impact of gfc on australian retailer coles (Research Paper Sample)

Executive summary This report is a summary of the negative effects global financial crisis has had on the retail market and specifically Coles retailers. The Australian economy is made up of several retailers and any slight economic challenges will have negative effects on some of the retailers. The global financial crisis brought with it very many challenges. Some were controllable while others were uncontrollable. This report further tries to discuss on how the global financial crisis greatly affected the retail market and how some retailers survived the crisis. Coles retail stores being one of the major Supermarkets in Australia, faced great challenges when the financial crisis hit the global economy and this had many effects including on the existing labor force. Background Coles is a member of the Australian National Group of Retailers which was founded in the year 2006 to represent the leading Australia retailer's interests. The main aim of the establishment was to gather and fight for their trading rights. Members in this group include; Best $ Less, Coles, David Jones, Franklins and Costco. These retailers control almost half of the annual country's retail sales. The members of these associations boast of close to employing a labor force of close to 500,000 which is close to 4% of the total Australia labor force. Over 600,000 Australians hold shares with members of the association. The main principle which runs the association is the provision of top standards in order to be equally competitive with the other retailers in the economy Aspects/problems The challenges that retailers succumbed to, including Coles, were; Restrictions in trade hours, ineffective and inappropriate taxing system, parallel importing restrictions, poor planning, high supply-chain costs, poor market structure, consumer protection policies, the labor market structure, skills development, logistics and transport and the environment. Although all these factors may have not have affected each retailer individually, they were the major challenges faced by retailers during the global financial crisis. Body The consumer behavior is affected by both external and internal market factors. The global financial crisis is a factor that can be categorized in the external market environment. The global financial crisis has a negative impact on consumer behavior and this has greatly affected consumer patterns in Australia. Even though the global financial crisis has a negative impact on the consumer patterns, it also has some negative psychological effects on them. Many customers during the global financial crisis had very many questions in their minds weighing between shopping or cutting shopping expenditure. Most consumers ended up cutting shopping expenses and this had a great negative impact in the consumer market and it acted as a huge blow to the economy. In order to tackle the issue of changing consumer trends, he retailers like Coles ended up depending on the long term strategies to attain future success. The global financial crisis has also brought about business trends which end up having negative impact on the annual reports of retailers. With the global financial crisis, the purchasing power of many consumers depreciated and this in turn led them to preferring simpler goods. Consumers began purchasing goods without the comparison between brands. They started buying the cheapest products in the market and forgot about the costly brand names. This has a great negative impact on the Return on Capital Employed. Consumers are changing their spending habits and now huge sales are realized from cheaper brands, Australian National Group retailers Report (2009). The global financial crisis also created the desire to economize among a large number of consumers. In cases where consumers did excess purchases to cater for the emergency needs, many changed to purchasing only what they needed. Surveys were also made and reports concluded from the research on the global financial crisis. One of them was quoted; these growing trends make challenging times ahead for businesses, Bohen, Carlotti & Mihas (2010). The global financial crisis has brought with it various barriers; 1. Varying trading hours During the global financial crisis, this factor greatly operated the retailers' goals of reaching the profit margin. In Australia, different areas have different trading time restrictions. Some areas experienced huge competition due to very minimal trading hours as compared to their competitors. The aspect of trading hours was linked with technology. Online stores were never closed and they run for 24 hours a day whereas other shop retailers were forced to close. Coles was one of the retailers affected and they faced uneven competition from online malls. This gave online malls a better edge to survive the global financial crisis by controlling larger customer numbers. In some areas such as Queensland, South Australia, trading hours were limited in days such as Sunday and public holidays 2. Tax on goods and services The negative fact about the Australia's goods and services tax is that it is multistage value added tax (VAT). Multistage VAT meant that taxation was done at different levels in multiples. This let to a great increase in the individual product price. When this was compared to single tax policies imposed in countries like Japan, imported products became cheaper as compared to Australia based products. Tax on imported goods was also high with exemptions being on those nations which had trade agreements. The low value importation thresholds were based on the value of the goods being imported or the threshold was established from a revenue perspective. In a revenue perspective, liability arises on basis of applicable tax returns. Annual Price water house coopers report (2012) indicated that Australian retailers face a higher number of taxes as compared to other players in the economy. During the global financial crisis period, excessive taxes imposed greatly discouraged Coles and other supermarkets and this also had a great negative impact on the return on capital employed (ROCE) 3. Parallel importing restrictions. Considering that Australia is an open economy with strong trade links and connections to the larger international community, some trade anomalies place overseas retailers at a better position in comparison to the local retailers. Coles being one of the retailers was barred from direct importing links which would have greatly reduced the prices of retail products and hence would have boosted sales turnover. This has led to uneven competition in the Australian economy and particularly a demotivating factor when retailing companies were trying to struggle the changing global financial conditions. Such restrictions force retailers such as Coles to purchase products from the local producers and are not allowed to import legitimate products produced overseas. These import restrictions were placed on commodities for commercial use and not for personal use like books and music videos downloadable online. 4. High supply chain costs. Coles was also exposed to increased supply chain costs that later led to overpricing of commodities. This led to accumulation of dead stock in the global financial crisis. In Australia during the global financial crisis, trade laws required them to acquire products through wholesalers who were more reliable and effective in providing those services. Acquiring those rights to supply the regions cost suppliers a great sum of investment and the costs which they incurred was transferred to the retailers. High valued goods were not greatly appreciated during the global financial crisis by customers and this led to retailers like Coles to run their businesses at huge losses. In comparison, online retailers had better access to international distributors whose prices were subsidized and fair. 5. Retail market structure There was a huge competition among Australia retailers in the section of groceries. Coles and other supermarkets are facing stiff competition from the smaller retailers such as Costco. The competitive environment changed the retailer store formats and this made competition stiffer during the global financial crisis. During the global financial crisis, the differentiated market structure split customers and some of the customers of large supermarkets were shared by the small scale retailers. This came into existence through the emergence of a social class of consumers who were basically after simplicity goods emerged. 6. Labor, Logistics and transport Australia is a very large country in terms of its geographical capacity. During the global financial crisis, Coles and other retailers faced higher transportation costs as fuel was expensive and the distances travelled was long. In the long run, transport expenses added up with the labor expenses. Coles, being an equal and high employer of interested individuals for casual jobs, was forced o cut the employment numbers of some of its employed personnel. This was in response to the tight economic conditions as a result of the financial crisis. This was one of the strategies Coles had taken to keep up with competition. Implementations Considering that Coles was acquired by West farmers limited in 2008, it underwent through the global financial crisis in their hands. This was very challenging as majority of the retailers were facing the same tough conditions too. This simply led to Coles devising its survival mechanisms through reducing prices of some of its goods, reducing task labor force through improving technology and by minimizing the businesses running costs. References source..