stm > [Accessed 26 March 2006]
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BBC News High Street Britain [Online]. Available at <http://news.bbc.co.uk/1/shared/ bsp/hi/pdfs/15_02_06_highstreet.pdf > [Accessed 30 March 2006]
Appendices
- BBC News: jobs may go at M&S warehouse
- BBC News: Drug giant cuts 2,000 jobs
- BBC News: Poor retail sales spark job cuts
- BBC News: Ikea warehouse to create 300 jobs
- BBC News: Boots merger deal
- BBC News: Ikea expands in UK
- BBC News: UK drug in India tie up
- BBC News: 100 jobs to go at M&S
- BBC News: Boots shed 1,000 jobs
- BBC News: Boots cut 2,250 jobs
