Retail- Theories

Theories of Retail Development,The concept of Life cycle in Retail Strategy

2

The Evolution of Retail Format

•The origin of retail are as old as trade itself, for centuries most of merchandise was sold in marketplace or by peddlers.

•Earlier markets were dependent on local sources for supplies of perishable foods because journeys were far too. And long distance transportation.

•The peddlers who provided people with the basic goods and necessities could not be self sufficient. In prehistoric times the peddler travelled long distance to bring products to locations which were in short supply.

3

1. Social Developments and their impact: The development of trading has been intimately associated

with social developments over the ages.

Two important developments of the 18th century –

1. The development of rail roads and telegraphs which largely affected the growth of retail trade.

2. In 1852 Bon Marche, the first departmental store , was set up in Paris.

Bon Marche revolutionized retail at time by relying on volume rather than high mark up, to make money.

By the year 1897,the store sold more than $30 million worth of goods per year.

Evolution of retail formats in different times

4

The first department store which opened in US , was Stewart’s in New York, which was followed by Macy’s post civil war.

The late 1800’s saw the rise of the so called 5 and 10 cent stores , which emerged to serve the needs of the poorer classes.

2. The Industrial revolution:

The industrial revolution call for dramatic changes on the retail front. The increase in urbanization lead to the emergence of shops, to

serve the needs of the locals. The middle income consumers increased and mass transportation

become a way of life Mass manufacturing made it possible to manufacturing goods in

large quantities.

5

3. The emergence of self service: Retail evolve in many ways over the 20th century. Self service as a concept started in 1916 when Clarence

Saunders started the first self service store.

4. The development of supermarkets and convenience stores:

The emergence of the supermarkets first saw in 1930’s. first hypermarket that was developed by Carrefour in France in 1963.

The new formats gave the customer the choice of picking up a product, comparing it with others and then taking a decision on buying.

6

5. Speciality stores, malls & formats: As the needs of the consumers grew and changed it was visible the

emergence of commodity specialized mass merchandisers in the 1970s.

The 70s were witness to the use of technology in the retail sector with the introduction of the Barcode.

6. The Rise of the Web: The world of retail changed again in 1995, when Amazon. Com

opened its doors to Worldwide market on the Web. With the growth of the world wide web , both retailers and

consumers can find suppliers and products from anywhere in the world.

7

Theories of Retail Development

Retail Development from the theoretical perspective:

No single theory can be universally applicable or acceptable. The application of each theory varies from market to market , depending on the level of maturity and the socio-economic conditions in that market.

The retail scenario keeps changing continuously. These changes are brought by ever changing customer requirement, economic development of the nation , falling borders, new technologies and by entrepreneurs.

8

Growth in retail is a result of understanding market signals and responding to opportunities that arise in a dynamic manner.

Theories of retail development can broadly be classified as:

1. Environmental: where a change in retail is attributed to the change in the environment in which the retailers operate.

2. Cyclical- where change follows a pattern and phase can have definite identifiable attributes associated with them.

3. Conflictual: where the competition or conflict between two opposite types of retailers, leads to a new format being developed.

Classification

9

Darwin's theory of natural selection has been popularized by the phrase” survival of the fittest.”

Retail institution are economic entities and retailers confront an environment which is made up of customers, competitors and changing technology.

So the birth, success or decline of different forms of retail enterprises is many a times attributed to the business environment.

Environmental theory

10

Those retail institutes that are keenly aware of their operating environment and which react without delay, gain from the changes.

Thus Following the Darwinian approach of survival of fittest, those retailers that successfully adapt technological, economic, demographic and legal changes are the ones that are most likely to grow and proper.

The Ability to adapt to change, ‘‘successfully “is at the core of this theory

11

Cyclical Theory

The most well know theory of retail evolution is the retail wheel of retailing theory.

This theory suggests that retail innovators often first appear as low price cost operators with a low cost structure and low profit margin requirements, offering some real advantages.

As they prosper , they develop their business, offering a greater range or acquiring more expensive facilities they lose the focus. (on which they entered in the market). This phase is known as ‘trading phase’. This in turn leave room for others to enter and repeat the process.

They then become vulnerable to new discounters and lower cost structure as they are now Mature retailers.

12

Entry phase

Trading up phase

Vul

nera

bilit

y ph

ase

Mature retailerTop heavy

Declining ROI

Innovative retailerLow status and priceMinimum servicePoor facilities

Limited product offering

Traditional retailerElaborate facilitiesHigher rentMore locationsHigher prices

Extended product offerings

Entry phase

T

Vul

nera

bilit

y ph

ase

Mature retailerTop heavy

Declining ROI

Innovative retailerLow status and price

Minimum servicePoor facilities

Limited product offering

Traditional retailerElaborate facilitiesHigher rentMore locationsHigher prices

Extended product offerings

The wheel keeps on turning and department stores, supermarkets, and mass merchandise went through this cycles

13

Conflict theory

Conflict always exit between operators of similar formats or within broad retail categories.

Retail innovation does not necessarily reduce the number of formats available to the consumer, instead , it leads to the development of more formats.

Retailing involves through a dialectic process, i.e. blending of two opposite to creates a new format.

14

The Concept of Life Cycle in Retail

The concept of product life cycle as explained by Philip Kotler is applicable to retail organization.

This is because retail organization pass through identifiable stages of innovation, development, maturity and decline. This is commonly termed as the “Retail Life Cycle”

Attributes and strategies changes as institutions mature.

The retail life cycle is a theory about the changes through time of the retailing outlets

15

A new organization is born; it improves the convenience or create other advantages for the final customers, which differ sharply from those offered by other retailers. This is the stage of Innovation.

In Innovation organization have very few competitors.

Because it is new concept , the rate of growth is fairly rapid and the management fine-tunes its strategy through experimentation.

At this stage the level of profitability re moderate and this stage can last up to five years, depends on the organization.

A. Innovation:

16

The retail organization faces rapid increase in sales.

As organization moves to stage two of growth ,which is the stage of development, a few competitors emerge.

As company has been in the market for a while it is now in a position to pre-empt the market by establishing a position of leadership.

At this stage since growth is imperative, the investment levelis also high as is the profitability.

This stage last from 5-8 years.

B. Accelerated Growth:

17

The organizational this stages still grows, but competitive pressures are felt acutely from newer forms of retailing that tend to arise.

Thus growth rate tends to decreases.

Gradually as marketers become more competitive and direct competition increases, the rate of growth slows down and profits also start declining.

This is the time when the retail organization needs to rethink its strategy and reposition itself in the market.

A change may occur not only in the format but also in the merchandise mix offered.

C. Maturity:

18

The retail organization looses its competitive edge and there is a decline.

At this stage organization needs to decide is it is still going to continue in the market.

The rate of growth is negative, profitability declines further and overheads are high.

D. Decline:

The Concept of Life Cycle in Retail

Innovation

Growth

Maturity

Decline

Profit

TIME

SALES

20

The retail business in India has only recently seen the emergence of organized, corporate activity.. And traditionally most of the retail business in India was constituted of small owner- managed businesses.

Hence it is difficult to identify a retail organization which has passed through all the four stages of the retail life cycle.

Initially when shoppers stop opened its first outlet in Mumbai in 1991 they offers apparel, imitation, cosmetics and perfumes and home fashion. That time they also offer loyalty programmes in place, which did not offers by others.

21

The store enjoyed an enviable position for sometime and later the change in customer expectations and increases competition in the form of other department stores like, Globus, Westside, Lifestyle etc.

Later competition gives lots of other angles also , like Speciality store, book store, Music store etc.

22

Classification of Retail Formats

1. Form of Ownership• Independent retailer: Example only one retail outlet

Premsons, Benzer etc.• Chain retailer: examples, Wills Sports, Louis Philippe,

Van Heusen• Franchise: examples Mc Donald, pizza hut, Dominoes

etc.• Leased departments: airport, malls Multiplexes. etc.

Leased one • Consumer co-operatives: kendriya bhandar,apna bazar

23

Basis of the Merchandise offered• Convenience stores

• Supermarkets

• Hypermarket

24

Classification of Retail Formats

Classification of Retail Stores

Store Based Retailing

Non-Store Retailing

Form of OwnershipIndependent retailerChain retailerFranchiseLeased departmentsConsumer co-operatives

Merchandise offeredConvenience storesSupermarketsHypermarketsSpeciality storesDepartmental storesOff price retailersFactory outletsCatalogue showrooms

Direct sellingMail orderTele marketingAutomated Vending