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.
Now, it’s time to discuss pestle analysis of the retail industry to find out various factors that impact retail businesses.
Table of Contents
Political Factors Affecting Retail Industry
Government Regulation & Political Influence
The government and the politicians work in collaboration to devise rules and regulations, the citizens, businesses and the retail industry has to obey them. Such laws can seriously impact the profit and revenue stream of businesses. If the government raises sales taxes, then it would increase the prices of the product and services. Consequently, people would become picky in their choices, which means a drop in total sales. Fewer sales mean less profit.
If the political environment of the country changes like protests, roadblocks or bans, then it would disrupt the supply chain of products and services. Therefore, businesses cannot run their operations smoothly, if there’s a conflict in local politics.
Ever since Donald Trump became the president of the US; there’s been an atmosphere of antitrust between the US government, China and some giant companies like Google and Amazon. The growing conflict between the two governments is resulting in form of strict legislation and more taxes. Amazon and companies have a very big market in Asian countries, when the government imposes restrictions on doing businesses with certain countries, whether you should store customer’s data or not. It’s a serious setback in terms of profit.
There’re countries like India that restrict foreign investors to directly invest in the country. All of these factors make it difficult and impossible for businesses to run and execute their operations globally.
Economic Factors Affecting Retail Industry
Wise governments and economies appreciate business activities; they create a favorable environment for businesses to grow. They encourage customers to spend their money, instead of holding on to it and buying what they need. Such an economic mindset proliferate economic activities.
On the contrary, when business activities are declining, that means unemployment is higher and people have fewer resources. It’s a completely different environment of the economy, and it creates a different mindset of the people. When people don’t have a job and their resources are limited, then they would go on the saving mode. Few spending means less business activity.
According to an estimate, the total sale in the retail industry would reach 30 trillion US dollars by the end of 2023. It means that people would have more extra money; therefore, the increase in personal spending would cause the total increase in global sales in retail businesses.
The economy of a country creates an environment and mindset and of the people, whether to spend or not. If the economy is good and people have jobs and sources of income, then they would be able to spend. Otherwise, they won’t. There’s a limit to price cutting, retailers can’t go below at a certain limit.
Social Factors Affecting the Retail Industry
Society and social trends develop the shopping habits norms of people, their attitude and behavior may change and transform because of many factors. Like if they are educated, then their choices and preferences would be different. In such a case, they would prefer products and services of certain multinational brands with their logo on it. Rural customers would buy any food items based on their tastes or whatever is available. Educated buyers would study the calories and vitamins of food items, and then one would decide based on one’s diet needs.
Demographic social factors like age, gender, race, income level, and education level of customers affect the business of retailers. Choices and preferences also vary with gender, age, and other factors. Like, ladies, educated aged people would comfortable products, and young ones would want adventurous and exciting products.
E-commerce retail stores offer products and services to the customers based on shopping patterns and the time that the customer spends online. Whenever a customer visits the store next time, the software would provide him the information based on the data of previous searches.
Technological Factors Affecting Retail Industry
Whether it’s an online retail store or a physical shopping mall, technology has influenced them both equally. It could be in the form of generating sales reports, cash management, or management of the store’s sales record. Businesses have to adopt hardware and software technology to keep moving with time.
Ecommerce stores are the ones that benefited from the technology the most. Especially with the help of the internet, online retailers can advertise their products and services globally without any restrictions on borders. Companies like Amazon and Alibaba are doing, they offer products and services worldwide. All you need is one good website with the catalog of products and services that you’re offering, a stable internet connection and a reliable delivery system.
Walmart and Amazon both are competitive online retail stores. They offer products and services along with shipment to deliver the product at the doorstep of customers. It doesn’t mean that there aren’t other online retailers, as a matter of fact; it’s rather easy to establish an online store and advertise it.
Legal Factors Affecting Retail Industry
A retail store operates within the legal environment of a country; therefore, it has to follow the prevailing local labor laws, excise and taxation regulations, and other business laws. When a brand plans to go globally, the rules and regulations become a bit complicated. It’s because every country has different copyrights, trade and tariff laws.
If a business decides not to follow the local rules and regulations of certain or multiple countries, then it would result in ban, restrictions, bankruptcy or foreclosure of the business. Therefore, the business must obey a country’s laws.
Environment Factors Affecting Retail Industry
Some retail offer food and edible items. As we know that such items can’t remain fresh for a long time in a certain environment, there’s a time limit on them. After that, they’ll be expired or contaminated. Therefore, a retailer has to follow local legal and economical factors. For instance, some countries apply taxes on the sale of soda or fatty food.
The other environmental issue some companies have to face is the expiration dates of products and removal of the contaminated stock. Companies have multiple suppliers who provide products with different expiring dates when sales staff put them on the rackets. All the products get mixed up, what comes first or expires earlier than the other.
If a retail store doesn’t maintain a standard healthy environment within the store, then food and safety departments would either ban or impose some penalty of a certain amount on the store.
After carefully studying the political, economical, technological, social, legal and environmental issues that the retail industry has to face. If they follow the prevailing rules and regulations of a country, then it’s good. Otherwise, they would end up in a lot of lawsuits and legal penalties and it would cost a lot to a business.
Photo by Artem Beliaikin