Retail Business in the UK
A retail business typically compromises a shop or store where goods are sold to the general public. Although retail businesses are usually present in a physical ‘bricks and mortar’ environment, the establishment of internet retail businesses has opened new avenues for business, though it is worth remembering that catalogue home-shopping by post dates back to the Victorian era and that groceries being delivered was usual a century ago. The main theme of retailing is taking possession of something by buying wholesale, and then selling it on at a price grants the seller a profit (or, of course, manufacturing something in the first place before selling it). Regulating a retail business is no easy task, considering that the retailer has to decide upon a range of factors such as how the product is displayed, the price of the product and how it is positioned and marketed. Over the years, various means of retail marketing have emerged. Retail stores, with physical locations, sell goods to the consumers, whereas those businesses which do not have stores can also be engaged in retailing using catalogues, phone shopping or the internet. On a general level, all businesses that fall under the category of sellers of goods and services are retail businesses; yet there are further classifications amongst this broad category. Businesses can be discount stores or seasonal retailers (Pennypacker, 2011).
Before setting up a retail business, it is essential to take into account several traits of the market the business is breaking into, the state of the economy in the country, the number of competitors in the marketplace, the level of consumer spending, etc. For instance, recently analysts have predicted that retail businesses in the more advanced regions of the industrialized world may face some serious issues, arising out of reduced consumer spending due to the recession as well as increasing competition. Despite hard times, a key factor which can increase the growth of a retail business is the ability to generate sales, and this has become an essential element in acquiring healthy reputation in the financial arena. The ability of the businesses to increment their growth rate and to keep it steady when faced with competition or a recession, is what makes these businesses solid in the long-term. This is what distinguishes “one-hit wonders”, characteristic of a short period of success, from high performers (Accenture 2011). This argument, focused on an international level, is what forms the core of this essay, which focuses on the assessing the international viability of a retail business which does not have international outlets. A range of theoretical frameworks have been employed in the course of the paper.
No one definition of internationalization has been agreed on amongst theorists. With the changes that are being brought about by technology and the changing world environment, globalization and internationalization are often misinterpreted as synonyms. Internationalization in the retailing environment can be traditionally defined as “the continuous process of increasing involvement in international operations” (Dana et al. 2008). It encompasses the notion of the transfer of retail knowledge and operations into one or more countries, as defined by David Gilbert. When a UK-based business, such as the partnership John Lewis (which also includes the highly positioned UK supermarket Waitrose), looks into these aspects of internationalization, it has to take into consideration a range of factors. Given that John Lewis does not have retailing outlets outside the UK, internationalization of the business entails the concept of enhancing international operations of the business. Therefore, John Lewis would have to consider a range of elements in the context of internationalization in order to guarantee smooth and successful retail operations abroad.
For a business such as John Lewis, internationalization encompasses making an analysis of the factors that could determine the success of the business abroad. John Lewis is a retail business that has several large stores in the UK, but also has the facility of buying products online. The store specializes in the production of high-quality goods such as home and garden accessories, electrical machinery, furniture, fashion, toys, home-ware, kitchenware and gifts – (and, of course, food via Waitrose). When a retail business such as John Lewis decides to open retail outlets internationally, it has to decide the type of approach needed. The tread gold’s typology of international retailers divides internationalists into groups. The cautious internationalists are the ones which are representative of a large control in the international market, but, on the other hand, having a low-profile representation in the market. Moreover, cautious internationalists work in countries in which the culture or the geographical location is strategic to the retail businesses. In the case of John Lewis, where a range of retailing products are sold both in the shops and on the Internet, acquiring an aggressive internationalist approach is reasonable because such an approach allows the business to break into a variety of markets.
A construct that is one of the core concepts of the retailing business is the eclectic paradigm of international production (Pradhan, 2009). According to the eclectic paradigm, firms are only eligible to invest across the borders if they are in possession of certain traits. These traits entail that the business has certain ownership limited advantage, which the business competitors lack or are not being offered at the same cost. These ownership advantages are conveyed to the business from certain intangible assets; for instance superior technology, resourceful production procedures etc. Another way of deriving ownership advantages is by ending the alliances the retail business has made with other businesses already in the potential market (Pradhan 2009).
Where tread gold’s typology has defined internationalist approaches on a general basis, there is a need to analyse the feasibility of internationalization for a business such as John Lewis in the light of internationalization theories. Which country the retail business selects to start their international operations is one of the most important questions to be asked. Before proceeding on with the selection of the most suitable region for international expansion for John Lewis, the essay sheds light on the theories of internationalization and the basic elements the business has to take into consideration. While the tread gold’s typology has placed emphasis on the approach the business needs to employ to enter the market and the geographical importance, Salmon and Tordjman focused on the need to adapt to the rules and norms of the foreign country and the need for developing operational advantages characteristic of a common strategy in all the markets. The theorists distinguished between the types of retail businesses; they contended that there are two main types of businesses, one being those who replicate their operations as it is in the foreign country, with modest changes being made to them in relation to the new environment; the second type of businesses is those which cater to the needs of the locals and bring extravagant changes in order to adjust in the market.
The aggressive internationalist approach put forth in tread gold’s typology is better suited for an investment business, as explained by Salmon and Tordjman. In an investment business the retail business buys another company in a foreign country and constitutes a portion of the “portfolio of non-domestic investment” (Alexander 1997). The business adjusts itself according to the local needs and there is little exchange of skills and ideas between the domestic international markets. If a business with no international outlets opts for an increase in its international operations, opting for an investment strategy would provide benefits to the business such as decreased risk and the rapid creation of an international presence. However, the type of internationalization style the company chooses is not the only factor that it has to take into account. The company needs to spend time and resources researching the market environment which suits it the most. For this purpose, the PLIN model can prove to be an effective means of assessing the market situation.
Representing product, lifestyle, image and niche, the PLIN model can provide the business with important information regarding the category classification, standard of living of the consumers, a retail image dependent on reputation and the likely niche approach the business will take up to gain differential advantage (Rugman, 2004). It is essential for the elements to be in existence at the same time in order for the business to acquire differential advantage in the non-domestic market. These four factors are important in differentiating the retailer in the domestic market. Moreover these factors play an integral role in the successful implementation of the process of internationalization. These elements form the core of the assessment on which the retailer will use international expansion as a viable growth approach.
Sternquist’s model of Strategic International Retail Expansion (SIRE) reflects on how ownership and location determine the presence of the business in the international market. The business, when planning to extend its operations abroad, needs to consider the factors whether it is asset or transaction based, or whether it places more emphasis on the location’s characteristics of the foreign market. When considering a business with no operations internationally, strategic international expansion which focuses more on the location as compared to ownership is more suitable. This is because the company is able to learn more, with the approach being fundamentally akin to multinational expansion. The business has to consider factors such as the cultural proximity, size of the market, geographical proximity and low cost land and labour. The predicted expansion pattern in such a case is representative of the expansion of the store of the business in stages, with the selection of those countries which offer appropriate location benefits (Sternquist, 1997).
From the above discussion, it can been seen that there are a number of theoretical models that explain various aspects of internationalization and the approaches that retail businesses must take to be successful. These models are resourceful in explaining the various forms and traits of international retailing. The myriad of theoretical models allows international retail managers to be able to recognize opportunities and to choose from a wide range of internationalization styles the approach that suit the business the best. The classifications provide a means of finding out the subtle differences between the internationalization styles, with subsequent benefits and drawbacks to each style. For this purpose, Alexander and Myers have brought together the various notions put forth in internationalization theories in a matrix (Bruce, Moore & Birtwistle, 2004). When analyzing the international viability of a business in terms of the various factors that drive internationalization, it is essential for the business to plan and organize its approach based on the drivers of change and the non-domestic market.
After merging together all the concepts of internationalization theories, one can draft a strategy for John Lewis and analyze the international viability of the business. Taking the example of the Middle East, one can see that the region – (especially Dubai) – has becoming one of the main centres of shopping activities of the world all over. According to Pradhan (2009), the region is characteristic of more than sixty thousand shoppers every day with more than $2 billion being invested into the region. This gives rise to the idea that “stakes are high for retail in Dubai” (Pradhan 2009). In the past decade the region has been witness to a 200% growth in the capacity and a total investment of approximately $1 billion. It has been predicted that in the upcoming years, the capacity of the region will show more than a two-fold increase and an extra investment of a minimum of $900 million in the UAE only (Pradhan 2009). This is representative of the immense growth potential of the region, although political instability is always a concern.
The future of retail in the UAE and other Middle Eastern countries is arguably bright. When the Al Ghurair shopping mall was launched in Dubai in 1981 it brought drastic changes to the world of retail in the region. It was the harbinger of a trend which brought about changes in the retail business, not only in Dubai, but in the entire Middle East. Over the years, Dubai has become the hub of shopping activities in the Middle East and ranks amongst the top international shopping destinations: tourists from all over the world are attracted to Dubai for its extravagant city life and shopping. Moreover, every year malls come together for the Dubai Shopping Festival which lasts for a month; the purpose of this festival is to attract more tourists to the region. Such a festival helps to combine the attractions of some of the most famous businesses of the world and allows development of greater impact and visibility for the businesses in the city (Pradhan 2009).
A survey carried out by the Retail International showed that ten countries in the Middle East had a total shopping space of 4.4 million square meters. Moreover, the countries were working on extending the shopping space to another 2.2 million square metres. In subsequent years, the total shopping space in these ten countries of the UAE is expected to rise to over 6.5 million square metres. Retail International also asserted that Dubai would remain in the growth phase for a long time. The growth rates of the city might start to show a gradual decline from 2005 as compared to the booming growth rates it has seen before that; however, the region would still be marked by a substantial growth rate till the year 2025 (Pradhan 2009). This shows why choosing Dubai for internationalization could be a suitable strategy for John Lewis.
Moving on to the analysis of the marketing mix, in the context of the PLIN model, that would be most appropriate for John Lewis: one can see that retail in the region is characteristic of a combination of both conventional and new formats. The increasing growth in the Asian region has given rise to a more educated, aware and demanding middle class (Pradhan 2009). The people are also engaged in greater degrees of travel, and this change in lifestyle has also affected the way businesses are conducted. For instance, more than 60% of the retail outlets in North Asia have switched to modern ways of conducting their grocery sales. During the years 2006 to 2009, 10% of all the trading activities have shifted away from traditional trade to more modern forms, primarily due to the advancements and fast pace of progress and development taking place in China. Therefore internal expansion for John Lewis would mean adjusting more to the modern trade being carried out in Dubai. The consumption and lifestyles of the people have changed, which supports trade to be carried out in modern formats as opposed to traditional ones. Asian communities are typical of their tendency for large amounts of consumption. It has been seen that as a general trend, Asian consumers attach a great deal of importance to the value of goods and are also aware and well-established in comparing the various prices of the product being offered in the market. As a result, a large proportion of the population – the emerging middle class – is engaged in finding the best trade-off between price and quality. It follows that a very successful brand in another market is subject to a more struggling time in the Asian market if it fails to offer the best combination of price and quality. This makes John Lewis a potential success in the region, and it could attempt to emulate the success of well-known international brands like Marks and Spencer, and Tesco too. However, before establishing future success, John Lewis needs to take into consideration several other factors such as the infrastructure, government and the local competitors in the non-domestic market. The government and the political situation of the Middle East are worth considering before the business decides to launch over there. Limitations on the commercial activities imposed by the government can also prevent the business from flourishing (Shimizu 2008). Moreover, John Lewis has to research on the norms and entry requirements too. Products may have to be ‘localised’ – for example, removing from sale kitchenware meant for pork products in the mainly Muslim Middle-East.
The fact that there are already a number of local as well as international competitors in the market – such as Tesco, and Marks and Spencer, plus companies from other Western countries – should not be ignored by John Lewis. Pradhan (2009) contends that it is the product, the pricing, the service being delivered and the expertise of the retail business in keeping the costs in check by regulating procurement and distribution costs, that are essential in the eventual evaluation. In this regard, John Lewis stands a credible chance of performing well. It offers high quality products at reasonable – (though not bargain) – prices. It is famous for its “keen pricing”, as depicted in its price guarantee “never knowingly undersold” (Porter 2011), but quality is paramount too. The store also boasts excellent customer service and is one of the fastest growing retail stores in the UK: consumers trust it and seem to like the fact that it is a partnership so does not answer to shareholders (though this could be problematic for raising capital for overseas expansion). For its operations in the UK, it provides a cash profit share to the partners twice a year and treats staff very well (arguably unlike ‘monster marts’ like WalMart). Customers place their trust in the store for its quality, price and choice (Anne 2002). These traits can contribute significantly in breaking into the market in the UAE and establishing a steady rate of sales.
Internationalization also creates a number of challenges that John Lewis may face if planning to establish itself in the UAE. These challenges are the reason why businesses are not able to expand successfully across the borders, despite the fact that they may have been doing well in the home country. The reason why such businesses fail is often because of a fault in their approaches: not having complete knowledge about the customers and localised markets and habits can have dramatic consequences. Therefore, it is important for the managers to spend time and resources on whether consumers demand the products that John Lewis is selling and to establish the exact nature of demand for the products. The local environment is also a big challenge. Not only may it become difficult to adapt to local norms and to adjust to the culture, it may also be a problem to deliver the goods and carry out production activities under its constraints. When it comes to the workforce, the managers need to take into account the wages being paid to them and to give regard to the aspect of cultural sensitivity (Pradhan 2009). The lack of flexibility of the business to respond to the demands of the local consumers can also be an impediment to successful internationalization (Hines & Bruce 2007).
In conclusion, there are a number of factors that are in favour of international expansion of John Lewis in Dubai. Consumption patterns of the people of region are also in favour of the retailing of John Lewis, and the aforementioned characteristics of the Middle East add to the location appeal of the place. If the retail store is located in Dubai, it would be at the heart of all trading activities of the region and would appeal to visitors too. The immense potential for shopping space suggests that the market is still open for retail businesses such as John Lewis. The increase in the growth rate of the region, which would continue for more than a decade, also supports the international expansion of the business. However, the business also needs to adapt to the local environment, which may appear as a challenge initially, and would have to raise capital to expand internationally and thus lose its partnership status: most UK customers would arguably consider that too high a price to pay for unnecessary, and perhaps risky, overseas ventures.
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