Event/Product/Company Description
a. Event & Rational of Choosing
Sales in the retail industry declined due to one of the most significant economic falls in Australian history. Transactions declined due to coronavirus pandemic and strict restrictions imposed by the government on business. The slump of 17.9% hit the Australian retail industry hit hard, as demand for dining, clothing, and travelling decreased over time. I selected this article because it is quite apparent, and it is linked to both micro and macroeconomics, including demand and supply principles (Pandey, 2020).
b. Products and Service and Significance
In the Australian retail industry, different products such as food, grocery, beauty, appliances, toys, clothing, travel, dining, and sportswear are always in the spotlight. In a diverse population like Australian, these products are essential to meet the needs. Nonetheless, when it comes to the decline, the sales of these products also declined, and it went negatively for the retail industry. These products are essential to meet the regular need of people in Australia, and the current pandemic changed everything (Pandey, 2020).
c. Parties Involved
There are two main parties which are involved in this event. For instance, the supplier of the products and services is the retail chain. On the other hand, consumers are the general public in the Australian market, including households, students, businesspeople, adults, children, and millennials. The Australian retail market is struggling due to the shortage of these products and services. The supply of these products has been impaired due to restrictions and standard operating procedures in the country. Consequently, consumers and suppliers are hit due to this event.
Microeconomic Analysis (Part 1)
a. Determinants of Market Demand
The demand for dining, clothing, and travel products is affected due to multiple determinants. In this particular event, relevant determinants of demands are supply, price, customer preference advertisement, and availability of substitutes. Due to pandemic and restrictions on businesses, the supply of the product is diminished. It led to an increase in prices. On the other hand, demand for personal protective equipment, such as masks, sanitisers, and many others increased due to changing preferences. Interestingly, due to the decline in sales, the burden on inventory increased, and it led to low prices of some products such as clothing. Consequently, it can be said that the demand for apparel has been raised. Hence, the demand determinants affect positively and negatively on buying or purchasing power (Moon, 2013).
b. Determinants of Market Supply
On the other hand, determinants of the market supply are also quite apparent. For instance, determinants of supply are resource prices, taxes, the expectation of prices, technology, and the number of suppliers in the Australian retail market. Many businesses are closed due to restrictions and limited supply of products such as clothing and dining. The supply of the food items has been sustained, as it seems the basic needs. It is a fact that there is a reasonable number of suppliers in the market, which can enable the supply of these products. The shortage of products is not organic, and it is just due to Covid-19. If businesses are open, they can use technological resources and take advantage of tax reliefs to enable adequate supply to meet the demands of people in the Australian retail market. These determinants affect the total supply, as technology, regulations, and the number of sellers can create an impact on the flow of products or material (Ketchell, 2020).
c. Power, Shortage or Surplus
In the Australian retail market, the customer has power in the market. When it comes to the analysis of the Australian market, the bargaining power of customers is always high due to low switching costs and the availability of substitutes. Customers want high-quality clothing, dining, and travelling products from retail chains at an average price, and they contain multiple options. The demand for clothing, travelling, and dining products is declined, and it depicts the surplus situation. It is a fact that the low demand puts the burden on warehouses and inventories or retail chains, and they are willing to sell at low prices. On the other hand, demand for food, PPE, and home appliances increases, and due to restrictions in the businesses, there is a shortage. Consequently, it can be said that this event caused both deficit and surplus, and the power of the consumer is compromised in this whole context (Businesswire.com, 2020).
d. Elasticity of the Product
The elasticity of travelling, clothing, and dining out is in the spotlight. These products have been considered elastic because the demand for commodities has changed over time. Before the coronavirus, everything was exceptional in terms of quantity demand and sales. But, due to business restrictions imposed by the government and the evolving preferences of consumers in the market, the sales of these products declined. It is the main reason for calling these products elastic, as people can wait for a while to buy these products. Interestingly, even with the low prices of these products, demand may remain low due to changing preferences and behaviour. After the pandemic, the high prices of these products are expected. Yet, demand will also increase due to the needs and preferences of people. So, the Australian retail market is triggered by the elasticity of these products, and it has a moderate impact. The change in demand is expected after restrictions or pandemic, and it justified the product elasticity.
Industry Description and Market Structure Analysis
a. Size of the Industry and the Level of Competition
The size of the Australian retail market is significant, as there are almost 140000 retail businesses in this country. The retail industry is 4.1% of gross domestic product. In this market, retail diversity can be seen. For instance, this diversity or difference is visible due to the format, region, and size of the business. Top retail companies are Woolworths, Coles, Catch, ASOS, The Iconic, GraysOnline, Kmart, and JB Hi-Fi. These companies or retail chains demonstrate an intense rivalry. It can be said that the level of competition is high, as customers can have substitutes in the market (Robertson, 2019).
b. Market Structure in Industry
Different market structures are perfect competition, monopolistic competition oligopoly, and monopoly. The Australian retail market is in perfect competition, as these firms are fighting against each other in terms of store expansion, product quality, price, marketing, and distribution.ost same capabilities sand strategic intentions. The perfect competition has been justified. Due to large numbers of buyers and sellers, homogeneity of products, free entry and exit of companies, perfect knowledge of the market, and absence of price control are some critical characteristics of the Australian retail market, which streamline the perfect competition. The market structure influences the prices, as the number of buyers and sellers can be increased, and it can create an impact on the demand and supply. The price can be affected due to the mobility of the factor of production regarding products and services (Kapeller & Pühringer, 2010).
c. Regulator/s of the industry
One of the primary regulators of retail chains in Australia is the Australian Competition and Consumer Commission. This regulator or institution depicts some interventions to enable fair trade. On the other hand, the Australian government is one of the main stakeholders, as it shapes consumer law. The Reserve Bank of Australia (RBA) is also one of the main stakeholders. These regulators are powerful in creating an impact on the strategies of retailers in terms of expansion, pricing, development, selling, and marketing process (Jones, 2005).
d. Industry Groups
Some industry groups, such as financial, communication, information technology, and energy, can regulate the behaviour. For example, as mentioned in the article, the reserve bank of Australia deals with the interest rate, as it can be included in the financial industry group. The communication industry group can help to bring communication standards of patterns. Energy groups can change their behaviour in terms of sustainable initiatives or conservative approaches. Therefore, these industry groups are beyond the regulator, containing the power to influence behaviour and strategies in the competitive retail market.
Externalities
a. 3rd Parties Affected
Apart from buyer and seller, suppliers are affected by this event explained in the article. Due to the decline in sales in the Australian retail market, the supply of goods is also impaired. It can be asserted that this event has reduced the supplier businesses, as it is a disaster for the retail industry. Products such as clothing, travel, and dining out are associated with other groups. For example, the restaurants are also affected, as the decline of sales also affected restaurant operations (Kuijpers, 2020).
b. Impact to the 3rd Party
The prominent parties, which are beyond buyers and sellers, are suppliers and service providers. The example of the service provider is any possible technology outsourcing. This event, referred to as a decline in sales, affected negatively many stores are closed, and there is no need for any services in retail stores. Suppliers have also stopped supplying material or products due to low demand for commodities. Hence, these parties or related businesses are also going down, contributing to the significant economic fall (Businesswire.com, 2020).
c. Other Actions or behaviour is Triggered
The appropriate solution identified for externalities is to collaborate with the government and supply a moderate standard operating procedure. The decline of 17.6% is a kind of disaster for companies and opening stores with new standard operating procedures can help to start operations of externalities. The sales of externalities such as suppliers and service providers must be sustained by creating some space or flexibility in activities, as far as future partnerships are concerned. Government, regulators, and retail chains can contribute to this identified solution for externalities, as getting rid of negative impact is imperative.
Macroeconomic Analysis
a. Overall GDP Contribution
The gross domestic product of Australian has also been affected by the coronavirus pandemic and a considerable decline in sales of food, clothes, cashless retail, restaurant, dining, and many others. The article depicts that cashless retail decrease by 5.3% in April (Pandey, 2020). Also, unemployment is reached 11.7%. These are some consequences of events, which shrinkage the Australian economy by 10% (Smyth, 2020). There is a difference regarding the Australian GDP before and after coronavirus and the event of declined sales. In the last three months, the gross domestic product of Australia decreased by 0.3%. The consecutive decline in the two quarters hit the Australian economy, as it led to breaking the record of 29 years without a recession. Of course, the decline in the retail industry, which is 4.1% of gross domestic product, is one of the main contributors in this whole context. Several parts of the gross domestic product are in the spotlight. This event affected only the private consumption expenditure of consumers, which can be referred to as C part of the gross domestic product. As specified, sales of different products have declined, and it justified the negative impact on the C part of gross domestic product. Of course, the private consumption of customers is reduced due to the spread of coronavirus. The campaign of stay at home or stay home stay safe went negatively for both customers and retail chains. Accordingly, the C part of the gross domestic product is quite apparent (ZarBabal & Evans, 2018). Promptly, due to reopen of economies or sectors such as retail chains, retail sales can contain colossal surge, and it will create a significant impact on Australian GDP. Due to the drop in sales and restrictions on the business, GDP growth was diminished. Nevertheless, with the surge of retail sales, and the surge of the gross domestic product will also be plausible, and it is a good sign for the Australian economy (Costa, 2020).
b. Increase or Decrease Unemployment
It is a fact that the retail sector is one of the major employers in Australia. Due to this pandemic and decline in sales, many companies terminated their employees. Many stores have been closed, and firms are not in a better position to meet the expenses of employees. Due to coronavirus restrictions, thousands of employees have been terminated. This event helped to identify the needs for improved operations, which can facilitate reducing the workforce. For instance, Woolworths is looking to automate its warehouse and eliminate 700 jobs to reduce the business cost. Wesfarmers is also looking to minimize roles of 1000 to 1300 workers or employees in the coming months. Myer, one of the prominent retailers, intended to cut almost 90 jobs due to the substantial decline in sales. These insights justify that the impact on unemployment is high, and companies cannot afford to contain thousands of employees with declining and uncertain sales of retail products, especially in-store. From the perspective of the business, it seems a smart move to keep the cost under control. With the view of people, it is a huge disaster, as the whole job market is in a considerable decline (Abc.net.au, 2020).
Fiscal Policy
a. Action Taken
The fiscal policy has been designed by the federal institution, such as the federal reserve back of Australian, particularly after the occurrence of this event. No doubt, the slump in retail sales and shrinking gross domestic product hit the Australian economy hard, and an active fiscal policy can help to get things back on track. For instance, the Reserve Bank of Australia slashed the interest rate, as it led to a record low of 0.25%. The fiscal policy is also associated with the quantitative easing program. It is all about printing money to pump up the financial system. The reserve bank will have to do it by buying bonds and having assets from banks. The financial institutions will be able to lend money to businesses and households. It seems to prioritise the households and companies, which can be referred to as the buyer and seller in the retail industry. Splashing cash (A$130 billion) to streamline the wage subsidy scheme is also a strategic move, which can work well.
b. Policy Expansionary or Contractionary
This fiscal policy is expansionary, as the Australian government intends to cut taxes and increase spending. There is a need to shift the aggregated demand curve to the right. By cutting taxes, the government wants to influence the prices of the retail products, which can further create an impact on demand and supply (Truger & Nagel, 2016). Expansionary fiscal policy can be implemented through improvisation. It can help to get rid of the situation or consequences of coronavirus and declined sales. The most important thing for the Australian government is to boost economic growth, improve customer demand, and get rid of the recession. The government expected it to work well (Oecd.org, 2020).
Monetary Policy
a. Action Taken
The Australian government and related institutions have taken several steps in terms of monetary policy. The role of the federal reserve bank of Australia is quite evident. For instance, the bank targeted three years of government bonds at 0.25%. One of the significant parts of monetary policy is to contain one-month and three-month operations, as has been done to support liquidity. The best thing that the federal reserve bank of Australian can do is to enable the smooth functioning of capital markets. Instantly, it is the best time for the Australian government or reserve bank to lend more money to small retail chains, which are included in SMEs. It is all about establishing the funding facility for three years, as it will reduce the impact of the consequences of coronavirus pandemic. Providing total drawdowns of $28.6 billion is an excellent initiative for action, and it seems 11% of the gross domestic product of Australia (Imf.org, 2020).
b. Easy or Tight
It is a straightforward policy, as retail chains are in the best position to get things back on track. This policy is easy because it will enable the circulation of cash in the retail industry. Lending money to retail chains and many other small businesses is an excellent initiative, as they will use multiple channels, especially online ones, to regain sales targets. It is the best monetary policy by the Australian government for retail chains and small businesses despite containing tight restrictions. Easy policy in a tight situation can create the space to make the referenced.
Findings, Conclusion, and Recommendations
Based on all derived insights, micro and macroeconomics can be summarised. For instance, after the occurrence of the event and its consequences, the economy of the retail industry is diminishing. It has been unveiled those sales have dwindled due to changing preferences, behaviour, and attributes of customers. The demand has been shifted to food items, as people have to meet basic needs in these tough times. Retail companies closed many stores, which created a negative impact on customer traffic. Online retail chains are growing in a better way as compared to companies with brick & Mortar business model. On the other hand, when it comes to macroeconomics analysis, the impact on the gross domestic product is negative. Due to this event, the Australian economy contained a downturn, as it never happened in the last three decades (Masters, 2020).
Sustaining the health and development of the industry is essential, and both government and retail chains have to collaborate and optimise the strategic intent. For instance, instead of imposing tight restrictions on businesses and the general public, the option for smart lockdown is always here. Retail stores are to be opened with flexible standard operating procedures. All key stakeholders, such as customers, buyers, suppliers, and many others, have to follow standard operating procedures and sustainably operate the businesses. Making small businesses, especially retail chains, responsible is an excellent strategic move, which can drive demand for products. At both industry and country-level, online channels are to be developed, as it can facilitate people to buy products. By supporting the e-commerce business, the government can assist firms in sustaining their businesses and keeping the demand for products in a loop. These are two recommendations, which are effective due to impact and consequences at both industry and country level. The health and development of the industry and country can be enabled by implementing these strategic recommendations with improvisations. The world is learning about coronavirus. Some changes must be followed to keep the growth and development in a loop.
In the end, it is to presume that the retail industry has the potential to get things back on track. Admittedly, it is a tough time for both the country and the retail industry, and through adequate strategic considerations, health and development can be attained. I agree with these recommendations, as these are the only solutions to get rid of the consequences and support the gross domestic product of the country. In this extensive report, the analysis of micro and macroeconomics is conducted along with many insights. The report illustrated possibilities by the Australian government to get rid of the situation and contribute to the health and development of both industry and country.
References
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