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TESCO plc is a United Kingdom based group specialised in food retailing, it operates as a grocery and general merchandising chain in the United Kingdom and across the world.
So far, it is the largest British retailer in term of sales and market share with, according to Thomson one banker, a total net income of £ 2,161.00 for the year 2009. It is also the third largest global retailer group in term of revenue after the American group Wal-Mart and the French group Carrefour.
With a main activity of food global retailer, it has diversified his activity into clothing, home, financial services, car insurance, health, telecoms and internet services and software.
However in this report we are focusing on its clothing unit which operates online.
So to better know this Tesco clothes retailing, this report will bring an overview of the company and will analyse its current strategic position, the same as its fitness with the other business units.
This report will also analyse the Tesco clothes retailing's macro environment, the competitive environment, the strategic capability and also the future strategic options.
Tesco clothes retailing's brief overview:
The Tesco clothes retailing company is among the biggest clothing retailer by volume in the United Kingdom as it was ranked at the third place in 2008 and had to juggle this place with Asda Direct online retailer behind Mark & Spencer and Primark (Hall, J.).
Tesco clothes retailing is committed to bringing a wide range of clothes to men, women and kids. Its website has grown very fast and sales have risen by nearly 47% in 2009 compared to sales at the same period in 2008 and Asos.com retailer which offers clothing online has suffered from Tesco clothes retailer's entrance in the clothes retailing (Moulds, J.).
The corporate parenting seems to work well as Tesco plc, the corporate parent, provides a clear vision to Tesco clothing retailer and motivate the business activity in order to maximise the global corporate profit. It also helps this business unit to develop its strategic capabilities and helps all the business units to facilitate relation and cooperation between themselves and encourage them to share the same skills, competences, and to adopt and to keep the same and main policy which is the corporate parent Tesco plc main policy.
Also Tesco plc remains the main supplier of funds or capital and central services like human resources, treasury, they also take profit of the corporate parent's distribution network and notoriety which is really important for a strategic business unit as a new entrant in a market segment.
Tesco plc intervene within its business units, to make sure they can operate properly and they are profitable, as well it must require a clear level of performance from all its business units to keep the overall business performance at a high standard.
As a proof that Tesco plc's business unit, Tesco clothes retailing is fitting well with the others like Tesco banking, home, food, car insurance, health; customers can use the Tesco "clubcard" over whatever service and earn discount points to be use as it suits to them for example they could spend their earned points over foods stores as discounts on online clothing.
Also when purchasing on Tesco clothing website customers can even use the financial services like Tesco credit cards or other financial services.
Then the data collected when customers subscribe to Tesco "Clubcard" are shared by all the business units in order to find out whether the others could take profit by offering extras services like dental care service or car insurance or extras discount on foods purchases.
Therefore, Tesco plc constantly works in order to bring consistency into its business units, the same as synergy between them, thus it can enhance value across business units.
Tesco plc which is the portfolio manager considers as an advantage the fact to mix his portfolio with different kind of activities which will help the global business to lower risks and also to grow the corporate market share and even extract profits that can be use to support another business unit.
As a profitable business unit, Tesco clothes retailer produce a huge amount of money, by his spectacular market growth and between third or fourth place in term of total market share, which allow his corporate parent to fix the others or to launch a new business.
However performance studies show that , related diversification pays better than unrelated extensive diversification, that why Tesco plc will always need rigorous questioning before starting any diversification in any area.
So the graph below shows the link between performance and diversification.
(Johnson, G., Scholes, K. And Whittington, R. 2008, P 270)
Tesco plc operates a growth method by enlarging his portfolio, but still keeps it limited, then by the permanent motivation to increase his market share and sales volume.
As a study carried out by the group CACI 12 for the Sunday Times showed that the Tesco group has almost total control of foods market in 108 of Britain's postal areas (Sir Leahy, T., 2004).
Analysis of the macro environment:
As an organization there are lots of externals factors that affect the decision making of many managers. This includes government policy, new rules, tax change, and demographic change and so on. Therefore to better analyze these factors, pestle is used to help the managers to analyze their organizations. Pestle stands for political, economic, social culture, technological, legal and environment issues.
Tesco Political factors:
Tesco's performance is very influenced by the political and legislative factors in the United Kingdom. Regarding the employment regulation, the government expects the retailers to provide a mixture of jobs opportunities from flexibility, higher paid and locally based jobs to highly skilled, higher jobs and centrally located jobs. In addition, the government expects the retailers to meet all the demand from the population categories such as students, senior citizens and working parents. (Ivory research 2009).Therefore, Tesco has significant approach toward the employment issue. It employs a significant large of students, disable people in paying then low paid rate.
These are the factors that have some large effects on the firms. They involve some aspects such as the tax increase, fluctuation on stock and interest rate that affect a lot on the bottom line of the company. However, Tesco clothes retailing is very concerned with the economics factors, knowing that the factors can influence the demand, prices, costs and profits. In the case the last year's VAT cut has helped to stimulate customers purchasing power by bringing it to a rate of 15%.
Social -cultural factors:
Demographic change is one of the most influential factors that affect many retailers. The demographic transition such as the ageing in population, the increase in female and male means that the retailers have to focus on adding the value on their products and services. Therefore this transition will lead the retailers to initiate the new supply chain and some other operational improvement .In addition; there is another issue that affect a lot, the consumers' attitude and beliefs towards the services and the product. .
Nowadays, Technology is one the major factor that affects the operations of many firms around world. Therefore, the initiation of new technology can bring a significant benefit to customers as well as the firms themselves. Tesco clothes retailing is the best example by itself because it can be considered as a technological innovation as an online trader which is different from the normal stores. Tesco has a huge approach regarding the technology issue. It uses lot of different technologies such as wireless devices, self check-out machine.
Last year specifically in 2009, the British government decided to take action regarding the environment impacts of the "fast fashion" culture. According to the department for the environment, food and rural affairs (Defra), states that clothing and textiles sector produces tones of carbon dioxide and waste (BBC news 2009).
Also Tesco and all retailers have providing recyclable bags to their customers.
Tesco plc, its business units and other competitors must follow the government policies such as monopoly's regulation, consumers' right. So, various government legislations and policies have a direct impact on the performance of Tesco clothes retailing.
Analysis of the competitive environment:
For this analysis of the competitive environment, it is preferable and suitable to use Michael Porter five forces' analysis which best apply to describe the competitive environment. Porter's five forces analysis framework involve: the Potential entrants with the threat of entry, the Substitutes with the threat of substitutes, the Suppliers with their bargaining power, the Buyers with their bargaining power and the Competitive rivalry. It is also important to notice that the fives forces are all dependent so effects from one side can act on the other side in a situation of dynamic competition. So the following analysis will look in detail at how porter forces might be applied to Tesco clothes retailing.
The threat of entry:
The threat of entry is among the main matter for existing firm on a market segment, and then it depends on the level of the barriers to the entry which are the factors that news entrants have to pass through if they want to compete successfully (Johnson, G., Scholes, K. and Whittington, R. 2005, P.81). These barriers can be economies of scale, a certain level of capital requirement, or access to supply or distribution channels.
Tesco clothes retailing and the other competitors such as Mark & & Spencer, Primark, Asda direct, Next, are all facing new entrants threat specially from some new online retailers or even some shops specialised in fashion discounted clothing. It is also important to notice the effect of some Asian countries' competition across the United Kingdom, which is a serious competition based on pricing as they have the advantage of a lower manufactured products. As the others firms, Tesco clothes retailing also suffers from this global market share dilution.
The threat of substitutes:
Many customers, sometimes just prefer to switch to alternatives when they cannot afford the goods they really want, so it is rigorously taken as a threat by clothes retailers chains.
So nowadays, because of the recession many customers don't pay attention to the product quality or whether the good is being sold by Tesco clothes retailer or Mark & Spencer or Primark, which have a notoriety, they just want to spent less because of a difficult financial situation hitting worldwide
Then regardless where the product is coming from or which firm is selling it, the customer is only willing to spend over an affordable item, thus that what makes a good place to Asians' clothes retailing firms, and bring up a tighten competition and a reduced global market for the operating companies across the united kingdom like Tesco clothes retailers.
Bargaining power of suppliers:
This is the suppliers' force that can be influenced by clothing retailers and the fear to lose their business relationship with retailers' chain. This gives, to retailers such as Tesco clothes, Asda Direct, or Mark & Spencer the opportunity to better negotiate promotional prices from suppliers that the small and medium firms are unable to obtain. Suppliers are also threatened by the fact that many retailers source their products at lower prices from abroad.
Bargaining power of customers:
When there is concentration of buyers, and when the volume purchased is at high level, more the buyer power is likely to be high. Then more the products are undifferentiated and standards, the lower will be the switching cost to the customers. So for the corporate parent and Tesco clothes retailing, the most successful customer retention strategy remain their loyalty card: the Tesco "Clubcard", which has participated to increase the business profitability.
Also during the last few years, customers are become aware of the concept of fair trade, and the ecological condition of productions.
The competitive rivalry is at a high level on the market segment of clothes retailing, even though the market segment is led by Mark & Spencer and Primark, the third place juggle between Tesco clothes retailing and Asda Direct. Nevertheless, at any strategic failure the leaders can be overtaken as a proof of a tight competitive rivalry.
Analysis of the Tesco clothes retailing strategic capability:
This analysis will surround and define the whole resources and competences needed for Tesco clothes retailing to survive and gain advantage over his competitors. This includes: threshold capabilities (threshold resources and threshold competences) and capabilities for competitive advantage which are the unique resources and the core competences.
In term of threshold resources, Tesco clothes retailing holds several of them to meet customers minimum requirements, so far this strategic business unit have the required staff to deal with customers orders in limited time, it also holds a reliable and express delivery service .as well the unit easily get provided with capital, cash for the minimum financial needs from his corporate parent that is Tesco plc, to run the business properly.
To create his competitive advantage, the Tesco clothes retailing can use its corporate parent notoriety that helps the business unit to raise its image perception and service quality in customers mind. The clothes retailer could also lean on the huge amount of money made by Tesco plc as benefit every year in the last 10 years.
As threshold competences, the clothes unit can count on his management and marketing techniques such as discount on purchase based points system to compete in this area. Its financial service's activities have good impact on the clothes retailer unit's sales, as they offer instalment payment and credit purchasing system.
However the core competences remain the Tesco "clubcard" points and discount system, a loyalty card that allow customers to earn discount points from all Tesco business units (clothing, petrol, foods, health, and insurance).
And then, Tesco clothes retailing always claims that its items remain the cheapest on the clothing segment, which can be considered as a result of prices strategic process to gain more market share, increase the sales volume and to stand at an inimitable stage from the other competitors.
The future strategic options:
As future strategic options, Tesco clothes retailing should strive to have the lowest cost in the industry, so it can offer quality items at the lowest prices. The clothing business unit should also be able to control its operating costs, so it can have the competitive price advantage over competitors and even increase its profit margins. It has to develop other strategic differentiations in order to supply customers with items with unique features and fashionable clothes.
Tesco clothes retailing should better focus on the cost leadership, as in this situation of recession, customers are more concerned about the price than any other products' features.
Also, as it is a business unit that operates online they need to target a broad market rather than particular broadband holders, so they can deploy considerable means to encourage those who are not used to the internet technology, to become customers in the nearest future. Therefore the business can think of creating special zones or shops that the customers could use to place their orders.
This system can be then used as a mean transform non customers into faithful customers, then be a way of differentiation in the clothing market segment.
Indeed the Tesco clothes retailing, still has good opportunity through its corporate parent's financial situation, to overtake the market segment leaders.
As said, the business unit also have to bring up more strategic options and use the differentiation based costing to increase its profit margin, and for this it must control properly all its operating costs so that the product could be sold at affordable price because, due to the financial recession, many customer have been used to spend less and it will take ages to forget this saving spirit and to reverse the whole customers' trend.