Types of Risks Faced by Retail Industry

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Introduction.

Objectives of the research.

Research questions.

Research methods.

Literature Review.

Data collection.

Data analysis.

Conclusion and Recommendations.

References.

Management of risk is one of the main concerns of the retail companies (Ey.com, 2014). The retail landscape is highly competitive. The retail industry face challenges from the economic downturn (Dnb.co.in, 2014). The retail industries are aware of the various types of risks and threats that are posed by the various organizations. The retail industry has to integrate their approach in order to address to the risks. The retail organizations face various types of risks. They are credit risk, operational risk, risk related to the expansion, growth and supplier risk. The retail industry has to take the decisions after proper analysis in order to minimize the risk (How to survive in an economic downturn and be even more competitive when the economy recovers, 2014; p-1-6).

The aim of the research is to analyze the various types of risks faced by the retail industry. The ways by which the risk can be minimized has been discussed in the paper.

1. What are the various types of risks that affect the retail industry?
2. What are decisions taken by the retail organizations to minimize the risk?

The methodology of research can be divided into two categories. They are qualitative and quantitative in nature. The qualitative analysis is done by direct interaction with the sample. This is done by conducting interviews. The direct response of the customer can be obtained. The quantitative research is done by conducting surveys via questionnaires. The data obtained from quantitative analysis will be analyzed. The various types of risks that affect the retail industry can be analyzed by quantitative method.

The retailers are increasing their focus in managing the various risks that affect the retail industry. The down turn of the economy has resulted in increasing the importance of managing the credit risk. Management and integration of the credit risk is essential to avoid the future risks related to finance. Credit risk has negative impact on management of the retail operations. The management of the customer data has to be enhanced in order to address the various issues related to credit risk. There are various ways that are devised by the retail industry in order to manage the credit risk. These include management of the credit portfolio and collection management. Management of the supplier risk is an important concern of the retail industry. The management of the supplier reputation and quality is one of the major concerns of the retailers. The retailers are closely interconnected with the suppliers (Improving Sustainable Supply Chain Efforts Among Retail Leaders, 2014). So, maintenance of connection with the suppliers is essential for the running the business in the retail industry. The customers show concern regarding the regarding private issues and protection of the database of the customers. There are several high profile incidents that have occurred in the retail industry related to the loss and theft of the information of the customers. Thus it is raising the concern of the retailers to manage the database of the customers effectively. Among the top ten supply chain management issues the retail companies give emphasis to the maintenance of the ethics and reputation of the supplier. The management of the supply chain risk issues is essential for mitigating the risks related to supply chain.

Minimizing Risk through Quantitative and Qualitative Analysis

           Risk management helps the organization to deal with the various issues related to the volatility at the market place and minimize the complexity of the organization. The increasing volatility of the economic and the financial environment has resulted in the formulation of risk management techniques by the retail sector. Risk management is an effective tool to deal with the increasing volatility of the economic and the financial environment. The organization can be managed effectively by the various tools of risk management. Management of risk by the organizations provides competitive advantage to the organization (Transforming risk management into a competitive advantage, 2014). The organization can allocate the resources effectively. This will reduce the cost of expenditure of the organizations. Organizations have been able to manage risk and achieve sustainable profit and growth by following the various techniques of risk management. Management of the credit risk is an essential factor for retail organizations. The retail organizations like bans monitor the various risks in the banks in order to avoid risk related to credit. The banks have established risk related framework so that they can take the decisions effectively for the management of risks. This has resulted in the reduction of the credit risk of the retail organizations. The retail organizations are using end to end risk management solutions for managing and facilitating the various workshops related to training and workshops. This will increase the return on investment of the customers. The customers can achieve tangible benefits from the process. Thus risk management has become an effective tool for the success of the organization. The retail organization can manage the various risks by analysis and using various advanced tools of risk management. This is important for the growth of the organization (Global Risk Management Point of View Retail, 2014;1-11).

  Economic downturn has increased the risk of the organizations (Nonprofitrisk.org, 2014). Thus the organization must perform activities to manage the risk. There must be a formalized and a structure technique for the management of risk of the organization. This will help the organization to grow. The risk management techniques will strengthen the pillar of the organization. Thus the organization must devise strategies in order to manage the economic downturn. Thus the organization can manage itself effectively for the next recession (Risk Management in a time of Global Uncertainty, 2014).

  The organization often faces risks that affect the reputation of the organization. Preserving the reputation of the organization is the goal of the organization. The goal of the organization has to be communicated among the employees of the organization in order to retain the culture of the organization. The organization must make additional efforts to maintain the reputation of the organization.

  Another risk affecting the retail industry is the risk that is associated with the management of the supply chain (Business.qld.gov.au, 2014). The supply chain disruptions can affect the supply chain adversely. Thus the organization has to devise strategies to manage the risks related to supply chain in an efficient manner. This will ensure sustainable growth of the organization. The risk management of the organization must be a balance between flexibility and vulnerability. The organization has to prioritize between the various issues that it is facing. The organization must implement a necessary plan for the improvement of the coordination among the supply chain (Culp, 2012).

Managing Credit Risk

The management of the various risks helps to reduce the barriers and maximize the growth opportunities of the organization. The variability of the business organization can be reduced by taking risk management techniques. This will enhance the value of the organization. The risk management techniques will be beneficial for the organization for the purpose of decision making of the organization. The organization will be able to maintain a balance between the risk and the opportunity. This can be achieved by reducing the cost of capital of the organization. There must be risk transparency in the organization. The risk management can be improved by decreasing the negative effects that has been created by the various risks. The tangible as well as the intangible risks can be protected. The profitability of the organization will increase (Conrad and Yau, 2014).The risks in the retail sector can be managed by using efficient risk management techniques. This will ensure long term sustainability of the organization. The profitability of the organization will not be affected.

The process of collection of data is based on secondary data collection method. The data is collected from various journals and newspaper articles to describe the various risks facing the retail industry and the various techniques for management of the risk. Various statistics can be used as an effective tool for the process of data collection. Secondary data basically indicates data in which the background work has already been done. This can be obtained from the published texts related to the issue. The statistics that has been published can also be used for analysis of the research topic. The design of the research can be done in an efficient manner with the use of secondary data. The secondary data often provides a base for the primary data. There are various sources of secondary data. The source can be internal as well as external. The internal sources of secondary data are the records of sales, marketing activities of the organization, information about the cost and report of distribution. The feedback of the customers using the products of the organization can also be used internal source of secondary data. The external sources of the secondary data are journals, newspaper, magazines and the internet.

The data obtained from the various sources show the various types of risk that affect the various retail organizations.

1. One of the major risks that affect the retailer is the supplier related risk. It is a critical aspect of all retail organizations. Since the retail organizations are not involved in the process of manufacturing the product, supplier risk is one of the critical aspects faced by retail organizations. The various supplier related issues that is difficult for the organizations to control are shown below.

The various risks related to the suppliers includes ethics of the suppliers and the reputation of the suppliers, the quality of the suppliers , the concentration of the   suppliers, the variation in the lead time , disruption of the suppliers and the supplier tax and regulatory mechanisms. The major risk related to the supplier risk in the retail sector is related to the ethics of the suppliers and the reputation of the supplier. The data shows that 37 % of the supplier risk is related to the ethical issues with the suppliers. 20% of the risk arises as a result of inability of the supplier to maintain the quality of the product. The concentration of the supplier is an important factor to minimize the risk of the supplier. But the analysis shows that the risk related to the concentration of the supplier is 17%. Risk related to disruption of the supplier is 9% whereas the risk related to the supplier tax and other regulatory mechanisms are 6%.

1. Managing Supplier Risk

   Retail industry is considered as the most competitive industry. It is seen that risk function is a major source of competitive advantage. Thus the retail industry is considered to be one of the highest performing sectors relative to the competitors.

On comparing the competitive advantage of the various sectors, it is seen that the competitive advantage of the retail sector is the highest. The performance of the retail sector is the highest followed by the capital market, banking and the health care sector. The retail industry considers them to have higher level of efficiency in the management of the various risks. More than 60% of the organizations consider themselves to be the master in the management of risk than the industry average. The capability of the retail organizations in the process of decision making has helped the organization in taking the key decisions related to investment decisions, expansion decisions and the management of the performance of the organization. The retail industry has been seen to be proactive in identifying the various new risks that affect the retail industry. They have been constantly innovating themselves by bringing new tools for risk management which acts as a competitive differentiator. The retail organizations maintain good relationships with the regulatory agencies. Thus the regulatory agencies help the organizations in the future reforms.

1. Credit risk and integration of the market risk along with finance has greatest impact for managing the retail operations.

Among the various risks that has been concerning the retail sector, credit risk and financial integration has been a major problem for the retail organizations. Thus managing the two types of risk is crucial for the growth of the retail operations. Thus the retail organization considers management of the credit risk as one of the top priority of the retail organizations. This will ensure that there is no risk as a result of credit default in the organizations. The retail organizations have to implement strategies in order to mitigate the credit risks of the organizations. This will increase the efficiency of the organization and ensure sustainable growth of the organization.

The various type of risk that affects the retail industry has been analyzed. The supplier risk and the credit risk is one of the major risks that affect the retail industry. However the retail industry has adopted various tools for the management of the risks in an effective way. The risk management tools have helped the organization for the purpose of decision making of the organization. This is essential for sustainable growth of the retail industry. The retail industry is the most competitive sector among all the major sectors.

Conclusion and Recommendation

The retail organization can manage the various risks by undertaking the following measures –

1. The retail organizations must focus on improving the quality of the data apart from focusing on improving the quantity. The retail organization must organize and restructure the data they receive from the customers. This can be done by the use of analytics. The retail organizations must incorporate efficient techniques for the management of the data. The data management will serve as an effective tool for managing the credit risk of the organization. This will maintain the data of the customers in a secured way.

2. The retail organizations can improve their capabilities of risk management by improving their area of governance. The responsibility of corporate governance must be assigned to the right person so that he is able to handle the entire process. The importance of the integration of the credit risk with finance has been understood by the retail organizations. But it is difficult for the retail organizations to integrate credit risk with finance. Thus governance is required to manage the credit risk of the organizations.

3. The retail industry is a highly competitive industry. But one can gain competitive advantage from its peers by taking a broader and integrated view for the management of risk. However, it is very important for organization for controlling the cost and maintains the operational efficiency of the organization. The organization must be able to achieve competitive advantage by devising the risk management approaches in an integrated manner. This will be essential for competitive advantage of the organization.

 Risk management is essential for the process of decision making of the organization. This will infuse risk awareness within the organization. The organization will be able to manage the risks effectively. The way in which the organizations can differentiate themselves from the competitors is by managing the risks effectively. The organizations can make risk management investments in order to increase the value of the organization to the share holders and achieve high performance.

References

Business.qld.gov.au,. (2014). Managing risk in supply chains | Queensland Government. Retrieved 29 November 2014

Conrad, L., & Yau, C. (2014). Enterprise risk management: A critical tool for strategic decision-making (1st ed., pp. 1-6).

Culp, S. (2012). Supply Chain Risk a Hidden Liability for Many Companies. Forbes. Retrieved 29 November 2014

Dnb.co.in,. (2014). Indian Retail Industry: Challenges, Opportunities and Outlook – Insight. Retrieved 29 November 2014

Ey.com,. (2014). Turn risk and opportunities into results: Retail sector – The top 10 risks. Retrieved 29 November 2014

Global Risk Management Point of View Retail. (2014) (1st ed., pp. 1-11).

How to survive in an economic downturn and be even more competitive when the economy recovers. (2014) (1st ed., pp. 1-6).

Improving Sustainable Supply Chain Efforts Among Retail Leaders. (2014) (1st ed., pp. 1-17).

Nonprofitrisk.org,. (2014). Sustaining Nonprofits During Economic Downturns.

Risk Management in a time of Global Uncertainty. (2014) (1st ed., pp. 1-10).

Transforming risk management into a competitive advantage. (2014) (1st ed., pp. 1-7).