Answer

External factors refer to macro-environmental forces that impact the strategic decisions of an organization. These factors are beyond the control of an organization; thus, they must adapt to capitalize on opportunities and strengths while reducing weaknesses and avoiding threats (David & David, 2013). This understanding guides the scope of this paper, which intends to elucidate how external factors have resulted and will continue to lead into an overhaul of the retail industry.

An external analysis of the industry helps understand how external factors have led to the overhaul of the retail sector. According to David and David (2013), external analysis is a complex process that should be approached using a step-by-step process that helps identify and assess external issues likely to affect the industry. The first step of the six-step process of external analysis is to create a template of an issue map. The second step is to scan the general environment. Third, to monitor and confirm external issues. Fourth, to forecast the external problems. Fifth, assess external issues and sixth, complete an issue map. Following these steps, a completed issue map for the retail industry will outline external factors and how they have led to an overhaul of the retail sector.

Political factors such as the USA and China’s trade war led to the introduction of 15% tariffs on retail goods imported from China (Lin, Mo, Jing & Li, 2019). Such unrest translated into higher prices for shoes, clothing, and consumer goods sold by American retailers. Economic factors, namely a slow overall growth of the economy has reduced the purchasing power of individuals and households, leading to low sales volume by traditional retailers. COVID-19 pandemic has led to plunging economics, as evident with the financial reports posted on Yahoo Finance. Traditional retailers such as J.C. Penney departmental stores and Costco have reported a drop in their stock prices due to the lockdown and work from home policies. On the contrary, e-commerce sites such as Amazon have reported increased sales profitability during the same period (Debter, 2020; Higgins-Dunn, Hum & Wayland, 2010). This example justifies why traditional retailers prefer switching or complementing their brick and mortar models with the online retail model.

Social and demographic factors, including the aging population, cause changes in consumer behavior and spending patterns. By the end of 2020, the US population over 65 years will increase to 53.7 million from 47.5 million in 2017 (Ginter, Duncan, & Swayne, 2018). These figures mean 20% of the population will be elderly. With the increase in spending on the elderly, consumers’ purchasing power will reduce, thus favoring discounters instead of traditional retailers. Rising protests and social unrest have led to the looting and vandalism of traditional retail stores.

Technological factors, especially the rise of advanced technologies, has been destructive to traditional retailers. The change in consumer behavior in favor of online shopping has encouraged a shift from traditional stores to online or electronic commerce stores. Secondly, the introduction of robotics, artificial intelligence, and cloud computing has made it relatively cheaper to run and manage e-commerce than traditional brick and mortar retail stores (Debter, 2020). Traditional retailers have, therefore, embraced these opportunities and complemented their physical stores with an online presence. An example is Walmart, which introduced Walmart Global eCommerce.

Environmental factors have not had much impact on the traditional retail environment. However, legal dynamics, such as minimum wage laws, as stipulated in the Fair Labor Standards Act, have forced most traditional retailers to downsize to reduce operation costs (Lordan & Neumark, 2018). Owing to these laws, some retailers prefer automation.
Sewdas et al.’s (2017) study , there are very little room for generalizing the study’s findings.