Paper Example on Challenges and Strategies in the UK Retail Fashion Industry: A Case Study of Arcadia Group Ltd.

Introduction

Retailers are a subgroup of intermediaries in the distribution chain to get goods to final consumers. Most retailers source products from established wholesalers or get their products direct from the manufacturers. As at the end of the financial year 2018, Sabanoglu (2020) reported that the United Kingdom had about 11, 580 retail stores. However, these numbers do not come without a fight, and the retail industry has its fair share of the competition. This report considers the challenges and emerging issues in the retail fashion retail industry. Herein there is a PESTLE analysis, SWOT and Porter’s Five Forces Analysis to understand the macro and microenvironment for the UK retail fashion industry and Arcadia’s business environment. The report finishes with suitable recommendations that Arcadia Group Ltd. can incorporate in their strategies for better business operations and profitability.

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Arcadia Group Ltd.

Arcadia Group Ltd. has several shop brands, including Burton, Evans, Miss Selfridge, among its other more famous brands such as Topman, Walis, and Topshop (Group Functions - Arcadia, 2020). According to the company website, the organization has over 500 stores in the UK and about 1170 stores situated in 36 countries across the world (History - Arcadia, 2020). With such diverse retail brands, Arcadia employs over 19,000 individuals in all of its 1170 stores.

Over the years, the company management has changed operations within Arcadia Group Ltd. Sir Philip Green and his family later acquired Arcadia under their parent organization Taveta Inc., and today the company handles over 130 million individual items shipped from 50 countries and exported to over 107 countries across the globe (History - Arcadia, 2020). However, despite doing exceedingly well over the past decade, this present decade saw a decline in sales for Arcadia.

According to Financial Times reporter Elly (2019), the company is yet to report gains from the restructuring efforts that management initiated by the end of the financial year 2018. The company reported a net loss of £170 million for the year ending 2019 (Elly, 2019). Moreover, Elly (2019) further reported that there is a going concern warning from the company’s auditors. Price Water House Coopers (PwC), the company’s auditors, reported that Arcadia Group Ltd. should take much concern to finance its debt obligations, especially for the Topshop store located on Oxford Street.

Changes in UK Fashion Clothing Industry

The profitability of the fashion industry emanates from consumers’ confidence levels, economic stability, and disposable income in the hands of the consumers (Grover et al. 2019, p.103). Due to the ongoing economic slump-down from the COVID-19 epidemic, the fashion retail industry reports hard times in maintaining profitability and standard operational activities. Demand for fashion items has slacked to pave the way for the most essential of commodities that consumers have to consider.

There are massive job losses in the world at present, with many companies ‘closing shop’ due to the prevailing pandemic. As such, the general fashion retail industry is at the receiving end of this slash-back, and this aspect significantly affects the ‘ongoing concern’ of almost all companies in the retail trade. The following is a PESTLE analysis of the health of the fashion retail industry in conformance to the purpose of this report, as well as concerning Arcadia Group Ltd.

PESTLE Analysis for the UK Retail Fashion Industry

Political environment: the UK’s political move to exit from the European Union has resulted in adverse effects and structural changes to most UK companies. As a result of the European Union members states’ agreement concerning cross border trade, most UK Fashion retailers enjoyed less restrictive trade policies with fellow union members. As such, BREXIT has tampered with the model of business operations and regular transactions to the extent that most companies reported losses in the recent past.

Economic environment: economic recessions present a business environment where most businesses struggle to maintain performance equilibrium (Grover et al. 2019, p.99). Companies find it hard to report the same business results during a recession compared to peak seasons when recessions and inflations are moderate. The United Kingdom’s economic environment has recently been unstable due to the occasional variations in inflation rates and economic recession, as well as reduced disposable income levels of most consumers.

Social factors: The traditional model of doing business has also changed, implying that physical retail stores are now transitioning to online selling. The social stimulus of conducting window shopping and eventual purchase has now been transformed into scrolling through various web pages in the name of shopping. The industry has now to revolutionise its business operations to accommodate new social trends.

Technological factors: E-commerce has opened up great opportunities for cross border trading. Companies should henceforth focus on technological investment for a faster return on investment (ROI) expenditures of the business. This fact presents a market opportunity for companies to invest in online technology to capture the new generation coming to online marketing space and social media platforms.

Legal environment: much technological advancement has led to great concern for consumer privacy and the protection of personal data (Mrad et al., 2020). Amongst other things, the law required companies that have a high turnover rate to publish their employment statistics with the UK’s labour agencies. Such regulations affect compliance standards between the company and the government’s trade regulatory authorities.

Environmental factors: the global business environment continues to be destabilized by social and political instabilities as well as natural happenings such as the COVID-19 epidemic. Also, there are rampant environmental concerns for recycling, reusing, and reduce the utility of synthetic materials and non-basic consumer products. All of these factors affect the external environment of business organisations in the UK.

Relevant Changes within Arcadia Group Ltd.

Amidst the COVID-19 pandemic, the retail giant that is the Arcadia group Ltd. could end up losing some of its stores in select locations due to prolonged closure. Despite the general challenges and trends witnessed by the world across a variety of domains, Arcadia stands strong to competition and ready to make the best of new business opportunities that might arise.

Arcadia’s SWOT Analysis

Strengths: Arcadia Group Ltd. draws much of its strength from the quality of its workforce and adequate supply and distribution chains. Company stores are also situated in excellent locations. Moreover, the wide range of products in these stores gives the company a competitive edge over the other firms in the fashion retail industry.

Weaknesses: Arcadia has dismal communication systems that affect the transfer of information and ideas across the chain store, thereby affecting decision -making and timely response to market issues. The trading environment is also not adequately conducive to business operations in most locations. Topping these factors with the lack of manufacturing facilities compounds the visible weaknesses of Arcadia Group Ltd.

Opportunities: e-commerce opens tremendous opportunities in online sales and retailing. The growth of technology and social media provides an avenue to reach new markets. The internet has new users almost every other day, and this new segment of the population comprises potential target markets for Arcadia.

Threats: low risk and fewer restrictions of joining the trade implies that the threat from the new competition is high in the industry. Dey (2019, 113) stated that increasing legislation about consumer data and cyber-security are areas of great concern to players in this industry.

Arcadia’s Porter’s Five Forces Analysis

Threat of new entrants: the high influx of businesses due to the unlimited target market characterizes the fashion retail industry. There are fewer restrictions for starting and winding a business. Organizations that conduct business have free-will to venture in or out of business. To Arcadia Group Ltd., this threat is moderate in its impact on affecting company performance. The company has well-established market roots with substantial customer loyalty that always shop with the company.

Suppliers' bargaining power: many suppliers are working in the UK’s fashion retail industry. These suppliers operate independently, and their actions do not affect the general operating environment in the retail industry. Alternating from one supplier to the other is not costly. Hence retailers can change wholesalers and suppliers without much negative impact on their bottom line.

Bargaining power of buyers: also, just as there are many suppliers and retailers in the fashion retail industry, the buyers do not have much bargaining power in this sector. Consumers come and go, and the market remains relatively stable, with little interference from the changes in the number of consumers. For Arcadia, the fact that the company offers differentiated products presents it with an advantage over buyers.

Threat of substitutes: product substitution is low in the fashion retail industry. Most people prefer to remain loyal to particular product items. Most consumers in this retail sector rarely switch over to other brands. As such, Arcadia Group Ltd. enjoys substantial market dominance. The company has outstanding loyalty among its clientele, so much that the threat of substitution for its products is low.

Existing industry rivalry: The threat from existing competitors is high. Any laxity in marketing and innovation might lead to lost business as the target audience gets swayed to the competitor’s products. The high level of competition make companies resolve to other tactics other than pricing to build brand loyalty. Most companies practice product differentiation and various pricing strategies to generate sales. These strategies include coupons and loyalty programs that lead to decreased profit margins per item but increased market share and gross value on sales.

Strategies to Respond to Macro and Micro Issues in Fashion Retail Industry

Responding to the macro environment is often challenging for most business enterprises as these factors are usually beyond the control of the companies’ management. However, the microenvironment, though still challenging, is a bit manageable given the control management has on these issues. According to the retail life cycle theory (RLC-T...