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Problems Faced by Small Retailers

Throughout at least the past two decades the market share of large retailers, including Tesco PLC has increased considerably.  This increased size has led to increased buyer clout for large retailers and has consecutively led to large retailers being able to sell their wares at decreased prices as compared to small retailers in several cases. This has led to a type of honourable circle for retailers such as Tesco whereby the economies of enhanced buyer clout can be spent in superior customer services or lower prices which then lead to increase sales and so even more buyer clout and so on an so forth. As long as this progression does not lead to extreme market power, a matter which the national competition authorities would have to take into account, it is expected to be advantageous to consumers by resulting in lower cost goods. Supposing that large retailers are not big enough to employ market power (i.e. to increase prices without dread of corrective proceedings from competitors) then putting a ceiling on the increase and growth of large retailers, in order to amplify the number of small retailers will lead to increased prices to consumers (as the capacity for retailers to take advantage of increased buyer clout will be restricted).

Limiting the development and progress of large retailers, because of its impact on restricting cost reductions, might also lead to restraining the number of regions in which retailers work. This means that reducing the expenses of operation is apt to imply that regions which until that time were not economically feasible become more feasible and so competitors enter into the region. Limiting the expansion and development of retailers such as Tesco is apt to decrease economies of scale and, as a consequence, may restrict the number of regions retailers operate in.

These consequences are motivated mainly by the buying clout enjoyed by large retailers. Independently, small retailers are unable to attain any considerable buyer clout. On the other hand, to the degree that they create buying faction, small retailers may be able to tackle some of the competitive return of large retailers with respect to buyer clout and so likewise tackle some of the consequences outlined above.

The latest attempt by retailers, principally Tesco, to set up small format outlets in high street sites along with increased operating hours has resulted in smaller retailers lose a great deal of their earlier unique selling point of handiness (when it came to site and operating hours). Similarly as the case with the increase in buyer clout, these adjustments are the consequence of market forces and imply that no public policy interference is needed on the pretext of economic efficiency (except that believed to be necessary by national competition authorities to tackle any competition problems that may result as a consequence of these changes).

While the expenses of setting up shop in London, as weighed against the remainder of the country are greater for all retailers, there are some expenses that influence specifically on small retailers. The expense of retail felony seems to impact more heavily on small retailers as measured up to large retailers. Into the bargain, the expenses of acting in accordance with government laws, such as the Disability Discrimination Act, fall unreasonably on small retailers. Local Authorities and other organizations such as chambers of commerce or trade associations, could offer backing and/or counsel to small retailers on observance of rules in order to decrease the expenses of putting into practice legislation.

The ease of access of retailers to customers is a problem for all retailers in UK, nevertheless a few of the problems of availability influence more severely small retailers than Tesco. This is due to the fact that Tesco operates on a scale that allows it to extend the expense of interference to customer availability over a higher level of sales (typically in a larger number of outlets) in contrast to small retailers. For this reason it is critical that the effect on small retailers of possible changes to means of transportation is taken into account by the authorities concerned.

Whereas several of these elements, along with elements such as the problem of ancestry, have led to a number of small retailers shutting shop, there are methods by which small retailers can compete more efficiently with Tesco. These consist of heightened specialisation and competing on the basis of customer service among other factors

Loss leading

Affiliated to the buyer clout of large retailers is the tradition of below cost selling or loss leading. There is proof to imply that some retailers sell wares at lower than cost in order to increase market share.

The custom of loss leading by large grocery retailers was examined in the Competition Commission’s 2000 supermarket report. Small retailer firms are worried about the custom of loss leading by large retailers over extended periods of time, because small retailers are not able to compete in this manner for an extended period of time. The firms said that due to the fact that small retailers do not compete on the basis of price they lose market share to large retailers whenever below cost selling or loss leading customs are employed.
The custom of ‘predatory pricing’, in which a company sets its price below cost for a period long enough to force its competitors out of the market, is forbidden by competition law. On the other hand, as pointed out earlier, the buyer clout of large retailers is apt to be such that even without selling at lower then cost, the prices that are charged by large retailers are apt to be unfeasible for small retailers. As a consequence the prices charged by small retailers will appear uncompetitive when opposed to large retailers. For this reason, it is possible that due to the buyer clout possessed by large retailers, even without selling at prices lower than cost, the prices charged by large retailers will be so low that small retailers will find it very hard to match them.

Store format and location of large retailers
Out of town versus town centres

Competition between large retailers and small retailers is usually categorized as being between out-of-town stores and town centres. It has been claimed that shopping centres in out-of-town areas have attracted customers away from more conventional high streets. The preceding few decades have seen a rise in shopping in large, out-of-town stores and shopping centres, which it has been claimed has hasted the downfall of local shops.
The shifting dynamics of retailing, in the grocery sector as a notable example, is shown by an investigation of the different categorizations in the Yellow Pages over time. In the period between 1992 and 2002 there was a rise of 8 per cent in the quantity of retailer entries in the Yellow Pages. During the same period there was a decrease of 20 per cent in Bakers and Confectioners, 40 percent in Butchers, and 59 percent in Greengrocers and Fruit Sellers.

As well as this, retailers, and specially grocery retailers, have increased the range of goods and services they offer. Indeed McGoldrick (2003) discovered that one of the causes that grocery retailers have increased the range of goods they offer is because consumer spending on food has not risen in comparison to expenditure on other items. Items such as CDs, books, clothing, kitchenware, and electrical goods are more and more being sold by large grocery retailers as well as services for instances insurance and banking. As a consequence of these alterations it has been stated that local centres have become delicate and are becoming smaller.

Calculating the impact of these alterations on small retailers (or town centres in general) is hard because of the scarcity of data. Other researchers have tried to examine the effect of large grocery retailers by examining their effect on employment. One research proposes there has been a long-term fall in full-time retail employment in spite of substantial increase in the level of retail sales (whether measured in real or volume terms). Nevertheless, examining at the period between 1982 and 2003 in London, though full-time employment in the retail sector reduced to some extent, part-time employment rose quite drastically. For this reason though full-time employment has reduced to some extent over time, part-time employment has risen which has left total retail employment in London higher in 2003 than in 1982.

Large retailers moving into high street locations
In the past few years large retailers, and especially grocery retailers, have been more and more going back into small format stores in high street locations. For example Ruston (1999) discusses large grocery retailers investing resources back into town centres after years of growth in out-of-town centres.

The small retailer firms showed their worried about large retailers of late moving into high street areas. The firms are worried because they suppose that, particularly with regard to grocery retailing, that small retailers may be incapable to compete with the smaller format stores operated by the large grocery retailers. Without a doubt the New Economics Foundation (2003) comments that Tesco Express stores have supposedly caused reductions in business of 30 to 40 per cent for other local shops. While this number is improbable to be completely strong for every local store going through the opening of a Tesco Express it seems rational to deduce that the move by large retailers will have some effect on the small retailers already on the high street.

One of the small retailer firms informed the researchers that the brand strength of large retailers was a specific concern for small retailers. The firm said that because customers tend to be more accustomed with the goods sold by large retailers, this creates some loyalty to them as compared to small retailers. On top of this, large retailers have loyalty programs, such as loyalty cards, that are developed to enhance customer loyalty. What this implies is that when large retailers set up a small format store on the high street they by now have a specific amount of customer loyalty and as a consequence an edge over small retailers in the area.

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