BA is a company that competes in this industry.

600 EXAM 1, WINTERIM 2018

The United States
retail sales chain industry is an industry that is influenced by various
forces. The industry is faced with different levels of competition. Sear is a
company that competes in this industry.

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1)     Threat of Competition

This is an industry that experiences a
very strong competition. The existence of high competitive rivalry results in
companies maintaining and establishing customer loyalty to minimize prices as
well as facilitate an efficient distribution. The retail sales chain industry
growth rate is determined by the interests as well as the competitors’
concentration. Over the recent years, the revenue generated by the industry has
declined. The main reasons for the decline in revenue are the changes in consumers’
tastes as well as the emergence and growth of the e-commerce. High competitors’
concentration has made the market to be saturated. Therefore, this means that
the companies are forced to compete on customer loyalty and price to retain the
market share.

2)     Threat of New Entrants

The ability and ease of new companies to
enter the US retail sales industry has decline in the recent years. In spite of
the fact that the big retail sales chains have increased their stores and
locations, the industry has become more difficult for the new entrants to
conduct leases as well as supply deals with the retail outlets and
manufacturers. However, Sears has decreased its locations numbers because of
its inability of maintaining an aggressive position in this industry where the
established brands are supposed to show strength. This industry does not
specialize in brand recognition and high-end products; the industry operates in
average goods as well as possesses few barriers to new entries.

3)     Threat of Substitutes

The United States retail sales chain
industry has low substitute good risks because it is an industry that is based
on retailing branded merchandise and products. The industry’s major threats of
substitute are the competitors that offer alternative methods of purchasing.
E-commerce is the number one threat for this industry. This is because
e-commerce has taken over the market share by a big margin. The increase and
growth of e-commerce has resulted in a decline of the retail sales chain
industry and loss of revenues. The loss of revenues strains the industry into
the generation of positive cash flows form company’s operations. To attain
competitiveness, companies are adopting e-commerce. However, the inability of
many companies to provide an efficient free delivery service due to major
differences in supply chain possesses a challenge.

4)     Power of Supplies

In the US retail sales chain industry, the
suppliers have a very low bargaining power. In a normal average store, over 100
suppliers are required. Therefore, the suppliers that provides uncompetitive
prices, gain low demands for their products. The stores are given low prices
because of the existence of many alternatives as well as the fact that the
industry does not rely on few suppliers for the provision of products.

5)     Power of Buyers

The consumers or customers in this
industry hold a high bargaining power. This is because the buyers are more
concerned with products as opposed to the stores which mean that the lowest
prices will sell more. This is an impact that is maximized due to the fact that
companies’ in the industry have stores around and within shopping malls. This
causes a low switching cost for a buyer because there is no or very little
information barrier or delivery costs. Also, the presence of internet buyers is
prone to a checking price from the retailers.

Based on the analysis and research done,
it is clear that this is not an attractive industry. This is because as seen
through the industry’s shortcomings, the operation of a business in this
industry is unfeasible and unattractive.

The heuristics
utilized by Lampert and the managing director of Sears Holdings that have led
to the reduction of the company’s value is seen through their decisions on
share buybacks. Share buybacks can be a way of providing liquidity for the
shareholders looking to increase and sell their ownership of the company,
however, these are financial maneuvers that are utilized by Lampert and the
managing director to drive up Sear’s per-share earnings as well as seek to
create an illusion that the company is performing better that it actually is.
This buybacks heuristics has resulted in the cutting down of spending on the
company’s retail stores and the reduction of advertising and promotions. The
decisions made by the company’s management have drained the company’s critical
resources especially due to the recent increase in online shopping and
reduction of shopping malls traffic. The decision by Lampert and the company’s
managing director to invest its cash flow on share repurchases have resulted in
wastage of the company’s resources because it only serves the purpose of
creating the impression of an improved earnings. Therefore, this has resulted
in a reduction of the company’s value because the company has become short on
its cash as well as faces a mounting debt. Also, the company’s value has
reduced due to the management’s decisions which has made the company fall in
adapting to the critical changes in the consumers tastes efficiently.
Therefore, Sears is unable to generate a cash based profit, rational capital
structure as well as fails to retain a competitive advantage