The tertiary sector gives an incentive of a higher profit margin as compared to the rest of the two sectors. A firm needs to achieve productive and allocative efficiency in the case of primary sector; as profit margins are slightly low in this area. In the same way, transformation of raw materials into goods has been the task for the secondary sectors. E.g. manufacturing and assembling steel into car.
‘Slower labor productivity growth in Europe than in the United States since 1995 reverses a long-term pattern of convergence. This has a negative impact on the turnover as it leads to lower growth contributions from investment in information and communication technology.’ (Bark, O’Mahony and Timmer, 2008)
On the other hand, the retail industry is central to the UK’s economy: it employs in the region of 2.9 million people – 11% of the total UK workforce – and in 2010 UK retail sales stood at over £293 billion. Yet it is clearly facing severe challenges at the moment. (Barry Knight). The high street retail market has been experiencing a downfall over the last couple of years. The most important factor is the rate of inflation, particularly in relation to commodity prices. The rising Value Added Tax (VAT) and National Insurance have drastically affected the consumer spending. This decreases the disposable income of the consumers with retailers suffering as a result. As stated by Knight that the latest figures from the British Retail Consortium, UK retail sales values for May 2011 were 2.1% down on a like-for-like basis compared with the same month a year earlier. Furthermore, it looks unlikely that conditions will ameliorate quickly as the perpetuating low interest rates and relative support from the banking sector are still masking a lot of the fundamental structural issues retailers are facing, primarily the significant over-capacity on the high street.
Therefore, banks will be cautious before granting any loans especially when new relationships are concerned.
‘In a recent survey conducted by Harris Interactive, 84% of U.S. adults are currently taking steps to save money as a result of the current economic climate. According to the survey, 70% of adults are reducing their discretionary spending. Only one-in-four U.S. adults are still willing to splurge this holiday season, given the economic times. One key retail sector that relies heavily on holiday sales is the fashion industry, however in the survey 75% of adults said they have purchased uncomfortable footwear because the shoes were simply on sale.’
In competition to retail stores, there is online shopping which is quite successful during these days. Time and effort is reduced when purchasing online. On the other hand, selling goods online is relatively much cheaper than to have a retail store. There is no rent, overheads, wages or fixed cost, which increases the net profit margin. However a customer might not be able to test or wear the specific product, especially when it comes to...