Significant Business Risk Factors Essay Example for Free

Significant Business Risk Factors Essay1. Limited Shelf LifeEmpirical evidence suggests that retailers must accommodate to new product style trends in order to satisfy consumers and other key stakeholders (Ryan, 2011). In respect to Harvey Norman (HVN), failure to adapt will implicate lower consumer demand, hindering ripening and profitability. It is important to note a limited shelf life of HVNs products exists due to changing trends. This in turn gives origin to the risk of inventory becoming obsolete and rising excess stock in the warehouse. Therefore, HVN should further emphasise on its inventory management, in order to inform inventory build up and overall expenses in the entity. 2. Increased Competition from online shoppingStudies reveal that Australian consumers have embraced online shopping, recording a 23% growth in 2012 (Irvine, 2013). In order to combat the fierce competition in the online market, HVN introduced its Omni- strategy, which focused on the enhancement of its digital store. There is evidence of success from this strategy with the firm modernly named as The Best Multichannel Retailer in the ORIA 2013 awards (Chanthadavong, 2013).Despite this acclaim, it is of paramount importance that HVN considers enhancing its distribution channels, especially its digital store through relegate pricing on delivery times for online purchasesand a greater focus on personalised services for internet empowered consumers. This will sustain consumer expectations and visualize the firm captures a greater portion of its target market (Chanthadavong, 2013). 3. Threat from domestic competitorsDespite being one of Australias retail monsters, HVN in recent times has been battling it out in the domestic market due to growing competition. In 2012, HVN was labelled as the most expensive Australian electronic giant recording a severe slump in its pricing position in comparison to its counterparts such as Dick Smith Electronics and JB HI-FI (Jager, 2013). The primal reason for the slump was predominantly due to the high costs from GST and compliance laws (Morley, 2013).Additionally, three of HVNs recently acquired subsidiaries failed during the 2011/2012 financial years. Thisproved to be a pricy investment for the firm reduced its competitive position in the furniture and electrical goods industry (Coyne, 2013). Furthermore, the entitys poor pricing position detrimentally force the electronics giants gross revenue (-4.9%) and profitability (-2.38%) (Harvey Norman, 2012). This suggests that HVN whitethorn have inventory build-up, excessive discounting and price deflation due to staggering consumer demand.4. Stagnating growth in the global retail industryStagnating growth in the global retail industry has resulted in lower consumer demand and expenditure. A study from IBIS reveals that Australian appliance retailing has go by nearly two percent (IBISworld, 2013). Additionally, declining consumer demand has influenced a fall in the Aust ralian dollar (AUD), which has negatively impacted sales in HVN Australian and international stores such as New Zealand and Ireland (Harvey Norman, 2012). HVNs 2012 Annual Report reinforces that the negative growth has inhibited a reduction of HVNs profitability, revenue and hence increasing the risk of obsolescence of inventory.5. Natural Disasters affecting Harvey Norman StoresRecent natural disasters have damaged many HVN Australian and New Zealand stores. For instance, a fire in the storage area of Harvey Norman in Porirua New Zealand heavily damaged a HVN store earlier in June 2013 (New Zealand Herald, 2013). This has had detrimental impacts on HVNs sales revenue in its New Zealand market (Harvey Norman, 2012 p. 10). It is important to note that these disasters enlarge time wastage spent on rebuilding stores and increases the risk of overstatement of assets, as they may not have been properly removed off premises.6. Misleading advertisingIt is of paramount importance that a c ompany doesnt engage in moody and deceptive marketing especially if the products fail to exist in the warehouse. HVN was recently fined through infringement notices worth $6,600 for advertising stock they did not hold in a bid to mislead customers. According to the ACCC, this act breached the Trade Practices Act in promoting material. Moreover, this has had financial and non-financial impacts for the company, specifically affecting future sales and brand juton reliability of the companys stance to deliver with full efficiency. This is also known as operational and compliance risk.7. Threat of the geographical muddle of franchisesAccording to the entitys 2012 annual report, franchising is deemed to be HVNs predominant source of its revenue. Whilst, HVN has franchise locations globally, its New Zealand stores attract the highest level of sales revenue (Harvey Norman, 2012). Growth in sales have peaked in stores located around the mining districts such as Western Australia, Hunter V alley, but have dropped in writ of execution in the capital cities such Sydney and Melbourne. A financial risk of going on concern can be indicated from here as the need of consumers switch over and with competition HVN may not be selling and trading as much in the cities leading to inventory overload and incremented liabilities affecting overall rail line performance.8. Currency FluctuationsDuring the 2012 financial year, the AUD fluctuated a significant amount against the most popular currency for trade (USD) by about $0.9544 to $1.1055 (RBA 2012). A fluctuation of $0.1511combined with trades amounting in millions would potentially lead to a large discrepancy to HVNs Accounts receivable and payable accounts. Additionally, a lower AUD reflects that HVN would have to increase the retail prices in order to discover the same profit margin (Campbell Phillips 2013).Empirical evidence reveals that if the dollar drops to around $0.80AUD compared to the USD, Australian consumers can ex pect an increase in prices of about 25% (Campbell Phillips 2013). This increase can be counteracted through hedging of the currencies, however volatility of the commodity market could potentially reduce HVNs sales. Specifically, if sales decreases the risk of inventory obsolesces and keep downs through idol stock increases.