JOhn Lewis environment forces free essay sample

John Lewis, one of subsidiaries of John Lewis Partnership (JLP), launched its first store in London’s Oxford Street in 1864. The company then has implemented the organic grown approach, pursuing a dynamic business and corporate strategy. It has been successful by making the right strategic decisions thorough effective operation (O’Regan and Ghobadian, 2012). By 2012, the firm becomes the largest multichannel department store retailer in the UK, with 30 department stores and 9 John Lewis at home, providing Fashion, Home, Electronic products and Home Technology assortment. It publicised that profit before tax in 2012 was ? 15. 8 million, almost triple of that a decade ago (John Lewis plc interim report, 2012). However, success cannot only be measured in term of finance, but also in term of stakeholders’ happiness. John Lewis achieved Britain’s Favourite Retailer Awards for the fourth consecutive year in 2011 and many other awards. This paper is about to use environmental forces to explain the achievements of John Lewis over 150 years. The work contains mainly three parts: macro-environmental force focusing on four points, then moving to two elements in micro-environment and conclusion. Macro-environmental forces Macro-environment is also known as external environment which affects business decision in various ways and which can impinge not only on the transformation of the firm, but also on the process of resources acquisition and on the creation and consumption of output (Worthington and Britton, 2009). These forces can shape and moderate the behaviour of all stakeholders in the market including competitors, suppliers, customers and employees. The macro forces are often organised into political/legal, economic, ecological/physical, social/cultural and technology (Kotler et al. , 2010, p. 154). In order to clarify its influence effectively, the economists arrange them into few models such as PESTEL, DEEPLIST. This paper will apply the PEST model to consider: Political, Economic, Social-cultural and Technology impacts on the success of John Lewis. Political and Legal In order to predict and achieve economic objectives, the government attempts to have some control over business environment. To recover the economy from the recession, the Bank of England has historically set up the interest rate at less than 2% since 2008. It aims to persuade consumers that saving money is less attractive as less interest is received and it also reduce the payment on mortgages and other loans. Homeowners, hence, have more discretionary income, resulting in spending on other consumer goods (Bain, 2009). Moreover, the low rate which means little in return, will increase consumer confidence in purchasing because cost of goods bought in credit is poorer. Although the majority products in John Lewis are highly income elasticity like electrical and furniture goods which are more expensive comparing to them of other retailers such as Debenhams, the low interest boosted the sales of the stores, thus greatly help performing during the recession. The electrical and home technological sales in John Lewis rose up by 13% in 2009, mostly from TV sales (Bain, 2009). Since 2012, British government has encouraged companies to practice Employee Share Ownership Plan (ESOP) which is giving shares to employees with the aim of urging motivation, thus growing and improving productivity (BBC News, 2012a). This strategy has been already practiced by Sir John Spedan Lewis, founder of JLP, many years ago and present as a unique figure of JLP. The declaration of Nick Clegg, Deputy Minister of Britain, of JLP as a typical example of excellent employee owned company that is having a great performance and contribution towards the UK economy, has been again strengthened. Since government mention of JLP as a successful model of ESOP, it can augment the reputation of the Partnership. In term of specific effects on John Lewis Department Store, this honour is an enormous promotion on national level, so enabling to maintain customer’s loyalty and attract more potential customers which will benefit its long term growth. Economics The financial crisis in 2008 caused the failure for many companies across many countries in the world, including the UK. However, the very low interest rate, mentioned above, helped John Lewis to survive because the low rate will increase business confidence, hence more investments are made. This is because the returns on the future strategies seem to exceed interest payments that have to be made on borrowed funds. For instance, with the ? 6 million for 6-week TV advertising campaign, the company was able to succeed even in the recession as its gross sales increased by 2. 8% during the campaign. Helping the company survive and expand, a new department store in Cardiff represents John Lewis’s solid position even during the harsh economic environment (John Lewis Partnership annual report and accounts). Moreover, United Kingdom is one of the countries which have high GDP in the world, with the GDP in 2011 of $2. 4 trillion and $37,100 per capita (Central Intelligence Agency 2012). Therefore, it confirms that UK market with its strong purchasing power and living standard creates advantages for every business, particularly in retail sector. Strong purchasing power will increase demand for goods and services in the market, thus the firm can use this advantages to enlarge profitability (Gerth and Kotler, 1999). For that reason, John Lewis is able to benefit from purchasing power in order to produce more sales and increase the profit. In addition, John Lewis’s products are a little higher in price because of its quality, however, it still has ability to make up their price to maximise the profit and compete with other firms. It is because the high income and living standard allow people to have more money in their budget, hence for customers easily accepting a small change in price. As a result, with competitive pricing, total sales at John Lewis rose 6. 7% and 21% rise in operating profit in 2009 (Gordon, 2010). Socio-cultural The success in children sales are affected by the demographic change in the UK, including population and age structure. The population in Britain has been growing constantly over the decade, reaching approximately 63. 2 million in 2011, 4 million more than recorded in 2001 (BBC News, 2012a). This, in turn affects John Lewis toys, nursery and baby sales that soared to 10. 3% in 2012 as John Lewis is famous for its distinct children game, Lego (Holland, 2012). According to a recent BBC News, in 2011 the number of babies born in England was the highest since 1971, expecting another record-breaking in 2012 (BBC News, 2013). Other statistics from BBC News (2012c) displayed that there has been a rise in life expectancy in the UK with 16. 4% of people over aged 65, the highest record in any census, due to high living standard. A research claims that mature people tend to spend more on their grandchildren rather than on them and less on luxury goods (Access economics, 2001). Hence, it is highly proved that the more born babies and high ageing population will lead to greater demand for children’s products such as toys, hence increasing sales on John Lewis in general. On the other hand, lifestyle can clearly affect people’s attitudes and behaviours (Worthington and Britton, 2009, p. 144). The prevalence of internet creates a new lifestyle in which people embrace social networks to communicate. Understanding the rapid spreading ‘culture’ social networks such as Facebook and Twitter in community, John Lewis has leveraged them to catch up with new trend, hence keep in touch with customers. After launching John Lewis’s Facebook page in 2010, today it has nearly 400,000 followers (The Marketing Society, 2013). With such a huge amount of people connecting with the firm, the networks can be used for marketing purpose which is vastly cost-effective instead of other advertising tools. John Lewis, for example, is able to inform its followers easily about promotion and sale period, hoping to encourage sale. Technology The emergence of the internet supports firms to build and maintain customer relationship by online activities which may assist the exchange of ideas, products and services (Mohammed et al. , 2001 cited by Gay et al. 2007, p. 6). Nowadays, people are busier so in-store shopping is less and less attractive or they do not want to be in the multitude during peak times such as Christmas. Online shopping, which can substitute the traditional method, can help buyers to purchase at anytime and anywhere. Therefore, with the convenience, johnlewis. com is an important element of John Lewis’s success. There was just 27. 2% increased sales, compared to that in 2010, on johnlewis. com, accounting for 19% of total in 2011 while the online sales rose by 40% in 2012, accounting for 25% of total company revenue (John Lewis plc interim report 2011, p. 6 and 2012, p. 6). These figures express a significant improvement of online sales for the previous two years. The John Lewis website, additionally, provides all information about products such as price, usage introduction, so it is not necessary for customers to visit stores for advice thus saving time. It achieved the â€Å"Best Online Retail† of 2010 conducted by Verdict Research (John Lewis), hence strengthening the image. Micro-environmental forces Opposing to macro environment, micro-environmental forces are closer to the business and impact directly on its operation. These forces usually consist of employees, customers, suppliers and distributors (Worthington and Britton, 2009). Among those, stakeholders such as employees and customers have played important roles in the success of John Lewis. Knowing that employee, who will deliver products and services to customers, is one of the most crucial factors that influence the victory of the company so John Lewis has applied the ESOP for long time growth, emphasising that employees are its partners. In 2011, when the high revenue was still suffering by the recession’s effects, John Lewis staffs received 17% share of profit, which was equivalent to an approximate payment of nine weeks (The Guardian, 2012). A survey conducted by Bryson and Freeman (2010) implies that many employees desire some forms of ownership in the company where they work, thus this benefit will increase employee loyalty and enthusiasm to work harder. Since employees are also the owners, hence if they are more responsible and dedicated to the jobs, the business not only can increase profitability, but also is able to receive more dividends. Although ESOP may reduce the retained profit of the firm, it helps John Lewis to grow further in long term prospect. Moreover, the loyal customer base is considered as a main contributor to John Lewis’s achievement. Throughout years, John Lewis has gradually become a trusted brand to its customers. The over 88 years motto â€Å"Never Knowingly Undersold† which claims to provide the lowest price comparing to other high street competitors, has recently been altered its promise to match with the warranty service offered by the John Lewis (The Telegraph, 2011). It means the price which John Lewis offers is higher than some other retailers. However, it seems to not have much effect on John Lewis as consumers are looking for a reliable brand, not just cheapest price and they also believe in the value of the firm. Therefore, people are willing to pay more at the Department due to its high quality and outstanding services. This is the reason why John Lewis could perform well during recession, while other competitors, for example, Debenhams and BHS seemed to choose other inadequate solutions such as loss-leader, hence suffering loss (Wood, 2011). Conclusion John Lewis Department Store is executing perfectly with micro and macro environmental forces. This is proved by its survival over recession and the favourable financial statement provided by the firm over many years. The success is reasoned to John Lewis effective management by making the right decisions and comprehending the importance of environmental factors such as the emergence of shopping online. Furthermore, its value in quality from products to services has built a strongly recognized brand to customers, thus becoming the leader in UK retail market. However, the environment forces are very capricious so John Lewis has to be always cautious and be prepared for any contingency plans in order to preserve its prestige in the future.