Detailed PESTEL Analysis of Retail Industry
What factors will influence retail strategy in 2022? Check out EdrawMax’s guide to discuss pestle analysis of the retail industry to find out various macro-environmental factors that can impact retail businesses.
1. Lead-in
The present-day retail industry is undergoing several reforms as the buyer';s taste changes per the recent trends. The competitive market allows retail businesses to grow while technological advances and trade laws support it. Multiple external factors affect an industry, and retail is not an exception. Factors like politics, economics, society, technology, environment, and law impact the retail industry growth.
The retail industry has immense potential, and the present economic conditions can contribute to them. The post-pandemic economy is aiming for a rise. Hence, the retail industry also has a chance to earn massive sales. PESTEL analysis can show how the external factors affect the retail industry business.
2. About Retail Industry
2.1 Introduction of Retail Industry
The retail industry sells different goods and services in a single place instead of wholesale. Some big retail companies also manufacture their products and specialize in particular goods. Mostly, the retailers buy items from manufacturers or producers and sell items while earning some profits. Their supply chain, logistic process, and price depend on multiple external factors, and a PESTEL analysis of the Retail Industry can give an apt idea about it.
The idea of a retail market is not new. Moreover, the grand bazaars of the old days are the primitive version. The potential of the retail industry is hugely dependent on customer preferences. However, the nature of the retail industry is changing continuously. Besides the physical retail stores, online stores are gaining popularity. It can increase the sales of retailers as they have a chance to reach more customers. For a detailed PESTEL analysis of the Retail Industry, you must have a basic idea about the industry and its sales.
2.2 Overview of Retail Industry's
| Company Name | Retail Industry |
| Number of Employees | Around 52 million |
| Annual Revenue | $5,570.4 billion ( in 2020) |
| Worldwide | Worldwide |
3. Retail Industry Pestel Analysis
On a global scale, the retail industry plays a significant role in determining the country's GDP while having immense potential for future growth. The economic trends and technological advances have prepared the market to fit multiple big retail giants while keeping a competitive field for them. Different external factors impact the retail industry worldwide:
Political Factors:
The governments of multiple countries have eyes on the fast food chains for the safety of people. Hence, if they disregard the government policies regarding food safety, there are chances that they will be banned. Even though Retail Industry's is a leading fast food chain, it can get impacted by multiple political factors:
- The government makes policies and regulations that businesses should comply with to survive in the market. The government policies can toll upon the supply chain, import or export of required materials and finished products, taxation, etcetera. For example, India’s laws regarding Foreign Direct Investment are complex for global retail operators to run their business.
- Political stability in a country is one of the key factors that favor the growth of an industry. If a nation is politically stable, the economy is supportive. The supply chain runs smoothly, and the business can gather resources like raw materials and labor without many issues. If there is no political conflict, businesses can seamlessly operate and have healthy competition.
- In recent years, the retail industry has targeted the online audience to increase their business. Though the physical stores are not under Government scrutiny, the accusations of data breaching and antitrust issues have led the government to keep track of the storage and collection of data by the retail companies. It has impacted the business of retail brands, including Amazon and Wal-Mart.
Economic Factors:
Economic factors have a direct impact on the profitability of the retail industry. When the economy is on the rise, the industry has the potential to earn a good profit. Here is how the economic factors contribute to the business of the retail industry:
- The nation's economy immensely affects the business of the retail industry. Economic rise, inflation, recession, and unemployment are some factors that can toll the buying capacity of people. If there is unemployment, people tend to keep more money as savings instead of spending on different items.
- As the recent economic reports suggest, there is a chance that the retail industry will grow to 30 trillion USD by 2023. If the economy stays stable and the supply chains do not experience any problems, it will have a chance of rapid growth. During the pandemic, the economy went down. However, it is recovering and will support the sustainable development of the retail industry.
- The economy of a country influences the taste of the people. If the economy is stable, then people tend to buy more items. There are chances of people choosing good quality and expensive items when they have plenty of money in their pocket.
Socio-cultural factors:
Society and culture influence the shopping habits of an individual. Their gender, age, and education level also affect their preferences. Here are some socio-cultural factors that impact the business of the retail industry:
- The countries with a higher per capita income have more customers buying branded items instead of looking for the prices. While the areas with people of middle and low-income groups. The cost of the items plays a significant role. A thorough study of the buyers and operating locations can be helpful for retail companies. Brands need to design their store based on customer preference. Thus, many retail shops include tons of groceries and essential commodities stored for bulk buying.
- E-commerce gives an insight to the retail companies about the choice of a buyer. It is even more fruitful because of its individualistic approach. The website stores the data based on a customer's buying habits and then shows the products and offers based on their preferences.
- There are multiple companies in the retail business, which makes it a competitive field. The companies provide offers based on the local festivals or particular days of the month. It brings in more customers to the stores, and the discounts and coupons lure people to purchase more items.
Technological factors:
The modern retail industry is heavily dependent on technology because, besides physical stores, applications or websites of the brands are also bringing in significant sales. It also allows them to get an idea about the choice of the customers while stocking or releasing new products.
- The retail brands use technologically advanced software and hardware to offer customers a user-friendly shopping spree. Besides that, the brands provide data security and a safe payment gateway.
- The internet connection has changed the whole business scenario for retail brands. The brands can attain a smooth supply chain and logistic system using the internet. The customers can order an item on the website then the retail shop can drop it at the nearest pickup location or deliver it to their home.
- The technological factors are a blessing for the big retailers, but this is not helpful to small retail stores. Since they have limited investment, thus, developing a secured website with AI-based advanced technology is not an option for them. As many customers prefer their orders delivered at home, the small retail stores are at a loss.
Environmental factors:
The retail brand needs to bring small changes for sustainable business practices and eco-friendly systems. It reflects their responsibility as a brand that wants to prioritize the environment.
- The retail brands selling food and items with a limited shelf-life must manufacture or stock the items considering their expiry date. They should arrange the products according to their batch number and expiry date to prevent wastage. Many big retailers like Walmart are seeking to use blockchain technology. The farmers and manufacturers can add real-time information about the items.
- Retail brands can show their eco-friendly nature by preventing the wastage of energy. They can limit electricity wastage and maintain cleanliness standards inside and outside the stores while following the health standards of the local government. It will help them to retain the food quality and avoid bacterial contamination.
- Plastic bags have become a big concern for environmentalists in recent years. Many retail brands use recycle-able packaging, multi-use bags, and jute bags to decrease the pollution caused by low-quality plastic packaging and its overuse.
Legal factors:
There are different legalities that a retail store needs to abide by before opening a store. The need to accept the terms and conditions set by the local law to avoid facing legal actions. Here are some ways legal factors can impact the retail industry -
- Retail businesses must understand the taxation rules, tariff plans, and more when a retail brand starts its business. If a company fails to follow them, there are chances that the business will suffer a loss due to compensations and court cases, eventually being compelled to stop its business.
- Many retail companies that have their manufacturing unit get the supply of their raw materials from outside the country. Moreover, they also export their products to customers all over the world. In that case, the excise laws, regulations regarding export and import, and foreign investment laws can impact the business. For retail companies operating globally, it is a must to be aware of the local laws.
- The retail market is competitive, and the brands try to provide the customers with the products at a cheaper rate than others. However, most countries have labor laws that talk about their working terms. If a retail brand fails to abide by the labor laws, it may face a ban or closure of operation as punishment.
4. How to Do a PESTEL Analysis in EdrawMax
- Step - 1: Preparation
- Step - 2: Template Selection
- Step - 3: Add Textual Information
- Step - 4: Customize
- Step - 5: Export & Share
If you are using the offline version of EdrawMax, open the tool in your system. If you wish to access remote files, head to https://www.edrawmax.com/online/ and log in using your registered email address. If this is your first time using the tool, you can register with your personal or professional email address. Go to 'Marketing' diagrams under Business diagram type and click on 'PEST Analysis.'
EdrawMax has thousands of free templates. Head to the Template section on the left and type 'PESTEL Analysis' to see all the pre-built PESTEL Analysis templates like Netflix PESTEL Analysis, Amazon PESTEL Analysis, IKEA PESTEL Analysis, and more. Check the template that resonates closely with your business model. Click on 'Use Immediately' to import the template's contents to the EdrawMax canvas. You can start customizing the PESTEL analysis diagram as per your requirements. If you want to draw the PESTEL analysis diagram from scratch, you can click '+.' It will open up the user-friendly canvas of EdrawMax that has several features that ease your efforts in making PESTEL analysis diagrams.
PESTEL Analysis diagram requires you to add Political, Economic, Sociological, Technological, Legal, and Environmental content so that the reader will understand what influences an organization. Use the PEST symbols from the left side and add the content to your PESTEL analysis diagram.
EdrawMax gives you ample options to customize your PESTEL Analysis diagram. From changing the background to adding content, you can customize the diagram in any way you desire. In addition to this, you can go ahead and change the background color, modify the text, add hyperlinks, add multiple pages, add images, and even add vector-enabled texts to your PESTEL analysis diagram.
Once satisfied with your PESTEL Analysis diagram, you can export it into multiple formats, including Microsoft, JPEG, PNG, Visio, HTML, and more. EdrawMax lets you share your PESTEL Analysis diagram on social media platforms, like Facebook, Twitter, Line, etc.
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5. Key Takeaways
The PESTEL analysis of the Retail Industry shows how multiple factors have contributed to the expansion of the business. With an objective PESTEL analysis of the retail industry, you can decipher the potential growth they can attain. Retail firms can figure out their strategies based on the PESTEL to ensure their growth in terms of presence and sales. The PESTEL analysis of the retail industry gives an idea about the challenges it may face, which can impact its business.
EdrawMax Online is one tool that offers a wide range of features for creating and sharing such PESTEL Analysis diagrams. As you saw in thisPESTEL Analysis of Retail article, EdrawMax templates offer a wide range of customization options that help beginners and professionals alike.
Reference
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Getlucidity.com. 2022. Available at: , [online] Available at: https://getlucidity.com/strategy-resources/retail-strategy-pestle/ (Accessed 20 August 2022).
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Pratap, A., 2022. Pratap, A., 2022., [online] notesmatic. Available at: https://www.notesmatic.com/retail-industry-pestel-analysis/ (Accessed 20 August 2022).
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Shaw, A., 2022. PESTLE Analysis of The Retail Industry | Marketing Tutor., [online] Marketing Tutor. Available at: https://www.marketingtutor.net/pestle-analysis-of-the-retail-industry/ (Accessed 20 August 2022).
