Importance of Strategic Management in the Retail Industry
Strategic management involves the formulation of short term and long terms goals for an organisation and directing the desired resources towards the achievement of these goals. It is a continuous process in which the top level management of business organisations continuously plan, monitor, analyse and assess the resources and actions that are required by an organisation to achieve its goals. In today’s complex business environment, it has become very difficult for business organisations to achieve market competencies and retain them once they are achieved. Further, the day-to-day changes in internal and external business environment also makes it more difficult for companies to sustain in the market. As a result, it is important for companies to carefully manage their strategies so that they can make the best use of the available resources in order to achieve their organisational goals and objectives.
In the past few decades, the global economy has experienced a significant rise in the GDP, human population, disposable incomes and consumer spending, which has consequently resulted in new opportunities for big retail players throughout the world. The global retail market is expected to reach $20,002 billion in the 2017 financial year (Lucintel.com, n.d.). The retail industry comprises of medium to large size establishments that deals in multiple products and commodities for personal as well as for household consumption. Some of the products that the retail stores offer are apparel & accessories, food & beverages, household, pharmaceuticals, electronic devices and gadgets, etc. As some major and minor economies of the world have started to revive themselves after recessions, retail stores are facing greater opportunities throughout the world. Retail stores like Wal-Mart, Costco, Home Depot, etc. are expanding into all parts of the world and are receiving a great response from the customers (Tokatli and Boyaci, 1998). The success of retail industry in the world can be judged from the fact that it is expected to rise to US$ 28 trillion by 2019 in terms of revenue while the revenue of the industry stood at US$ 22.6 million in 2015. Retail industry provides employment to billions of people and represents 31% of the world’s GDP. In China and USA, retail stores account for 35% of direct sales (WIRE, 2016).
Wm Morrison Supermarkets plc, commonly known as Morrisons, is the fourth largest chain of supermarkets in the United Kingdom. The company was founded in 1899 by William Morrison and has its headquarters in Bradford, West Yorkshire, England. The company had 125,000 employees working in almost 515 stores in 2014 and had a market share of 11% in 2015. Some of the products that the company offers to its customers are baby care products, wines and spirits, frozen food, fresh food, bakery, beer, home entertainment, toiletries, household laundry, etc. Morrisons is under a constant pressure because of the rising competition and is trying its best to expand its business operations to foreign lands so that it can achieve the benefits of having a global business. Provided the industry in which the company operates and the opportunity that China is providing to the same industry, expanding business operations in China can be one of the best business strategies for the company right now (From shop floor to top floor at Morrisons, 2010).
Retail Industry in China
According to the eMarketer’s latest worldwide retail forecast China became the world’s largest retail market with total sales of $4.886 trillion after surpassing USA in 2016. China also has the world’s largest ecommerce market. As a result, China provides great business expansion opportunities to some of the leading retail companies in the world (Emarketer.com, 2016). Though the retail industry in China has been growing at a high rate, the retail store in China are still small to medium size with an average of 15 employees. Even though the number of retail stores have been growing in the recent years, the stores are still small and cannot compete with the big box retailers from other parts of the world. With the entry of a few supermarkets or big names in the retail industry, the competition in the country is gaining new heights. Recently, Walmart announced that it would renovate its stores in China and also introduce a new online shopping application, in order to cope up with the decline in its sales. Thus, the Chinese retail industry is complex and will pose significant challenges to the new foreign entrants (Waldmeir and Anderlini, 2015).
China is considered as one of those markets that have a lot of opportunities to offer to business organisations from all over the world. Being the world’s fastest developing economy and with the largest population in the world, the Chinese market provides a great opportunity to Morrisons for the expansion of its retail business activities (Farfan, 2016). An external environment analysis (according to PEST analyses) of the Chinese retail market is given below:
Political there are a number of formal and informal governmental rules that impact the Chinese market. Even though some people claim that the political force is the most unsettled force, the Chinese government has been laying a great deal of focus on the development of e-commerce over the past few years. With a few recent reforms, it has become difficult for foreign retailers to enter the Chinese market as they are expected to take a lot of permissions and licences in order to expand their businesses in China.
Economical From an economical point of view, the Chinese market has the best potential as compare to any other market in the world. In the past few years, the Chinese market has experienced high rise in its GDP and is the fastest developing countries in the world. The presence of skilled labour at comparatively lower wage rates also aids business organisations in cutting down their operational costs. Further, with the increase of GDP, the Chinese market is also experiencing a rise in the purchasing power of the consumers. Thus, economic factors also promote business opportunities for foreign companies.
Social China is a country with the highest population in the world and culture plays an important role in the country. The rate of growth of population and age distribution continuously fluctuates and is causing a change in social trends and cultural values. The population of China emphasizes on education and there are around 420 million internet users in the country. Due to such a large population using internet, online shopping has a great scope. On the other hand, there is still a large population of Chinese people who prefer face to face dealings. Thus, the preference of the Chinese population for online shopping and e-commerce business will also be beneficial for retail stores that also have online stores.
External Environment Analysis of the Chinese Retail Market
Technology China has a major technological problem when it comes to retail of goods using e-commerce. The problem is that the online payment system in the country is not safe and stable. Further, the weak laws in matters of online frauds and payments also prevents some of the users from making online purchases through retail stores. Thus, technology might cause a problem for companies like Morrisons, who want to expand their business in China by opening up traditional as well as online stores (Bush, 2015).
From the above analysis, the threats and opportunities to Morrisons in China can be easily seen, which are listed below:
- Presence of well-established rival firms
- A highly competitive market in terms of price
- Possibility of new entrants
- A few people in China are still not in favour of e-commerce business and believe that its unsafe
- The country has a great market potential for Morrisons due to presence of a large target audience
- A very high availability of suppliers as well as buyers
- The focus of the government and the customers is shifting towards e-commerce
The physical resources of Morrisons are given below:
- Morrisons has total assets worth £9,299 million as of 2016
- The company’s net assets are worth £3,756 million as of 2016
The financial resources of the company are:
- A revenue of £16.122 billion in 2015
- Morrisons has total liabilities worth £5,543 million while its total assets are worth £9,299 million
- A net income of £222 million in 2015 while the operating income of the company stood at £314 million
- Supply chain and distribution network àThe company has one of the best supply chain and distribution networks. The main USP of the company, which is to sell fresh food throughout the country, has only been possible because of its supply chain efficiency. It is likely that the company will establish a similar supply chain and distribution network in China and will give its competitors a run for their money (Bennallack, 2014).
- Product portfolio àThe company is also riding on success because of its ability to maintain a large product portfolio. With such a large number of product for the customers to choose from, Morrisons is regarded as one of the best shopping centres and websites. The company prepares most of its food items, which provides an added advantage to the company (Tesco and Morrisons school report, 2014).
- Large and high quality workforce àanother major strength of the company has been its ability to recruit and retain talented people in the organisation. The company has an approximate workforce of 125,000 employees and maintains an ethical conduct towards them. In the Chinese market, where there is availability of highly skilled labour at cheaper wages, the company will definitely perform its human resource functions effectively and will give a tough competition to its competitors (Researchomatic.com, 2012).
- Customer service àMorrisons believes in providing quality customer services. Some of the policies, such as one-hour delivery, freshness checks at delivery, etc. indicate the extent up to which the company is willing to provide quality services to its customers. With the same zeal, the company can become a tough competitor in the Chinese retail market (MBA Skool-Study.Learn.Share., n.d.).
The threshold competencies of Morrisons are:
- The company has multiple trusted suppliers
- It has a great number of stores in Great Britain
- It has a highly skilled workforce of almost 125,000 employees
- It has excellent offices and provides great facilities to its employees
- It has a good brand image in the market in terms of food and other products
- The company patents for own products
- Has an efficient distribution channel.
The vision statement of the company is to be ‘Different and Better than Ever’ that defines the mind-set of the company to undertake initiatives that will help it in becoming a company which is different and better than the others. On the other hand, the mission statement of the company is ‘to deliver sustainable long term growth, building on our traditional strengths of fresh food, quality, value and service, backed by our unique vertical integration capability, whilst reflecting our customers’ needs and the changes that are taking place in the market. We will do this in a way that stays true to the things that make us Morrisons (Morrisons-corporate.com, 2011).’
On the overall, the mission and the vision statements of the company are strong in their context and defines the mind-set that all retail companies should have. The zeal to emerge as different and better and the mission to grow by sticking to its traditional strengths of fresh food, quality and service and also to work according to the changing needs of the customers indicate that the company will work hard to satisfy its customer needs and will be a tough competition in the market. Hence, the company should definitely enter the Chinese market with the same mission and vision statements.
The SWOT analysis of the retail company based on the above information is discussed below:
- Higher quality and fresh food products
- An efficient supply chain management and distribution network
- A pool of talented human resources and an efficient human resource management
- Strong mission and vision statements that and properly aligned organisational strategies
- Preparation of most of the food items by the company itself, which enables the company to keep the prices low
- A large variety of products and product lines for the customers to choose from
- Online retail store
- Services, such as one-hour delivery and freshness check of food at the time of delivery
- Lack of geographical presence is one of the major weaknesses of the company
- Morrisons is a retail company that is associated with a large of product recalls, which has caused a significant damage to its reputation
- Expansion of business operations in Asian countries, such as China and India.
- Growing demand for retail stores in the Chinese market
- Increase in customer’s purchasing power in China
- High number of internet users in the country, who are slowly shifting their focus towards e-commerce
- Growing demand for organic and higher quality food product
- Morrisons has been experiencing a decline in its business in the home country itself
- Presence of some big retail brands in China already
- It might be difficult for the company to get retail licences and all the required clearances from the Chinese government
Once the company is able to get all the clearances to expand its business activities in China, the company should first of all, shortlist those cities that have the highest demand for retail stores and online shopping websites. Morrisons can then start expanding its business from these cities one or two at a time.
From the above mentioned information, it is also clear that the company has been losing a significant portion of its business in the home country itself. In such situations, it would become difficult for the company to bear the cost of huge supermarkets in a foreign country as the cost of establishment will be too high and the overall cost of the venture would increase took, which would ultimately have an impact on the break-even point and make it difficult for the company to carry out its business activities in China.
Therefore, it would be better if the company starts expanding its business in China by introducing conventional stores as their cost of establishment is much lower than supermarkets. The company can either go for mergers and acquisitions and can also look for a joint venture as a mode to enter the Chinese market as such modes can make the entry of the company easier in the foreign market and will also be cost effective for the company. In order to carry out its business operations smoothly and to ensure quality of services to the customers, Morrisons can also plan for a vertical integration where it will acquire a logistic company in China.
Analysis of Morrison’s Position in China
The purpose of vertical integration will be to ensure that the products are delivered fresh to the customers and on the desired time (BusinessDictionary.com, n.d.). If the cost of integration seems to be too high, Morrisons can also look for some domestic Chinese logistic companies that would be ready to partner with the company and ensure the delivery of products. Merging and acquiring Chinese companies will allow Morrisons to gain a better understanding of the market and also gain a strategically better position as the company will be able to make use of all the resources that were available to the Chinese company being acquired.
Through the study it can be easily judged that Morrisons has the right zeal and competencies to take over the Chinese market but its dwindling position in the home country market due to fluctuation economic conditions can make it difficult for the company to afford a large scale foreign expansion venture. On the other hand, the opportunities that the Chinese market offers to retail companies like Morrisons, it becomes important for the company to start planning its foreign expansion before the Chinese market gets completely tapped by other big names in the retail industry. Therefore, expanding business operations in the Chinese market can be considered as a necessary evil from the view point of Morrisons. As a result, the company should carefully formulate business strategies and should start expanding its business operations in China slowly and steadily.
References
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