Research Paper: Industry Analysis: Discount Department Stores

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Industry Analysis: Discount Department Stores

Discount department stores are those that offer lower prices for products that may be lower quality, extra inventory from other stores, or simply something that consumers purchase often, and like to buy inexpensively. These department stores often base what they have to offer consumers on their prices, as opposed to their selection, quality, shopping experience, or other factors.

Industry's Dominant Features

The dominant feature of the discount department store industry is the pricing structure. it's the area in which most discount stores come out ahead when it comes to the competition of the bigger retailers (Rugman & Collinson, 2009). The market size for discount retailers is growing rapidly, however, because a tight economy means that many more people must shop for discounts and only purchase what they need. Because of that, the market share of these kinds of retail stores has grown tremendously in the last five years. At the same time, the scope of rivalry has also grown. Retailers that are not classified as discount department stores realize that they must do something in order to keep customers coming in, so they have cut some of their prices on certain items to more closely match what is offered at the discount stores. By doing that, they feel as though customers will come in for those low-cost items, and they will stay to buy other items, as well. This strategy has worked relatively well, but many people are still going to the discount stores and shopping around much more carefully than they did in the past, when economic times were much easier. The discount department stores are in a huge growth cycle at the moment, because of the economy (Liston, 1986). Even when things improve, the possibility is there that growth will remain because consumers are aware of what these stores have to offer.

Issues of concern in the Broad Macro-Environment

In the macro-environment, there are many issues of concern that can affect discount department stores. These can include political, economic, socio-cultural, technological, legal, and environmental, but not all of them are highly applicable to stores of this type. Politically, there is little that a discount department store must worry about. Because the store is not engaged in anything that would be an issue politically for either side, there is really no fear there. The only issue that could relate to discount department stores politically could have to do with where the products are made (Chant, 1997; Hunter & Green, 1995). If there are tariffs or other brewing problems, getting products from a particular country and stocking the shelves with them could be a legitimate cause for concern (Lea, 1988; Lee, 1987). This would, however, be unusual.

Economic forces are much more of interest to a discount department store, because these kinds of forces are the main ones at play when people shop at a store where things cost them less (Nickols, 2000; Rugman & Collinson, 2009). While discount department stores are also used when the economy is good, there are more likely to be used by a larger number of people when the economy is poor and there are difficulties. Because of this, economic forces that are acting on the store are more significant than any other forces to which the store might succumb. Of course, the store must also consider the other side of the economic forces: how much is it paying for merchandise? If the store is being required to pay too much for merchandise, labor, or anything else, it is very possible that it will not be able to meet its overhead - and that will be a problem regardless of how many customers are coming into the store.

Socio-cultural forces are often tied to economic forces, especially for a discount department store. The reason behind this tie-in has to do with the fact that these kinds of stores are typically utilized by people who either (a) do not have much money, or (b) are very frugal (Lockwood, Loomis, & DeLacy, 1993). Sometimes these people are one and the same, but it is not common to see rich or even upper-middle-class people shopping at discount department stores. They have the money to buy the finest goods, so that is what they do. With this being the case, the lower- and middle-income people are the ones who shop at discount department stores. When the economy has difficulties, though, there are more people who fall into those categories. That means more customers for the store, but it also means that it is possible that none of the people who shop at the store will be able to purchase as much as they otherwise would. These two issues can balance out for a discount department store during lean economic times.

Technology is not really much of an issue for discount department stores. These stores have, generally, the same basic technology as higher-priced stores. Their systems may be a bit older, but that is not a problem or a surprise to the people who work or shop there. The same is true with legal issues, as there are very few that are specific to discount department stores. These stores face the same kinds of legal problems that could be faced by other department stores, including defective product lawsuits, injuries like slips and falls, and workers compensation claims from employees who were injured while they were performing their assigned job duties for the company.

As with many other trends in the PESTLE forces, environmental issues are not necessarily a concern for discount department stores any more than they are a concern for any other type of store. As long as the store is disposing of trash correctly and cleaning up any kinds of spills or other problems in accordance with environmental regulations, there is little else that can be done or that needs to be done. Overall, the only serious concerns for discount department stores are economic and socio-cultural factors, as both of those drive the business model of these stores much more than any other factor.

Porter's Five Forces

With Porter's Five Forces, there are several issues that have to be considered. These are:

The threat of substitute products

The intensity of competitive rivalry in the industry among current competitors

The threat of new entrants

The power of buyers

The power of suppliers (Porter, 2002).

Each one of Porter's Five Forces will need to be discussed here, because they are all highly relevant to what is taking place in the discount department store industry and what could take place in the future.

Threat of Substitute Products

The threat of substitute products is very real for discount department stores. These stores often find that they struggle with the selection they have already, because it is not seen to be as good as the selection of products that can be found at other retailers. With that already being the case, the discount department store must work to keep its customers and to keep the products that it has as fresh and innovative as possible. Sometimes, that is easier to do than it is at other times. Substitute products that are new and improved, or that come out in place of other products, are often not as common in discount department stores as they are in higher-end stores that have more expensive products for sale. Because of that, discount department stores may miss out on some of the sales that they would otherwise get. The more substitute products that appear in the marketplace, the more likely it is that discount department stores will not be able to provide customers with what they really need and want in their department store experience, and that can mean a high degree of lost revenue (Porter, 2002).

Intensity of Competitive Rivalry in the Industry

Within many industries, the intensity of competitive rivalry is very high (Nickols, 2000; Porter, 2002). The discount department store industry is no exception to that, because it has quite a large number of competitors around which it must work. Many people think that the only competitors are other discount department stores, but that is not really the case. Any retail or department store, online or offline, that carries the same or similar merchandise is a competitive rival for a discount department store. Unfortunately, that is a large number of stores and can also move far outside of the geographic area in which the store is located. That is a deep concern for any discount department store, because it means that the rivalry it faces may not be as clear-cut as would be assumed. This is the case with many industries, as they often underestimate the rivals that they have and how many competitors they actually have to deal with as they work to grow and develop their business (Nickols, 2000). Every business has rivals, of course, but how many and to what degree can really vary based on the industry and how that industry is being affected by… [END OF PREVIEW]

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