“Pound World is a British company of store chains established in 1980 by Chris Edwards and Chris Edwards Junior (Alessandri & Haldane 2009, p.7). The company operates in the retail market, specifically in the lifestyle sector and it poses a threat to other local stores competing in the same market. The company is headquartered in Normanton UK, and it has been experiencing huge sales of about 7 million people weekly, it is especially popular with females. Its shops were categorized into C1, C2, D, and E based on the working-class population demography applicable in the UK (Porters 2008, p.43). The retailing shop began to expand its stores internationally in Ireland by opening its first store in 2011. By 2015, they had acquired 99 stores of its closest market competitors. The company operates in an online platform by providing household products and services, beverages, electronics
Until the 2000, the company had experienced a steady growth had operations of 25-30 shops. Due to its steady growth, the company has achieved a yearly expansion of its stores of 40 stores per year and until its downfall in 2016, the company owned almost 290 stores. The company’s competitors are Pound Land, Seedling, Zapf Creations. In 2008, the company publicly filed for bankruptcy and worked towards locating a buyer who would purchase the store (Alessandri & Haldane 2011, p.9). The company in 2016 dived down to the C category level of operations and hence was unable to recover. The growing competitive discount and the retail market environment was a major reason that contributed to the decline of the company during the recession and the currency exchange rates were lowered. Secondly, for over 10 financial years of operation, the company had accumulated debts and was operating over its net income. After the failure of the negotiations with the potential bargain hunter, the company was placed under administration in 2018 and began closing its retail shops hence causing job losses.
The Competitive Environment of Pound World in the UK
Referring to the five forces model of Porter, the competition analyses includes the barriers to new market entries, the rivalry between the existing firms, threats of substitutes and the bargaining power of suppliers (Porter 2008, p.22). Since the company was based and headquartered in the United Kingdom, the competition analysis of the UK market would help identify some of the reasons that led to the closure of a once giant firm. The Pound World belong to the retail industry, dealing in a range of products, good, and service. In the UK, the retail industry is among the most unstable industries due to political, economic, product innovation and demographic trends (Porter 2008, p.109).
Threats to New Market Entrants
This is a medium for the powerful competition to stop the new firms from penetrating the market. Pound World commodity status had the power yet the threats to new entrants could not be sustained by the company. According to Porter (2008, p.57), the components of the threats include the high capital requirements, the high brand cost and the ability of the new entrants. The emergence of the Mark and Spencer (M&S) stores was a major threat to the company and its market sales. Developing a business to compete against companies like Wal-Mart and M&S requires high capital investment which Pound World could not afford (Kennedy & Ehrenberg 2001, p.22). The company was not also innovative, the retail sector is very competitive and requires the use of updated technology for branding. For instance, the company dealt in a lower fixed price yet the rivals shared the financial ability and had the will to explore the market.
Threats of New Substitutes
The existence of many firms emerging in the market implies an upsurge of various substitutes. Other competitors such as Pound Land, M&S, Wall mart, Seedling were all pursuing to acquire the highest market shares and generating more profits, and dominating the local and international markets. Therefore this led to a strong battle since other companies wanted to remain relevant and enjoy customer loyalty (Armond et al. 1996, p.42). Additionally, Pound World’s business motive was the target of the low-class customers who were likely to go for quality. Therefore, the company was not able to make use of the retail discount in the retail market.
The Bargaining Power of the Suppliers and Buyer
Pound World’s bargaining power is very low and the bargaining power of buyers is strong in influencing the Pond World business. This aspect of Porter’s analysis identifies how the buyers impact business. In Pound World, the buyer’s strong power is based on the discounted fixed price and the decreasing number of clients and individual buyers due to the recession and change in taste creating a weaker force (Lichtenstein 2009, p.7). It is very easy for customers to have a shift in the product’s brand. Therefore, for them to remain loyal, companies should ensure customers satisfaction. Hence it is easy for customers to shift from one brand to another since the customers have a strong force of not buying and the company has to consider the bargaining power as the substantial element while making policies.
Threats of Substitutions
This model is aimed at determining the strength of a substitute good in meeting the taste and customers’ wants. In the case of the Pound World, the presence of substitutes was a strong force although the performance of these substitutes was very poor (Bogner 1997, p.18). The substitutes for Pound World products are readily accessible in the market via both online and other means. Various customers would rather buy the company’s products since they are fully discounted and affordable. This indicates that the company does not have to prioritize on using other forms of pricing due to their affordability and marketing, product developments and design.
The Competitive Environment in the UK versus the US Environment
The UK retail sector is one of the fastest growing retail markets with the emergence of the new store and retail store. However, the environment is influenced by various factors such as political. The UK retail and the US shopping markets have got a difference in the market strategies and operations (Bhattacharjee 2009, p.120). The United States despite the growth in regard to the retails sector has got less penetration, unlike the UK regarding new business entries. The American competitive market has continued to undergo an increase in concentration and profit restrictions. Revenues and labor are more valuable in the United States. Therefore, due to the presence of the current restriction and the politics of international trade, there are shifts in the European market entry and strict policies of the trading relations that also influence the international companies.
The Reasons for Pound World’s Current Performance
Currently, the high cost of supply caused by the fluctuations in the Brexit, high competition, and the increasing wage costs could be responsible for the failure of the Pound World (Wrigley 2018, p.18). However, since they are the retailers in the market that is highly competitive, product branding and differentiation is crucial for the success of a business. The Company did not provide the customers with the right choice of products over its main competitors. Secondly, the poor-product pricing cost strategy at times affects businesses in sales returns. Regarding the Pound World scenario, a future business comeback would require a proper investment in the multi-pricing strategy of its products. The effects of the unfavorable currency fluctuations had greatly affected both the local and international Pound World stores. The effects of rapid expansion by moving from 12 stores annually to 27 had also hit the company on its cost and therefore the single pricing model was outdated and no longer favorable to the business (Landes 2008, p12).
Recommendation
In the case of Pound World, I would suggest the company to explore the market trends before investments and also have a framework on the product innovation. Learning how its competitors operate would help the business identify some of the gaps they could exploit in order to have the power and command the consumers. This could as well include other products that are not related to the original. It’s also necessary for the company to have a proper chain of suppliers, distributors, retailers, and innovation to their goods.
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