Impacts of Mergers on Side Supply in Retail Industry, Essay Example

Merging is becoming a current trend in business. The merging rate is increasingly high among companies operating in the same industries. Even companies that initially appeared as competitors have surprised many by merging. One of the most surprising mergers was between two technology giants, Google and Yahoo. Both operate mailing services, but in 2018, they announced a possible merger, and the news surprised many. That aside, the retail industry has enormous competition among existing firms, and other firms keep emerging daily. One of the ways the existing ones can survive is by combining their resources to compete. With the increased customer base arising from the merger, the new entity is assured of competing for solid forces. The recently proposed merger is Kroger and Albertsons, which will be completed in 2024. The merger has raised much anxiety in the retail industry because of the value of the expected new entity. The merger will bring forth a new entity worth $25 billion, the largest merger in the history of retail stores. Most of the concerns are from other retail stores, which are worried about the competition.

Nevertheless, what are the impacts of mergers on the side supply? This topic was selected by the high number of businesses and companies merging. I intend to evaluate how merging can impact the level of supply.

Current Performance of Leeds Bramley Superstore, Leeds

Competition among retail stores in Leeds is quite stiff. There are several in the locality, making it possible for the customer to choose any store and any time. With the even spread of grocery stores across the whole city, performance in terms of sales is dependent on several factors. One is closeness. Customers tend to prefer shopping at the nearest store. No one likes walking or traveling to a distant neighborhood to shop for groceries. Groceries in densely populated areas perform better due to the high number of customers. Another factor of great importance to the topic is the availability of products. Having what the customer wants at the right time promotes the creation of utility for the customer. A product is only valid when it is available at the right time. A store always serves the customers with what they will tend to retain most of them. The performance of my retail store depends on the second performance factor, which is based on this factor. The store is ranked among the store, which is between 40,257 and 56,449 according to the Hansen index, as shown in the snip below.

Leeds Bramley Superstore, Leeds, our store of interest in this evaluation, has trading intensity and a floor of 31,000 square feet. This store has a revenue of 661340 pounds and a trading intensity of 22.13. The revenue performance is high compared to another store with large floor size such as Leeds Colton. See the table below.

Impacts of Mergers on the Retail Market Share

Merger impact the market in a myriad of ways. One way the market is impacted is that there will be a shift in the market share—the creation of a merger lower competition from other firms. The resulting entity is therefore positioned to increase the market share value and leverage stock market value. Having a combination of shares from two parent companies will increase the value of shares in the market. A single company with an increased market share triggers a shift in market control (Sufian, 2019). When any two stores from the above table merge, one of the outcomes that will be seen is a change in the market share. A combination of two shares from the same market and taken over by one retailer make it a significant possession in control of a single retailer.

Impacts of Mergers on Leeds Bramley Superstore, Leeds Revenues

Merging creates an immense power that has a strong influence on suppliers. This influence impacts other firms in different ways. The new entity can negotiate with the suppliers on best deals such as prices and quantity. With increased market control, the merged entity will attract more suppliers, leaving Leeds Bramley Superstore, Leeds, with fewer suppliers. A shortage of suppliers will increase supplier bargaining power toward the store (Entezarkheir & Sen, 2017). Fewer suppliers will lead to fewer products for Leeds Bramley Superstore, Leeds, creating a new crisis that will lower sales and fewer products. Reduction in sales automatically lowers the revenue of Leeds Bramley Superstore, Leeds.

On the other hand, the power of the newly merged entity to negotiate allows it to increase the variety of products and attract more customers. As a result, the new entity will gain an advantage of negotiation and have a new pool of customers disengaged from Leeds Bramley Superstore, Leeds, due to the reduced variety. In the long run, merged entities will start to experience an increase in sales which will positively impact the revenue. If the merged entity has several outlets, the customer will frequent the newly merged outlets and ignore the competitors.

Reflection of the Modeling

The Spatial interaction model (SIM) is a perfect simulation for business environment practices. It presents the many scenarios which are manifested in the real business world. The interface creates a real-world simulated presentation that allows the user to get accustomed to the operations in the industry of their choice in the financial world. Working with the spatial interaction model presented the challenges that are real in the world of the retail industry. Working on the challenges and finding the solution was a fun way of preparing for potential retail industry practitioners. However, the global interaction regarding retail business and the use of online services was a limitation that was apparent in the simulation. The simulation should have a comprehensive platform that allows the accommodation of retail firms worldwide for better analysis and practical experience. The simulation should also incorporate the emergence of online retail stores and even retail stores incorporating online services to reach more customers.

Bibliography

Entezarkheir, M. & Sen, A., 2017. Market value, share, and mergers: Evidence from a panel of U.S. firms. Managerial and Decision Economics, 39(3), pp. 22-35.

Sufian, A., 2019. The Effects of Merger on Competition: Evidence from SmithKline Beecham and Glaxo Wellcome. Academy of Strategic Management Journal, 18(6), 2–11.