Assignment 1 for Helpclick.
The main purpose of this consultant report prepared from the perspective of Argos is the identification of industry attractiveness and the firm distinctiveness. External and the internal analysis of Argos in UK retailing industry have been carried out in this report. This industry is found to be attractive for existing and new players with strong brand identity from the external analysis. The cost-leadership strategy adopted by Argos different from its competitors is found to make this company distinct in the industry.
Strategy is specified as long-term direction of a company (Johnson et al, 2017). Exploring strategy framework proposed by Johnson et al (2017) emphasizes on identifying strategic position, assessing the existing strategic choices and the strategy in action. This consultant report aims at executing the first step of identifying the strategic position of a company from the perspective of its external and internal environment. This consultant report is prepared for Argos Company present in the UK online retailing market. Johnson et al (2017) indicated that strategic position of an organisation deals about the impact of macro-environment, industry environment, strategic capabilities of an organisation and its stakeholders, culture on the strategy. Analysing the strategic position of Argos Company in this report involves in analysing its macro-environment, industry environment and strategic capabilities. External analysis is undertaken on UK retail market to analyse the macro-environment and industry environment of Argos. Internal analysis is undertaken on Argos Company to identify its strategic capabilities. Based on undertaking this external and internal analysis using the relevant strategic tools, the attractiveness of UK retailing market and distinctiveness of Argos Company are identified.
UK retailing industry is worth of £406 billion, thereby becoming one of the significant contributors of UK economic growth and employment growth (Rhodes and Brien, 2018). The online retailing market has become one of the significant contributors for the growth of retail industry over the past 4 to 5 years. According to Financial Times (2018), the sales of the non-food items online have increased from 11.6% in 2012 to nearly 24.1% in 2017. IMRG (2018) indicated rise in the online retailing sales in UK by 13.9% between the two years 2017 January and 2018 January. Office of National Statistics (ONS) has calculated the percentage increase in the online retailing sales with respect to the overall retailing sales in the country and presented in Figure 1.
Figure 1: Percentage of online retail sales to overall retail sales (ONS, 2018a)
The significant rise in the proportion of the online retailing sales with respect to the overall retail sales given in Figure 1 over the past decade reveals the growth potential of this industry.
The macro-environment analysis of Argos is carried out by analysing the UK retailing industry in terms of the Political, Economic, Social, Technological, Ecological and Legal factors using PESTEL framework (Johnson et al, 2017). Using PESTEL analysis given in Appendix A, the main trends current present and those that might dominate in the future are identified as below:
1. Mobile Commerce: Increased Smartphone usage of UK people, increase in the number of mobile applications that are launched, technological development, consumerism, increase in employment rate and busy lifestyles of UK people made them prefer mobile commerce using mobile applications.
2. Next-day delivery: End of squeeze on UK wages and disposable income of UK people, fall in the inflation rates, only a slight increase in the interest rates and busier lifestyles have made them choose better delivery options. This made online retailers provide the option of same-day or next-day delivery.
3. Innovative delivery options : High technological advancements, high consumerism, fall in the living standard of UK people made them look for unique advantages offered by online shopping. As a result, online retailers started providing the innovative kind of the delivery options like selective collection points, delivery to the car without authority of car owner and so on.
4. Consistent online tracking: In this internet world, the evolution of information at a huge extent has made people look for being informed about their product delivery. Rise in the internet and Smartphone users resulted in companies offering consistent online tracking information for the customers.
5. Click and Collect: Consumerism, high customer awareness, technological developments, busy lifestyles and increasing wages made UK retailers offer this ‘click and clock’ option besides online retailing.
6. Online shopping experience: Government support in the provision of the broadband connections with high speed at reliable cost, rise in the number of online retailers, growth in the trend of ‘click and collect’ and increased consumerism made companies provide unique experience in online shopping. This is done through use of dedicated team who involves in helping customers find what they need without extensive search.
7. E-commerce SEO: Another trend identified to be adopted by the online retailing companies in UK is e-commerce Search Engine Optimisation (SEO). This helps in increasing the visibility of the websites online relative to others.
Macro-environment analysis of UK retailing industry using PESTEL analysis (Appendix A) identified some of the main factors that contribute towards the growth of this industry. These growth drivers are,
1. Significant rise in the internet penetration rate to 90% among adults in UK and also among different age groups as given in Figure 2 (ONS, 2018b).
Figure 2: Internet users in UK (ONS, 2018b)
2. Rise in the number of social media users in UK from 75% to 81% over the past five years (ONS, 2018c)
3. Increase in the number of people using smart phones and mobile internet users in UK as given in Figure 3 (Consultancy, 2018)
Figure 3: Smartphone users in UK (Consultancy, 2018)
4. Decline in the inflation rate from 3.1% to 2.3% and rise in the wages for UK people by 2.8% (Partington, 2018)
5. Technological developments over the past few years resulted in the evolution of innovative delivery options, thereby contributing towards the growth of this industry.
From the macro-environment analysis using PESTEL (Appendix A), based on the impact of various factors, two possible scenarios have been identified to evolve in this industry. One scenario is related to domination of pure-play retailers than brick stores in the future. The other scenario is related to the domination of brick stores due to the security breaches and information risks. The first scenario can have positive impact which the second scenario can have negative impacts on the UK retail industry. However, considering the probability of the key trends, the probability of the first scenario occurrence is higher than the second one.
The competitive industry of Argos in UK is analysed using five force model that is proposed by Porter (2008). Competition level is specified in terms of the five competitive forces namely threat of new entrants, buyer power, supplier power, threat of substitutes and competition rivalry (Appendix B).
1. Threat of new entrants: UK retailing market faces medium threat from new entrants because of the initial capital requirement to acquire the products, strong brand awareness of existing players, high economies of scale enjoyed by the existing firms and at the same time cost-effective way of setting of online retailing website.
2. Buyer Power: The buyers of UK retailing market possess high bargaining power because of several wider options availability, less product differentiation, zero switching costs, raise in wages of UK people and expected raise in the disposable income of people in UK.
3. Supplier Power: Suppliers of UK retailing market posses low bargaining power due to the concept of backward integration of companies with their suppliers, long term contract between companies and their suppliers, high switching cost of suppliers and presence of several people offering the same products even from emerging countries.
4. Threat of Substitutes: The substitutes are complete offline stores that do not have any online presence. The threat from these substitutes is mean because of the high penetration of internet, high reliance of customers of convenient and flexible shopping and innovative delivery options provided by online retailers.
5. Competition Rivalry: Competition rivalry in UK retailing market is high due to the growing number of company’s entering online retailing besides providing services through offline stores due to the increased internet and smart phone users in the country.
From analysis of macro environment and the competitive industry using PESTEL and PORTER five forces (Appendix A and B), the different opportunities available for growth of this industry in the near future are identified. These growth opportunities are increase in the wages, fall in the inflation rate, low supplier power, availability of various distribution channels, and rise in the internet users, technological developments and low threat of the substitutes.
This external analysis also identified UK retailing industry experiencing threats in terms of higher power of buyers and extreme competition level among the existing companies. Considering the presence of stronger buyers with relatively higher entry barriers, this retailing industry is identified to be present in the maturity stage as indicated in the industry life cycle given in Johnson et al (2017).
As presence of higher competitive forces result in lower industry growth, Porter (2008) indicated that industry is said to be attractive in the presence of weaker competitive forces. For UK retailing industry, there exists weaker competitive forces from new entrance suppliers and the substitutes. However, competition rivalry is high in the industry. Therefore based on this analysis, UK retail industry is identified to be attractive for the existing players and also players with the strong brand awareness and the brand identity.
Argos is one of the leading digital retailing companies in UK that provides nearly 60,000 diversified products available in store and online. Argos consists of more than 800 stores across 1 billion numbers of online visitors. Recently, Argos has been acquired by Sainsbury’s retailer with a £1.4 billion takeover in the year 2016 (Gilliland, 2017; Sainsburys, 2018). The internal analysis of Argos is intended to identify the strategic capabilities possessed by this organization.
The strategic capabilities of Argos are identified by applying value chain model proposed by Porter & Kramer (2019) and VRIO framework that is proposed by Barney (2014). Value chain analysis (Appendix C) identified the existence of a number of resources and capabilities by Argos (Appendix D). These strategic capabilities include strong brand identify, brand awareness, wide product range, in store customer experience, cost effective and innovative delivery options, functional and slick model application, e-commerce SEO, highly skilled work force, ability to serve online and offline customers, highly featured e-commerce website, dealership with branded suppliers, loyal customers, highly supportive human resource team and good company reputation.
Among all the strategic capabilities, multi channel retailing, high featured e-commerce website, cost effective and innovative delivery options along with excellent customer service both in store and online are found as the core competencies of this company. The acquisition of Argos by Sainsbury’s in the year 2016 (Gilliland, 2017) made Argos as an multi channel retailer as the company currently able to deliver its products through its stores, online and also through the concession stores present in Sainsbury’s retail outlets. High featured e-commerce website of Argos is also considered as its core competency because of the unique design of presenting wider product range in a clear and concise manner, presentation of the product videos when required, ability to check the stock and reserve the product and clear presentation of the product reviews (Gilliland, 2017). Innovative delivery option provided by Argos such as fast tract is also considered as core competency as it allows the customers to pay an extra of only £3.95 for same day delivery if ordered before 6 pm. This core competency helps in providing more convenient and flexible delivery of products at relatively lower prices through which customer satisfaction can be improved.
The core competencies of Argos identified from value chain analysis are evaluated using VRIO framework proposed by Barney (2014). VRIO framework indicates that strategic capabilities which are Valuable, Rare, Inimitable with Organizational support (VRIO) becomes the core competencies of the organization.
|Strategic Capabilities||Valuable||Rare||Inimitable||Organizational Support|
|Multi channel retailing||Yes it is valuable as it helps the customers to get their products delivered from several options based on their flexibility and convenience.||Yes , it is rare as Argos competitors like Amazon do not consists of concussion stores inside leading UK retailers like Sainsbury’s.||Yes , it is inimitable because of copying this strategic capability requires trained and skilled work force, financial resources, proper planning, time and effort.||Yes , Argos provides strong support by training the staff, improving online website, providing mobile app for improving the strategic capability.|
|High featured e-commerce website||Yes , it is valuable for customers to identify the required products and perform different actions based on their requirement.||No , it is not rare because of Amazon providing the similar options like product stock verification, customer reviews and product reviews.||Yes , it is inimitable because of the need of sound experience, skilled team for website development and maintenance along with the financial resources.||Yes , there exists support from Amazon to improve the website through regular evaluation and maintenance.|
|Cost effective and innovative delivery options||Yes , it is valuable for Argos to attract customers and for the customers to get their products with high convenience.||Yes , it is rare as fast track option given by Amazon is relatively cheaper than Amazon prime monthly subscription fees.||Yes , it is inimitable because of the requirement of coordinated supply chain, skilled work force, committed employees for providing cost effective options for customer convenience.||Yes , Argos provides high support for improving this strategic capability by having larger distribution network, training for committed work force involved in delivering and the supporting finance.|
|Excellent customer service both online in store||Yes , it is valuable for Argos to have loyal customers and valuable for customers to shop at their convenience.||Yes , it is rare as Argos competitor Amazon focuses only on online service for the customers but do not provide both online and in store as that of Argos.||Yes , it is inimitable because of the need of establishing dedicated flag ship stores, recruiting and training the skilled work force along with providing financial support.||Yes , Argos provides high support for improving the customer service by recruiting and training skilled work force, designing the stores accordingly and having transparent communication with the customers.|
From VRIO analysis, this identified that multi channel retailing, cost effective and innovative delivery options, excellent customer service both online in store are the core competencies of Argos. Application of Resource Based View (RBV) model proposed by Barney (1991) to the context of Argos, it is found that these three competencies help Argos to gain unique advantage over its competitors like Amazon.
An organization can be distinct based on the competitive strategy that is adopted by this company (Johnson et al, 2017). Argos Company is currently adopting cost leadership strategy as indicated in Porter generic strategy framework (Porter, 2008). This cost leadership strategy and its core competencies can make Argos distinct in the UK retailing industry because its competitor Amazon is adopting differentiation strategy.
To conclude, this report analyzed the external and internal environment of Argos in UK retailing industry. External analysis found the attractiveness of UK retailing industry for existing companies and new companies with strong brand image. Internal analysis identified the core competencies and distinctiveness of the organization through its cost leadership strategy.
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