Strategic Analysis Of Myer: PESTEL, Porter’s Five Forces Essay.

Macro-Environment Analysis using PESTEL Analytical Framework

Discuss about the Strategic Analysis of Myer. 

Myer is a retail group that was started by a Russian immigrant, Sydney Myer, together with his brother, Elcon Myer in Bendigo, 1900. In 1914, Myer built the largest chain of departmental store in Melbourne, which is currently the CBD store of the organization. The ownership has changed over time after the death of its founder, Sydney Myer. Myer has grown due to the continuous development of new stores across the Six Australian states. It has also acquired other departmental stores such as Grace Bros in 1983, Boans Ltd, Western stores in South Wales and Farmers & Co. Myer Emporium merged with GJ Coles & Coy to form Coles Myer, which was later sold in 2006 (Myer, 2017). The main products include women’s, men’s, and children’s wear, beauty fragrance and cosmetics, home wares, electrical goods, intimate apparel, toys, footwear, handbags and accessories and general merchandise. The new owners of Myer include; TPG/New Bridge, the Myer family and the Myer current management team, where Richard Umbers is the CEO. It became a private ownership after divesting from Coles Myer.

The mission of Myer is to provide customers and the community at large with the highest standard of service and ensure that they consistently meet and exceed customer’s shopping expectations. Their vision entails becoming an international-class retail business aimed at inspiring everyone. It focuses on style and fashion by providing quality products, friendly services and additional benefits such as MYER One Loyalty Program. As per 2016 annual reports of the retail group, Myer recorded revenue of $3.3billion, operating income of $113.5billion and net income $60.5billion (IBISWorld, 2017). They have approximately over 12500 employees, along with 1200 suppliers and 54000 shareholders. It has 67 stores located across Australia. Their main competitors include David Jones, Harris Scarfe, Kmart Australia, and Target Australia. Major markets are New South Wales, Queensland, and Queensland.

Political stability in the region encourages more investors and suppliers to carry out business, thus, recording high rates of return and low risks of business failure (Bill, 2011). The government focus on expanding international trade provides an excellent opportunity to retailers to get suppliers and customers from across the world using E-retailing (ASX & Media Release, 2016). The chairman of Myer has highlighted (during the released of the annual report) political factors that affect Myer. One of which is the uncertainty of political level, such as new taxes and charges (carbon tax and flood levy) would affect consumer spending, thus lowering revenue of the firm. Other concerns such as loopholes in goods service tax (GST) legislation and the new setup of the industrial relations, would negatively impact the performance of Myer.

Industry Analysis using Porter’s Five Forces

Fluctuation of the Australian dollar and global economy weaknesses adversely affect the sales growth of the retail industry.  Economic factors such as falling house prices, high oil prices, low rate of saving and the decreasing GDP negatively affect the consumer confidence and spending patterns (Barney and Hesterly, 2008). However, the decrease in the unemployment and inflation rates, positively influence the success of the retail business.

The increased preference for high-quality products among the Australians provides a greater opportunity for retailers like Myer to focus on customer satisfaction to gain a competitive advantage (Glynis, 2015). The population is culturally diverse, and therefore the retail industry should manage diversity through the provision of a wide range of products to meet the needs and expectations of the customers.

International competitiveness of Australian retail industry is as a result of the use of the internet and e-retailing (Sharrieff, 2012). The new communication technologies accelerate expansion into new foreign markets globally. The fiber optic, mobile network and satellite coverage have led to connections with various activities thus improving efficiency (Myer, 2014). The Federal Government has established policies that help inventors commercialize and protect their new entrepreneurial ideas.

Taxation policies and employee regulation have been affecting the industry. Laws such as compliance with disclosure requirements, health and safety regulations, and consumer protection influence the retail business either positively or negatively. When opening new stores, the concerned government should approve so as to control illegal activities in Australia (Hanson et al., 2008).

Australia is a dry continent with least amount of water and human activities affect the marine environments. Selecting an environment that is conducive to targeted customers is a great challenge to Myer retail store. Climate changes, private and public environmental programs are factors that affect the industry. Recycling of waste products improves business sustainability in the retail sector (BNET Business Directory, 2007).

In conclusion, using the PESTEL analysis, the following opportunities are available to Myer; increased disposable income, expanded international trade agreements, increased preference for high-quality products by customers, automation in business and use of knowledge management systems (Gillespie, 2007). Besides, mobile technology and information security regulation aid in formulating effective strategies. The threats include; unpredictable government spending increased the cost of capital, economic recessions, new taxes and charges, online disruptions and rose in the wealth gap.

This risk is high in the retail industry due to its promising nature and the large population which increases demand. There are a decreased number of retailers who are independent because of the competition. It is not easy for the small-scale retailers to enter the market because large companies, such as Myer, enjoy economies of scale (ASX & Media Release, 2016). The industry turnover is high therefore it attracts more competitors. The increased customer loyalty to specific brands like those of Myer is also a threat to new entrants.

The threat of substitute products is high. Several companies offer a variety of trendy and fashionable products, therefore increasing the availability of substitute products. They focus on both national and home brands and offer low prices to the substitute products (ASX & Media Release, 2012). Increased use of new technologies leads to innovation of substitutes with greater quality and performance. Product differentiation by Myer Company can be its best strategy to maintain its competitive advantage.

This force is low in the retail industry. For the vendors to compete, they have to decrease costs of the firms and improve product quality. Myer, being a large retailer, focuses on improving efficiency and reducing overall costs (Eli, 2008). Such strategy lowers the bargaining power of suppliers. Besides, the presence of wide range of substitute inputs and a higher concentration of vendors significantly impact their bargaining power.

Buyers bargain for quality products and services at low costs. There are no switching costs that customers can incur when they want to move to other retailing company if they don’t get the styles and fashions in a particular shopping or retail mall (ASX & Media Release, 2012). Although there is an increased number of existing and potential in the industry, departmental stores such as Myer cannot raise prices since the firm concentration is high and therefore, customers can switch to other alternatives. If Myer offers unique products, then it can gain a competitive advantage.

Most of the departmental stores in the retail industry are almost equally balanced like Myer and its main competitor, David Jones (Lynch, 2014). They use competitive pricing policies to show customers that they offer high-quality products. Product differentiation is difficult. Thus, imitation is not easy. Competitive rivalry is high as the retailers want to have a full market share. The acquisitions and merging is a trend that focuses on increasing the competitiveness of the stores in the industry.

Based on the Porters Five Forces Model, we can draw the following conclusion. In the retail industry, the barriers to entry into the market are high; the consumer bargaining power is moderate because of the concentration of major retailers in the region (Porter, 2008).

Prime and strategic locations; Myer has located all its stores in high traffic places across the Australian states which give them an opportunity to have more potential customers. They have brand recognition both domestic and internationally. It has achieved such brand equity through merchandising and licensing its overall products (ASX and Media Releases, 2015). The aesthetic appeal of the departmental store; Myer has repositioned its stores to appeal to customers, thus creating an excellent customer experience, improved profitability, and a high competitive advantage.

The large size and continental presence enable Myer to enjoy large economies of scale and low costs of inputs from suppliers. Customer loyalty based programs, such as Myer One, Myer Visa Card (Zappone, 2012) and Myer gift card (Simon, 2007) increases the frequency of customer loyalty holders to shop in the stores. They have maintained a good corporate social responsibility by building goodwill and taking better initiatives that enhance the community’s well-being.

They are strategic capabilities because almost all of them are valuable as they allow Myer to exploit opportunities and reduce threats to the macro environment fully. The resources and competencies are rare as few competitors possess them. They are also costly to imitate by other firms, especially small-scale retailers. Lastly, they are non-substitutable as there are no strategic equivalents in the industry (Hunger & Wheelan, 2007).

Conclusion

In summary, strategic analysis of the Myer departmental stores leads to the identification of key opportunities and threats and also determining its competitiveness in the retail industry. The clothing and cosmetic products of Myer have recorded satisfactory performance over the years, and therefore they should improve on their marketing strategies by targeting global presence and adequate use of the areas in the showrooms.  Also, tying up with foreign players and exploring innovative promotional strategies.

References

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https://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/Myer_Annual_Report_2016.pdf

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https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_MYR_2015.pdf

3. ASX & Media Release (2012) “Myer Full Year Results ending28 July 2012” (online) Retrieved on 15 February 2017

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https://www.pc.gov.au/inquiries/completed/retail-industry/report/retail-industry.pdf

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https://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_strategic_analysis_tools_nov07.pdf.pdf

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https://www.smh.com.au/business/myer-and-david-jones-merger-cautious-approval-but doubts-remain-20140203-31wb9.html

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https://www.myer.com.au/resources/7bb661d0-4d1d-44bc-a295-27a4ffde0ebb/2014_new_brands_for_the_home_fv.pdf

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Accessed on 20 Feb 17

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