A PESTEL analysis of the retail industry
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 and by 2020 they are expected to have grown to $28 trillion. Globally, retail is a major contributor to the GDP of nations and also employs a very large workforce. However, there are several forces in the macro environment that affect it and are going to shape its future. So that they can exploit the changing demographic and economic trends, retailers are expected to make better use of technologies like Cognitive intelligence and Artificial Intelligence to better serve their customers and grow their market share. Here is a PESTEL analysis to show how the various forces affect the retail industry.
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. The anti trust issues have continued to trouble Amazon and the issue seems to have reignited with Trump as president. 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 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 is predicted to have grown to $28 trillion by 2020. The labor 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 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 millenials 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 millenials 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 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 center.
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.
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. Labor 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 labor 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.