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Retail management: A South African perspective
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Contents
Foreword
Preface
Dedication
PART 1 INTRODUCTION
1. Role of retailing
Nic Terblanche
Learning Objectives
Opening vignette
1.1 Introduction
1.2 Marketing functions of retailing
1.3 The retailing concept
1.4 The dynamic nature of retailing
1.5 The internationalisation of retailing
1.6 The role of retailing in the economy
1.7 Trends in South African retailing
1.8 Summary
Case study
Experiential activity
References
Additional resources
2. Retail environment
Karen Corbishley
Learning Objectives
Opening vignette
2.1 Introduction
2.2 The retail landscape in South Africa
2.3 Environmental trends in retailing
2.4 Types of retail outlet
2.5 Summary
Case study
References
PART 2 MARKETING ACTIVITIES

3. Shopper behaviour
Nic Terblanche
Learning Objectives
Opening vignette
3.1 Introduction
3.2 Consumers’ motives for shopping
3.3 Different types of shopper
3.4 Classification of products based on shopping habits
3.5 Perceived risk and its implication for retailers
3.6 Retail outlet selection process of consumers
3.7 Factors influencing in-shop consumer behaviour
3.8 Consumer behaviour under certain economic conditions
3.9 Models of consumer decision-making
3.10 Impulse buying in retail outlets
3.11 Summary
Case study
References
4. Location
Nic Terblanche
Learning Objectives
Opening vignette
4.1 Introduction
4.2 The importance of retail locations
4.3 Retail location principles
4.4 Major location alternatives
4.5 Factors influencing location decisions
4.6 Demarcation and evaluation of market areas
4.7 Location in shopping centres
4.8 Developing a network of retail outlets
4.9 Summary
Case study
References
5. Design and layout

Justin Beneke
Learning Objectives
Opening vignette
5.1 Introduction
5.2 Key principles of store design and layout
5.3 The use of design and layout to create and maintain image
5.4 Exterior store design
5.5 Interior store design
5.6 Internal store layout
5.7 Visual merchandise presentation
5.8 Design of non-selling areas
5.9 Summary
Case study
References
6. Communication
Chris Pentz
Learning Objectives
Opening vignette
6.1 Introduction
6.2 The retail communication mix
6.3 Development of a retail communication strategy
6.4 Summary
Case study
References
7. Pricing
Mariëtte Frazer
Learning Objectives
Opening vignette
7.1 Introduction
7.2 Objectives of retail pricing
7.3 Pricing strategies
7.4 The relationship between price and demand
7.5 Setting retail prices
7.6 Forms of price adjustments
7.7 Pricing across channels
7.8 Legal and ethical issues in pricing
7.9 Summary
Case study
References
8. Online retailing
Jacques Nel
Learning Objectives
Opening vignette
8.1 Introduction
8.2 Online retailing in South Africa
8.3 Advantages of online retailing
8.4 Disadvantages of online retailing
8.5 Internet business models for online retailing
8.6 Types of online shopper
8.7 Online shopping motives
8.8 Promotion of the online retail store
8.9 Order fulfilment
8.10 Key steps in starting an online retail store
8.11 Summary
Case study
References
PART 3 MERCHANDISE
9. Merchandise management
Karen Corbishley
Learning Objectives
Opening vignette
9.1 Introduction
9.2 Retail merchandise management
9.3 Planning the merchandise range
9.4 Different types of merchandise
9.5 Category management
9.6 Category life cycle
9.7 Brands and branding
9.8 Planning for merchandise
9.9 Summary
Case study
References
10. Logistics
Karen Corbishley
Learning Objectives
Opening vignette
10.1 Introduction
10.2 Objectives of a logistics system 260
10.3 Selection of suppliers
10.4 Negotiation
10.5 Management of inventory
10.6 The management of inventory levels for staple stock
10.7 Centralisation versus decentralisation
10.8 Modes of transport
10.9 Innovations in the supply chain
10.10 Summary
Case study
References
PART 4 OPERATIONS MANAGEMENT
11. Stakeholders
Petrus Venter
Learning Objectives
Opening vignette
11.1 Introduction
11.2 Nature of stakeholder relations
11.3 Prioritising stakeholders
11.4 Strategic stakeholder relations management
11.5 Tactical stakeholder relations management
11.6 Operational stakeholder relations management
11.7 Nature of actions to build stakeholder relations
11.8 Summary
Case study
References
12. Customer service

Mariëtte Frazer
Learning Objectives
Opening vignette
12.1 Introduction
12.2 Customers are changing
12.3 Profiling customers
12.4 Customer service approaches
12.5 Types of service offered by retailers
12.6 How customers evaluate their service experiences
12.7 Cost of losing a customer
12.8 Recovering from service failure 326
12.9 Developing a customer service strategy
12.10 Empowering retail employees to deliver quality service
12.11 Customers’ legal rights to quality service
12.12 Summary
Case study
References
13. Assets and risks

Mariëtte Frazer
Learning Objectives
Opening vignette
13.1 Introduction
13.2 Types of risk in a retail organisation 338
13.3 The risk management process
13.4 The impact of shrinkage on a retail organisation
13.5 Shoplifting
13.6 Summary
Case study
References
PART 5 RESOURCE MANAGEMENT

14. Human resources
Petrus Venter
Learning Objectives
Opening vignette
14.1 Introduction
14.2 Strategic human resources planning for a retail business
14.3 Tactical management of the retail employees
14.4 Operational management of the retail employees
14.5 Summary
Case study
References
15. Finance
Petrus Venter and Juan-Pierre Bruwer
Learning Objectives
Opening vignette
15.1 Introduction
15.2 Strategic financial management of a retail business
15.3 Tactical financial management of a retail business
15.4 Operational financial management tasks of a retail business 408
15.5 Financial policies and procedures
15.6 Tactical financial control
15.7 Budgetary control
15.8 Taxation
15.9 External auditing
15.10 The operating cycle of a business from a financial point of view
15.11 Break-even analysis
15.12 Managing the costing aspect in a business
15.13 The business plan
15.14 Summary
Case study
References
PART 6 STRATEGIC RETAIL MANAGEMENT
16. Strategy
Chris Pentz
Learning Objectives
Opening vignette
16.1 Introduction
16.2 Retail strategy and strategic planning
16.3 Development of the strategic retail plan
16.4 Summary
Case study
References
Key terms
Index
Acknowledgements
Foreword
The past few years have shown us that the retail industry can be resilient in times of great
challenges and change.
This resilience has not, however, come easily. It has been achieved on the back of experience, hard
work, strong competitiveness and a deep understanding of the environment, business imperatives,
operations, systems, marketing, logistics and the organisational elements of retail businesses.
It is, therefore, a privilege for me to write a foreword for this book in which Prof. Terblanche and his
colleagues tackle these issues expertly, and provide students with an insight and introduction into the
difficult, yet exciting world of retail.
Retail is much more than buying and selling goods, and in this book, students are provided with the
tools to enter this fast-paced world. This book helps entrants into the sector understand various facets of
the industry, from marketing and brand development to customer satisfaction and retention.
It includes a new chapter on online retailing, which is a growing trend and not only applicable to many
retail businesses, but also slots into the broader subject of technology, which is at the core of retail
success from managing logistics and stock to marketing on social media and using mobile technology to
reach customers.
The retail industry is both tough and rewarding. Prof. Terblanche has provided the tools and
foundation for students to understand the industry and the creativity and action necessary to succeed in an
industry of immense competition, paper-thin margins and price-sensitive customers.
I believe students who have chosen this path can expect a fulfilling career in a fast-moving, exciting
and challenging industry. This book provides a comprehensive foundation to have the tools to start off on
this adventure.
Dr J.W. (Whitey) Basson

Chief Executive Officer
Shoprite Holdings Ltd
Preface
Retailing brings marketing to life and is part of the process to create, communicate, deliver and
exchange offerings that have value for consumers. It also serves as the final link between consumers and
manufacturers or producers. Every single day we are exposed to, or influenced by, some or other retailing
activity, either as a willing or a potential buyer for products or services.
The South African retail landscape is home to a range of diverse retail institutions, from the spaza to
the most specialised retail store, that serve the array of target markets with distinction. The advent of
multichannel retailing and the invasion by various foreign retailers have created new challenges for South
African retailers. South African retailers have however, over time, been consistently successful in
applying their knowledge, experience and entrepreneurial instinct to making a variety of foreign retailing
concepts and formats work well locally.
When the material for the book was considered, a lot of effort went into ensuring that the diversity and
richness of South African retailing were captured. In an attempt to cover this diversity that stretches from
informal street hawking to highly sophisticated mobile telephone platforms, some valuable insights will
be lost because of one’s own shortcomings in respect of this vast body of knowledge. For this, the reader
must please accept my apologies and forgive me.
Numerous people from the business and academic sectors have made valuable observations and
statements that helped to clear my thinking on many aspects. I learnt from street traders as well as from
retailers that market by way of advanced technologies such as the mobile phone.
The book benefits from contributions by colleagues from five local universities. The following
colleagues, for whose contributions I am grateful, wrote chapters in the book:
• Justin Beneke, University of Winchester
• Juan-Pierre Bruwer, Cape Peninsula University of Technology
• Karen Corbishley, Durban University of Technology
• Mariëtte Frazer, University of Johannesburg
• Jacques Nel, University of the Free State
• Chris Pentz, University of Stellenbosch
• Petrus Venter, Cape Peninsula University of Technology
Nic Terblanche
Stellenbosch
Instructor’s ancillary material

Oxford University Press will provide supplementary packages to adopters who qualify under our adoption
policy. Please contact Oxford University Press at www.oxford.co.za to learn how you may qualify.
Dedication
This book is dedicated to:
three very special women in my life – my wife Annchen and my daughters Marié and Juliene
and
a friend Domenico Mazzo of Gino’s who, in the tradition of his late father Guiseppe, continuously pursues Italian hospitality and
passion for food through living by the saying:
Con solo un po’ più di rispetto, si può fare buoni affari
(With just a little more respect, one can do good business).
PART 1
Introduction
CHAPTER 1
Role of retailing
Nic Terblanche
Learning Objectives
After studying this chapter, you should be able to do the following:
• Explain the characteristics and the importance of retailing.
• Discuss the marketing functions of retailing.
• Describe the retailing concept.
• Motivate which of the established theories of retailing explain the demise of the department store
best, and why.
• Provide an overview of the reasons for retail internationalisation and use examples to illustrate
successful international retailers.
• Explain why retailing is important in the South African economy.
Opening vignette
Woolworths South Africa, known as Woolies to most South Africans, is a well-known and successful
South African retailer that sells food, clothing and general merchandise. To remain competitive over time,
Woolworths trades from different store formats to address the needs of its customers. In 2015,
Woolworths had 279 clothing and general merchandise stores and 397 food stores, a total of 676 stores.
Woolworths employed 31 196 people and generated a combined annual turnover of R34.8 billion from its
clothing and general merchandise, and food stores in South Africa during 2015. The following seven
values underlie all Woolworths’ retail and other activities:
1. Delivering the best quality and style: This means giving 100 per cent, 100 per cent of the time. Whether
it is making sure that a supplier is delivering to the standards set or preparing a report, it all boils
down to one thing – there is no compromising on quality, because ‘good enough’ just is not good
enough.
2. Offering value by way of a simple and fair deal: Offering real value goes beyond offering customers
quality at a good price; it also means offering value to each other, from sharing knowledge with
colleagues and suppliers to being able to evaluate how the decisions everyone makes affect the
business.
3. Always thinking ‘customer’ when it comes to service: Woolies knows it has to go that bit further to
really make a difference. Putting the customer first is what service is all about. Whether the customer
is a shopper in its stores or the store manager who needs a vital delivery, service is about
understanding others’ needs, being willing to do more than is expected, and being a good ambassador
for the Woolies brand.
4. Bringing innovations so that customers can experience the difference: Woolies loves discovering new
ideas, new products and new processes. Woolies enjoys thinking ‘out of the box’ and finding
solutions that benefit the business.
5. Doing what you say you will do to earn integrity: Keeping its promises is important to Woolies,
whether it is maintaining confidentiality, not accepting gifts from suppliers, or simply listening to
what others have to say with an open mind. By being true to themselves, Woolies staff earn the trust
of colleagues and their customers.
6. Being passionate, delivering and getting the energy flowing: When staff are passionate about what they
do, when they really care, their enthusiasm and belief rub off on others. At Woolies, a staff member is
part of a 31 196-member team. Being part of a team means being an inspiration to others and being
inspired by their successes and triumphs.
7. Building for a better, sustainable future: For Woolies, being in a South African, and African, context,
sustainability is more than just about being ‘green’. It is about sharing expertise, helping local
enterprises to grow, and contributing to a prosperous, secure future for the country.
Source: Adapted from www.woolworths.co.za/store/fragments/corporate/corporate-index.jsp?content=../five-ways/fiveWays
&contentId=cmp2042591; Woolworths Holdings Limited, 2015 integrated report.2
Questions
1. Why do you think it is so important for Woolworths to service both its customers and suppliers?
2. What do you think the role of Woolworths is in the marketing channel for consumer goods?
3. What is your view of the set of values that Woolworths uses to guide its business activities?
1.1 Introduction
Various definitions of retailing have developed over time. An analysis of these definitions produces three
main components which can be combined to describe retailing as the business activities or steps required
to sell goods or services to final consumers for use or consumption by themselves, their families or their
households.
A retailer is a business that focuses its marketing efforts on the final consumers with the intention of
selling goods or services to them. This means that any business which sells a product or service to a final
consumer, whether it is to a consumer in a shop, by mail, over the telephone, from door to door or by
means of a vending machine, remains a retailing business.
The specific reason why goods and services are acquired, will determine whether a particular
transaction will be regarded as a retail sale or not. For example, hardware retailers such as Pennypinchers,
Timber City or Builders Express sell to do-it-yourself enthusiasts, hobbyists and building contractors.
Building contractors usually buy wood, nails, tiles and other building products for use in the construction
of buildings for their clients. Any building products purchased for such a purpose do not constitute a
retail sale. When the do-it-yourself enthusiast purchases the same products to renovate or repair his or her
own home, this qualifies as a retail sale. In the second example, the products are used by the purchaser,
namely the do-it-yourself enthusiast, while in the first example the building contractor buys for use or
consumption by someone else. A building contractor is not a final consumer market, but a business
market.
1.2 Marketing functions of retailing

Retailing is probably the most visible element of all marketing activities. Advertising and sales promotion
programmes of retailers, highly distinguishable shop-fronts and well-known company logos are all
examples of high visibility. These are the typical marketing functions performed by retailing:
• Provision of a link between consumers and manufacturers or producers
• Functions performed in the marketing channel
• Ability to create an image conducive to enhancing the marketing of a good or service.
These functions performed by retailers make them vital intermediaries in the marketing channel.
1.2.1 Retailing as the link between production and consumption

What the consumer wants and what the producer or manufacturer wants to produce or manufacture are
not necessarily the same. For example, the consumer prefers to buy one tube of toothpaste per month to
meet his or her consumption, storage and other requirements. The manufacturer prefers to produce a few
thousand tubes of toothpaste at a time because this will lead to economies of scale, which result in the
lowest cost per unit of toothpaste. The discrepancies that exist between what is demanded by consumers
to satisfy their needs and what is right for the manufacturer’s production, are overcome by retailers.
Retailers act as intermediaries between consumers and manufacturers or producers in the marketing
channel. The position that retailers of consumer products can occupy in an indirect marketing channel is
illustrated in Figure 1.1.
The typical discrepancies that exist between consumers and producers or manufacturers which can be
overcome by the intervention of retailers are the following:3
• Spatial gaps
• Time gaps
• Quantity and assortment gaps
• Ownership gaps
• Information gaps
• Value gaps.
1.2.1.1 Spatial gaps

Spatial gaps exist because the production and consumption of products are most likely to take place in
different geographical locations. Retailers overcome the spatial gaps by buying products from
manufacturers and selling them at locations which can be reached conveniently by consumers. Locating
in neighbourhood, community or regional shopping centres, as well as in shopping areas in central
business districts, can be seen as attempts by retailers to overcome the spatial gap and add place utility to
the merchandise offered. Consumers are increasingly demanding the elimination of the spatial gap, and
retailers respond to this by promoting, for example, online and catalogue shopping which enable
customers to identify and purchase items on the Internet from home and have them delivered to their
doorsteps. Major South African retailers such as Pick n Pay, Woolworths, and Mr Price have developed
online platforms to overcome the spatial gap.
Figure 1.1 The position that a retailer can occupy in a marketing channel for consumer products
1.2.1.2 Time gaps

Time gaps result from differences in production and consumption times. At certain times, such as the
seasons for fruit and vegetables, producers must produce all of their output of such fruit and vegetables
within a limited time span. Consumers want to purchase the product over a longer period of time.
Retailers make such products available when consumers wish to purchase them. For example,
Woolworths sells imported fruit such as dates from Israel when these are out of season in South Africa so
that its customers have a year-round supply. Other examples include KFC and McDonalds that remain
open 24 hours to serve meals; and banks, retailers of financial services, that use automated teller
machines to overcome the time gap.
1.2.1.3 Quantity and assortment gaps

Quantity and assortment gaps come about because manufacturers narrow down product lines to achieve
economies of scale, while consumers prefer a wide selection of products from which to choose. Retailers
overcome these gaps by buying the limited product offerings of various manufacturers, agents and
wholesalers. This process, called rearrangement, enables the retailer to offer a greater variety and
provide greater satisfaction to customers. Rearrangement consists of the processes of accumulating and
assorting. The quantity gap exists because of large-scale production and selling by producers on the one
hand, and small-scale consumption by consumers on the other hand. Consumers not only consume small
quantities of products at a time, they also purchase products in small quantities because of limited storage
space at home, the restricted ability to transport products and the limitations that their budgets place on
them. Retailers bridge the quantity gap by ‘breaking bulk’. Bulk breaking refers to buying in large
quantities from producers, agents and/or wholesalers and then selling smaller quantities to consumers.
1.2.1.4 Ownership gaps

Ownership gaps exist when consumers are unable to own products. The role that retailers fulfil in respect
of the ownership gap is to make it possible for consumers to own products. Retailers have various means
at their disposal to facilitate this process. The provision of credit and acceptance of credit cards issued by
banks now make it easier for consumers to acquire ownership.
1.2.1.5 Information gaps

Information gaps exist when producers or manufacturers need to make consumers aware of their
products. Advertising and sales promotion activities of retailers enable consumers to fill their information
gap. Social media and the websites of firms are sources of information today. Consumers can access
websites and social media sites for any of the information they require in respect of a product or service,
its price and other characteristics. The availability of 0800, 0860 and 0861 telephone numbers for product
information, and staff who can inform consumers on the shop floor are further examples of information
provision by retailers.
1.2.1.6 Value gaps

Value gaps can exist when consumers are in need of adjustments to a product. Retailers render various
services that can add value to a product or service. Examples are gift-wrapping, deliveries, alterations and
repairs. The customisation of products to better serve customer needs is necessary for some retailers if
they want to succeed and differentiate themselves from their competition. An example of this is where
retailers that sell high-priced clothing usually offer free alterations.
1.2.2 Functions performed in the marketing channel by retailers

Apart from the gaps that retailers overcome for consumers, they also undertake a wide range of functions
for wholesalers and producers. The typical functions that retailers provide are the following:
• Removing risks from wholesalers and producers by ordering and stocking products in advance: If a
retailer wrongly assesses the expected demand for a product and overstocking takes place, the cost of
this will be for the retailer.
• Offering, in most instances, the last opportunity for interaction with the consumer: This is done by
personally providing the consumer with the required product or service at a convenient location.
• Acting as a major source of market information: Retailers are in daily contact with their consumers and
are in a position to detect changes in purchasing and consumption habits and other trends early and
report these to their suppliers.
• Providing storage: Where retailers take products on consignment, the storage of the products becomes
their responsibility, and this relieves the suppliers of having to pay for it.
• Advertising and providing sales promotion activities: Many of these activities are provided by a formal
arrangement such as co-operative advertising.
• Providing access to consumers on a wide front: Retailers can be found in some of the remotest areas.
• Enhancing the image that the wholesaler or producer wants the product to project : Location,
architecture, decor and competent staff members can all contribute towards projecting the desired
image for the product.
Some retailers will control the marketing channel in which they operate because of their large size and
wide range of activities. Their direct access to consumers enables them to gather consumer information
such as consumer preferences and purchasing power. The possession of such information makes a retailer
more powerful.
1.2.3 The ability of retailers to create an image conducive to marketing

Every retailer that wants to be successful needs to be distinguished from its competitors by creating a
specific image of itself in the minds of consumers. If a retailer wants to project a low-price image, it must
ensure that, not only are the prices of products low, but that the environment in which selling takes place
also contributes to such an image. A successful image must be physically and mentally distinct and clear,
and must be maintained to ensure consistency. In simple terms, retail image is the mental picture of the
retailer formed in a consumer’s mind, and consists of both factual and emotional components.
There are many factors which contribute to and influence a retailer’s image, and some of these are
given here:
• The physical layout, architecture and general appearance of the shop
• Price, quality and the variety of products offered
• Behaviour, appearance, knowledge and helpfulness of staff members
• Customer mix, congestion and density of products
• Parking facilities, convenience of accessibility and surrounding areas.
For certain formats of retailing, the maintenance of a consistent image is of the utmost importance for the
long-term survival of the retailer. Examples are franchised units and branches of retailers that operate
countrywide.
1.3 The retailing concept

The marketing concept that has been implemented and followed by many successful organisations over
the past few decades, can also be applied to retailing. Many successful retailers already apply the
retailing concept to guide their businesses. The retailing concept justifies a retailer’s existence on the
basis that it strives for the satisfaction of consumer’s needs and wants, while simultaneously achieving
the retailer’s objectives.
The retailing concept, shown in Figure 1.2, consists of the following three interrelated elements:
1. A consumer orientation that requires the retailer to determine and focus on consumer needs and wants
2. An integration and co-ordination of all the retailer’s plans and activities to satisfy consumer needs and
wants
3. A goal orientation that aims at achieving financial and non-financial goals by addressing consumer
needs and wants with an integrated and co-ordinated approach by the retailer.
The retailing concept is a very useful planning aid. It helps with identifying consumers’ needs and wants,
and developing plans to satisfy their needs and wants, which is the main objective of the retailer. It is
important to note that this analysis only follows the identification of and commitment to need and want
satisfaction, and does not analyse the internal capabilities and strengths of the retailer.
When the retailing concept is executed properly, consumers will experience the ‘total retail
experience’, satisfactory levels of service quality, and the development of a long-term relationship with
the retailer.4
Figure 1.2 The retailing concept
The total retail experience refers to what consumers experience when they deal with retailers. It
consists of all the activities and interactions from the search for parking to the checkout counter, which
are essentially all the elements that enhance or inhibit consumers during their interaction with a specific
retailer.
Some of the elements that retailers can control to achieve a certain total retail experience are the
following:
• The number and appearance of salespeople on the shop floor
• Brands offered
• Layout
• Display windows
• Decor.
Other elements, such as those listed below, are beyond the control of a retailer, or the retailer has limited
control over them:
• Quality of roads that give access to the retailer
• Sufficiency of on-street parking
• Traffic congestion
• Environmental factors
• Behaviour of other customers in the shop.
The total retail experience aims at meeting customer expectations. If there is anything that prevents the
customer from experiencing a positive total retail experience, he or she might decide not to use that
retailer again. The total retail experience that will meet a consumer’s expectations will differ from one
retail type to another. When a consumer visits a supermarket, quick movement through aisles, low prices,
enough cheap and highly accessible parking and a clean shop floor might be the most important factors
for a positive total retail experience. When a consumer visits an upper-class clothing retailer, the fact that
the latest fashions are available, that there are well-trained staff to assist with good advice and that the
decor portrays an expensive image, all contribute to a positive retail experience.
When a retailer delivers a satisfactory level of service quality, it contributes positively to the total
retail experience. Customer services, which refer to identifiable, but sometimes intangible, activities
undertaken by a retailer, have become a major basis on which retailers differentiate themselves from
competitors. For example, some retailers focus on convenience by providing additional services.
Debonairs delivers your order free of charge if you live within 5 km from their shop and your order is
more than R 50.
A retailer’s service strategy can consist of a number of factors:
• Deliveries
• Installations
• Gift-wrapping
• Restroom facilities
• Free parking
• Long shopping hours
• Repairs.
Essentially, consumer service is made up of two components:

1. Services expected: These are services that a consumer normally expects from a retailer. In a
supermarket, these include the provision of shopping baskets and trolleys to hold selected groceries
while shopping, and the acceptance of credit cards for payment. The consumer would consider these
very necessary.
2. Augmented services: These services the consumer would not considered essential, and include
deliveries or consumer advice on the nutritional value of foodstuffs. The augmented services enable a
retailer to have a competitive advantage.
One of the major trends in retailing over the past decade is the attempts to take interaction with the
consumer beyond the transaction. When a retailer has a sound total retail experience in place and it is
backed by a high level of service quality that fulfils consumers’ expectations, the foundation for a
long-term relationship exists. Relationship retailing refers to a strategy of activities that aim to attract,
retain and enhance the long-term association between a retailer and individual consumers. The emphasis
in relationship retailing is on the creation of consumer loyalty to the retailer. The logic underlying
relationship retailing is that it is more costly to gain a new customer than it is to keep an existing
customer happy.
For relationship retailing to be successful, both the retailer and the customer must win. The availability
and low cost of computer technology makes the development and maintenance of relationship retailing
easier. Data generated through scanning at checkout points makes it possible to have better, more
frequent and more focused ongoing interaction with the customer. For example, Woolworths could tell all
their Woolworths card holders who have purchased red wine before when a future promotion on red wine
is going to be offered and what the promotion will entail.
Discussion Box 1.1 Relationship retailing
The core of relationship retailing is the relentless effort to attend to a client’s needs: the client is treated as an
individual and not as another element of the target market, service is individualised and tailored to the client’s
request – in the process, the customer feels special and the outcome is committed, interactive and profitable
exchanges with such a customer over time.
The heart and soul of relationship retailing is personal attention: treating the customer as a client rather than as
a face in the crowd, individualising service, tailoring it, adding a touch of grace, making the client feel special.
Source: Berry, L.L. and Gresham, L.G. (1986). Relationship Retailing: Transforming customers into clients.5
Question
1. How does Woolworths (from the opening vignette) apply the concept of relationship retailing?
2. How can online retailers execute the retailing concept to create a ‘total retail experience’ for customers?
1.4 The dynamic nature of retailing

Many retail formats have developed over time. Some of these have been successful for long periods while
others had a short lifespan. The supermarket has been a very successful retail format since the 1930s. It
was the basis from which other bigger retail formats, such as the hypermarket, as well as smaller
versions, such as superettes, have developed. The development of services retailing has also created
various new retailing formats, and institutions such as food delivery firms and those which arrange motor
car insurance over the phone. All of these different retail formats and institutions have a single
denominator in common, namely that they were designed to satisfy the needs and wants of consumers.
Internal and external pressures have forced some retailing institutions to undergo major changes over
time. The emergence, growth and decline of retail institutions have led to the development of theories to
explain these changes.
There are four theories that offer some explanation for the emergence, growth and decline of retail
institutions:
1. Wheel of retailing
2. Dialectical process
3. Retail life cycle
4. Retail accordion.
1.4.1 Wheel of retailing

According to the wheel of retailing theory, the changes which take place in most retail institutions can be
described in terms of phases. Retail institutions move through a cycle which consists of three phases:
1. Entry
2. Trading-up
3. Vulnerability.
1.4.1.1 Entry
This theory also claims that new retail institutions enter the market with low status, low profit and low
prices to exploit a weakness of an existing established retail institution. As soon as the new retail
institution is accepted by consumers, competition in the form of imitators appears.
1.4.1.2 Trading-up
To differentiate itself from these followers, the retailer starts a trading-up strategy which includes the
addition of services and facilities. Retailers trade up for various reasons, the most common of which are
changes in demographic trends and competitors’ actions. The offering of higher-quality products,
installation of more expensive fixtures and opening shops in better locations are usually all part of this
trading-up strategy. The net result of trading up is usually higher prices.
1.4.1.3 Vulnerability
The retail institution eventually reaches maturity as a high-cost, high-profit institution which in turn
becomes vulnerable to new low-price institutions.
The wheel of retailing theory has also been criticised because of its shortcomings. Although the
development and upgrading of department stores and supermarkets illustrated this theory well, it cannot
explain the development of various other retail institutions. All new shops do not start as low-price and
low-status retail institutions. Although the theory emphasises the price–quality relationship, it is a useful
tool for understanding the process of trading up to differentiate from competition.
Figure 1.3 Phases of the wheel of retailing
Figure 1.3 shows the phases of the wheel of retailing.
1.4.2 The dialectical process

The dialectical process is another theory that describes the emergence and growth of retail institutions. In
terms of this process, retailing institutions are continually undergoing transformation by adapting and
utilising some characteristics of other competing institutions.6
When an established retailing institution is challenged by a competitor with a differential advantage,
such an institution will adapt strategies and tactics to obtain some part of the differential advantage. In
doing this, the established retailing institution will offset some of the innovator’s attraction. Over time,
the innovator also undergoes changes and modifies product offerings and facilities, and in this process
moves toward the ‘transformed’ established institution. The natural adaptations result in the two retailing
institutions displaying many similarities in terms of product and service offerings, facilities and prices. In
the end, these two initially opposing retailing institutions become indistinguishable, or at least very
similar, and constitute a new retail institution.
The dialectical process has also been explained in terms of the following:
• Thesis: This refers to the established retailing institution.
• Antithesis: This refers to the new challenging institution.
• Synthesis: This refers to the retailing institution that is formed by the natural adaptations of the two
initially opposing retail institutions.
The emergence of the department store can be explained by the dialectical process. The first discount
stores were located mostly in decentralised suburban locations where low rents were paid, and where
there were no services to customers. Department and discount stores adapted to each other over time and
discount department stores arrived on the scene. These represented the strengths of both department and
discount stores, and created a unique competitive position of their own.
Figure 1.4 shows how ‘Category killers’ such as Toys R Us evolved as a combination of the
characteristics from both speciality stores and full-line discount stores.
1.4.3 The retail life cycle

The retail life cycle is another theory used to explain the emergence, growth and decline of retail
institutions.7 This theory states that retailing institutions, like the products in which they trade, pass
through an identifiable cycle.
There are four distinct phases in the retail life cycle, as shown on the next page.
Figure 1.4 The dialectical process
Source: An adaptation of Levy, M. and Weitz, B.A. 2004. Retailing management.8
Figure 1.5 Phases of the retail life cycle

Source: Based on Davidson, W.R., Bates, A.D. and Bass, S.J. (1976). The retail life cycle.9
Figure 1.5 shows the four phases of the retail life cycle.
1. Introduction
2. Fast-tracked development
3. Maturity
4. Shrinking.
1.4.3.1 Introduction phase

The introduction phase starts with the innovation of a new concept in retailing that is in stark contrast to
existing retailing institutions. Many such developments focused on a reduction of non-essential services.
These developments also focused on the use of very few fixtures and fittings. Together, these measures
resulted in savings which were passed on to the consumer. The development of the supermarket in the
1930s and the hypermarket in the 1960s are examples of such retailing institutions. The contrast between
such a new retailing institution and an existing one, gives it a significant advantage. This advantage can
result from a unique product offering, location advantages or different merchandising techniques. The
combination of convenience stores and filling-stations is an example of this.
When consumers accept the new retailing institution, sales grow in the introduction phase. Profits,
however, do not grow at a similar rate. High start-up costs and the absence of economies of scale prevent
high profit levels. Some of these retailing institutions also experience operational problems that are
unique to new retail concepts. Pick n Pay, for example, acknowledged that more than 700 mistakes were
made in the planning of their first hypermarket.10
1.4.3.2 Fast-tracked development phase

Fast-tracked or accelerated development is the early growth phase after the introduction of the innovation,
during which both sales volume and profits display a rapid increase. The retailing institution that started
the concept expands geographically during this phase. Other organisations also start to follow the
concept. After the obvious success of Pick n Pay’s first hypermarket, other organisations, such as OK
Bazaars and Checkers, also opened up hypermarkets.
1.4.3.3 Maturity phase

During the first half of the fast-tracked phase development phase, an increase in sales volume as a result
of economies of scale, leads to even bigger profits. Cost pressure causes both sales volume and profit
levels to reach their maximum levels at the end of this phase.
In the maturity phase, market share stabilises and profit levels decline for several reasons. One reason
for the decline is the attack made by newer retailing institutions on the established retailing institution.
1.4.3.4 Shrinking phase

In the shrinking or decline phase, this trend continues. Retailers usually try to postpone the shrinking
phase as long as possible by attempts to reposition, modify or adapt the business. Applying the
merchandising techniques of the newer retailing institutions is another way to prolong the life of the
business.
Ample evidence exists to indicate that retail life cycles are becoming shorter and shorter. In the United
States of America, it took department stores approximately 100 years to reach maturity, while newer
retailing institutions, such as warehouse retailing, reached maturity within 10 years after their
introduction to the market.11
The result of these accelerated, short life cycles is that newer retailing forms are faced with the
problems experienced by established retailing institutions much sooner because of the extremely
competitive environment in which retailing takes place.
The history of South African retailing also provides sufficient evidence that the life cycles of South
African retailing institutions are becoming increasingly shorter. For instance, it took department stores 80
years, from 1880 to 1960, to reach maturity. Hypermarkets only needed 10 years, from 1975 to 1985, to
reach maturity.12
1.4.4 The retail accordion

The retail accordion provides an alternative explanation for changes in the retail structure. This theory is
based on the assumption that the merchandise mix or retail mix (see Chapter 2, Section 2.4.1.2) of
retailers offers an explanation for retail structure change.
In accordance with this theory, retailers begin as institutions that offer a wide variety of merchandise.
Over time, retail institutions offer a more limited range of specialised merchandise.
Modern retailing in South Africa began as general shops that offered a wide variety of merchandise.
The department stores that followed, offered a more specialised range of merchandise.
During the 1950s, an increasing number of specialist shops, such as bookshops, music shops and shoe
shops, began to trade. In the 1960s, shops with larger merchandise mixes appeared. The hypermarket was
one of these new arrivals. The 1980s again saw an increase in specialisation. Examples of such shops
were those that specialised in very narrow merchandise mixes, such as those that only trade in running
gear for athletes.
1.5 The internationalisation of retailing
Today, many retailers move beyond their own borders to establish shops in other countries. Such a move
is made attractive because of the opportunities offered in foreign markets.
These are some of the reasons for the move:13
• Foreign markets may represent better growth opportunities because of population and other trends.
• Domestic markets may be saturated or stagnant.
• A retailer may be able to offer products, services or technology that are not yet available in the foreign
markets.
• There may be less competition in the foreign markets.
• Foreign markets may be used to supplement domestic sales.
• Tax or other investment incentives may be available in foreign markets.
• Worldwide changes in government and economic shifts make many countries more open now to foreign
retailers.
Various studies concluded that the rate of change, as well as the level of sophistication of a country’s
retail industry, reflects the stage of economic development in that particular country.
The past decade has seen major changes in less developed countries, such as India and Brazil, and this
has created many opportunities for foreign retailers. Many retailers have been very successful in
international markets.
Those retailers that have managed to take advantage of international growth opportunities possess the
following four characteristics:14
1. A globally sustainable competitive advantage, such as the cost advantage that Aldi – a leading global
discount supermarket chain based in Germany – enjoys, which flows from its reduced offering
2. An ability to adapt to local circumstances, such as Tesco – a British multinational grocery and general
merchandise retailer – that ensures that the majority of its products offered are produced locally
3. A global mindset, such as Carrefour – a French multinational retailer – that uses local managers as soon
as possible
4. Sufficient financial resources, such as Walmart – an American multinational retail corporation – that
invests until a foreign operation becomes profitable.
Consumers are also more knowledgeable than ever before about products, brands and prices. The more
consumers in Europe and Japan travel, the more they question why the prices of some products in their
home country seem artificially high. They do not want to waste time shopping and they look for value,
bargains and sales. Consumers today finally appreciate the selection, convenience and prices available
from a category killer like Toys R Us.
When a retailing strategy is considered for a foreign market, certain factors should be considered.
These factors are shown in Figure 1.6.
Figure 1.6 Factors to consider when engaging in international retailing
Source: Based of Berman, B. and Evans, J.R. (2004). Retail management: A strategic approach.15
Retailers that want to operate in foreign markets make use of different entry strategies. These are four
best-known entry strategies:
1. Franchising
2. Self-start entry
3. Acquisition of existing retailers
4. Joint ventures.
The most visible of these entry strategies are the franchise operations of large organisations. Names such
as McDonalds, KFC and Pizza Hut are familiar all over the world. Although many retailers have
established themselves firmly in foreign markets, many of these markets have not even introduced a
merchandising technique such as self-service facilities.
Different retailing institutions and formats have also developed in different countries. The supermarket
developed during the 1930s on the east coast of America. The department store and hypermarket are
French innovations. South Africa has, to a large extent, been a follower and adapter of successful foreign
retailing institutions. The only purely South African retailing institution is the spaza shop, found in the
traditionally black urban townships.
One of South Africa’s major retailers, SPAR, has established itself firmly in international markets with its
four different retail formats, and has been especially successful in the UK and Ireland. Their high
convenience format in the form of SPAR Express stores is particularly well suited to areas with high foot
traffic, such as railway stations and city centres. SPAR operates 650 SPAR Express stores in 11 different
countries.
Discussion Box 1.2 Expansion into foreign markets
Expansion into foreign markets is a popular strategy to increase earnings, gain access to rand-hedged earnings,
mitigate saturated markets and leverage local expertise in new locations. A number of leading South African
retailers have expanded their operations into foreign countries, such as Metro Cash & Carry, Pick n Pay,
Woolworths, Nandos, and Shoprite-Checkers.
Source: Based on Department of Higher Education and Training. Wholesale and Retail SETA. Sector skills plan: 2011–2016.16
Questions
1. Why do you think these retailers have entered foreign markets?
2. Do you think South African retailers that offer online shopping platforms to other countries without actually establishing a
physical presence in these countries are engaging in internationalisation?
1.6 The role of retailing in the economy

The activities of retailers are important to consumers and retailing because they are responsible for the
creation and finalising of a multitude of transactions. Retailers play a major role in the creation and
adding of value which ensure that the needs and wants of customers are satisfied.
Figure 1.7 Retail sales in South Africa, 2014
Source: Statistics South Africa, www.statssa.gov.za/?p=416317
Figure 1.7 shows the retail total sales in South Africa for the period 2009 to 2014. The decline in the
growth rate from 2012 is clearly illustrated in Figure 1.7.
The efficient and competent manner in which retailers meet consumer demands has also given retailers
a great deal of power and control in the marketing channel. There is usually one point in any supply chain
where most of the power lies. In the supply chain for retailing, the manufacturer traditionally held the
power, but in the 1990s it shifted over to the retailers. Today, the power is shifting to the end-consumers.
The Internet has empowered customers with information, and they are increasingly price sensitive,
which forces retailers and suppliers to push down costs. In the grocery industry, the retailers hold the
power in the marketing channel and are in a strong position to influence what producers and
manufacturers offer to the market. Although various trends in and characteristics of the marketplace, such
as demands on personal time, decline in store loyalty and traffic congestion, are considered factors that
will make in-store shopping less attractive, the act of in-store shopping fulfils vital social and functional
roles and it is safe to assume that it will continue to do so for a long time.
Retailing is also a major source of employment. The wholesale and retail sector of the South African
economy is the fourth largest contributor to gross domestic product (GDP) and employs 22 per cent of
South Africa’s total active workforce.18 This figure only refers to officially recorded retailing activities. A
large number of people also work in informal retailing. Although it is almost impossible to determine the
percentage of informal traders, the recent increase in the number of street hawkers and flea market
activities suggests that this figure is large.
A special characteristic of retailing which distinguishes it from other types of businesses is the small
average size of a sales transaction. This makes it necessary for retailers to have a tight control over the
costs associated with each transaction, because the average profitability ratio (net profit after tax),
expressed as a percentage of turnover, is also low.
The relatively low profitability ratio means that there is little room for error, and retailers need to have
efficient and productive operations to be profitable. In the supermarket industry, for instance, the
profitability ratio varies between 1.5 per cent and 3.0 per cent for the major chain groups.
Mall-based retailing has become extremely popular in South Africa, and the growth in retail store
space exceeds the number of actual retail stores. This means that malls cannot guarantee that they will
attract major retailers as anchor tenants. Franchising is also a growing industry in South Africa, especially
for food retailers. Many large retail chains are franchising smaller convenience store formats in
residential areas. Consumers are more willing to pay premium prices in exchange for travelling shorter
distances and easier shopping, supporting the growth of the convenience retail store format. The latter
trend is illustrated by the growth in store numbers and turnover of forecourts. Forecourts increased from 1
948 in 2012 to 2 176 in 2014, while their total turnover grew by 15.1 per cent from R4 832 billion in July
2014 to R5 562 billion in July 2015.19
A further important aspect of retailing is the opportunities that are offered to entrepreneurs. Many
retail entrepreneurs are among the wealthiest people in South Africa. Retailing has also enabled many
people to earn incomes well above the average. Franchisees that own and operate outlets of major
franchise organisations are typical examples. Informal retailing, such as street hawking and flea markets,
is also very attractive to entrepreneurs. The low barriers to entry and the limited skills required to operate
them, entice many people to try their hand at these retailing activities. During times of high
unemployment, there is usually also an increase in the number of people who earn a living from informal
retailing activities.
1.7 Trends in South African retailing

The retail industry is constantly subject to trends from various environments and has to adapt practices
and operational activities continuously to cope and remain relevant to their customers. Retailers, in turn,
are also responsible for the creation of numerous unique and viable practices to enhance their own
operations. The discussion below attends to some of the more salient trends in the retailing industry:
• Convenience considerations
• Expansion and growth of the informal markets
• Shifting of channel power
• Expansion of services
• Information management
• Retail innovation
• Revenue enhancement
• Consumer and lifestyle influences
• Casualisation and professionalisation of the retail work force
• Multichannel retailing.
1.7.1 Convenience considerations

Consumers experience demands on their time and, because they are willing and able to pay for
convenient and time-saving services and products, they create a demand for products such as prepared
meals, cleaning services and applications (apps) on cellphones. The price that customers pay for the
aforementioned products and services are offset by the time they save and which they can spend on
activities of their choice.
1.7.2 Expansion and growth of informal markets
Every day the streets and townships of South Africa are full of people who make a living for themselves
by selling products in convenient sizes at convenient locations to customers. The spaza is a truly South
African retail format, able to provide for the needs of its consumers. The ability to provide for the needs
of its customers, convenient locations and the direct daily contact with its consumers will most likely
extend the lifetime of the spaza. The hawkers at road intersections and on street pavements are further
evidence of informal retailing.
1.7.3 Shifting of channel power

Traditionally, manufacturers and producers held the power in marketing channels. Over time, retailers, by
way of the benefits of economies of scale, gained the upper hand. At present, the channel power is again
shifting, and this time it is shifting to consumers. It is especially the Internet that empowered
price-sensitive customers with information to demand lower-priced products and services. Retailers hold
the power in the marketing channel in the grocery industry, and they are in a strong position to influence
what producers and manufacturers offer to the market.
1.7.4 Expansion of services

Today, many retailers offer an extended range of services compared with their total offering a decade or
two ago. Retailers such as Checkers, Shoprite and Pick n Pay now offer pharmacies and/or counters
where a range of financial services are offered, and where tickets for travel and concerts can be
purchased. A customer can thus, on a shopping trip for groceries, also buy airtime, pay municipal and
other accounts, as well as purchase air tickets or tickets for a concert at a supermarket. Essentially, a
customer’s shopping trip can thus potentially become much more productive.
1.7.5 Information management

The advances in computing technologies give retailers cheaper and more powerful means of data
management. Retailers are now able to accumulate and analyse trillions of data inputs within a short
period of time and at a low cost. The knowledge retailers gain by data mining enable them to segment
their markets better, and develop well-targeted sales promotions.
1.7.6 Retail innovation

Innovations affect retailing in two ways. Firstly, new technologies bring new products that retailers can
sell, such as, cellphones, mp3 music and various household appliances. Secondly, new technologies such
as RFID (Radio Frequency Identification) and scanning offer retailers the means to become smarter and
more efficient.
1.7.7 Revenue enhancement

Revenue enhancement is aligned closely with the expansion of services alluded to earlier (see 1.7.4). The
additional services offered by retailers also generate substantial incomes for them. It is well-known that a
traditional clothing retailer such as PEP Stores today gets a major portion of its income from selling
cellphones, airtime and other cellphone extras.
1.7.8 Consumer and lifestyle influences

Under the new political dispensation since the early 1990s, more families as well as individuals were able
to gain access to better employment opportunities. This resulted in more discretionary income being
available for goods and services other than necessities. Today, much of the increased income is spent on
goods and services that provide convenience and enable consumers to have greater control over their
leisure time at hand.
1.7.9 Casualisation and professionalisation of the retail work force

Casualisation refers to the employment of casual labour to work in a temporary employment capacity.
Students traditionally made up most of the casual labour force, today part-time employees do most of the
casual labour work. Casual labourers do not qualify for the fringe benefits that a retail firm’s full-time
employees get, and retail firms thus benefit from less payroll costs.
Professionalisation is another labour trend and it refers to the employment of highly skilled people
such as engineers, accountants and computer specialists to design and implement, for instance, advanced
logistical, accounting and refrigeration systems.
1.7.10 Multichannel retailing

Multichannel retailing is the utilisation of a diversity of marketing channels to reach customers.
Multichannel retailing is a marketing strategy that offers customers a range of alternative ways to buy
products. A multichannel strategy encompasses purchases from a store, a website, telephone ordering,
mail orders, interactive television, catalogue ordering and kiosks. Multi-channel transactions includes
browsing, buying, returning, as well as pre- and post-sales service. Some advanced Internet channels
allow consumers to see how clothing will fit or how a product will work. Most of South Africa’s large
retailers now offer customers a choice of marketing channels for shopping.
Closing example
In the Opening Vignette, we asked the question: “What is your view of the set of values that Woolworths
uses to guide its business activities?” After studying this chapter, students should be aware of the
importance of a set of values to give direction and guidance to every staff member’s behaviour, actions
and choices. Adhering to the set of values on a daily basis enforces Woolworths image and what they
stand for. This chapter introduces the student to the world of retailing and also provides some viewpoints
on the retailer’s place in marketing and its responsibilities towards customers and the environment. After
studying this chapter, students should be able to answer the questions in the Opening Vignette.
1.8 Summary
• The characteristics and the importance of retailing
Retailing is a business that focuses its marketing efforts on the final consumer. It also takes many
forms, such as shop retailing, telephone sales, sales from door to door and vending machines.
Retailing is a large contributor to South Africa’s GDP and it also employs about 20 per cent of the
formal workforce, while about half of informal employment is engaged in retail activities.
• The marketing functions of retailing A number of marketing functions are fulfilled by retailing. These
include acting as a link between customer, manufacturers and producers, functions performed in the
marketing channel, and the creation of an image that enhances the marketing of a product.
• The retailing concept
This also finds application in retailing. The retailing concept focuses on consumers’ needs and wants
by an integration of all the retailer’s plans and activities to satisfy such needs and wants. All such
activities are goal-orientated with the aim of achieving financial and non-financial goals. Recent
activities and demands of the marketplace have also caused retailing to go beyond the transaction
phase with customers and enter into relationship retailing. The latter is a strategy of activities which
aim to attract, retain and enhance the long-term association between a retailer and individual
customers.
• The established theories of retailing and the demise of the department store
The wheel of retailing is the most suitable theory to explain the demise of the department store. This
theory holds that retailing institutions, like the products in which they trade, pass through an
identifiable cycle. Four distinct stages form the retail life cycle, namely innovation, accelerated
development, maturity and decline:
1. The innovation phase starts with the introduction of a new concept in retailing that is in stark
contrast to existing retailing institutions. Many such developments focused on a reduction of
non-essential services and using spartan fixtures and fittings that resulted in savings which were
passed on to the consumer. The contrast between a new retailing institution and an existing one,
gives it a significant advantage. This advantage can result from a unique product offering, location
advantages or different merchandising techniques. In the early growth phase after the introduction
of the innovation, both sales volume and profits display a rapid increase.
2. During the first half of the accelerated development phase, an increase in sales volume as a result of
economies of scale, leads to even bigger profits. Cost pressures cause both sales volume and profit
levels to reach their maximum levels at the end of this phase.
3. In the maturity phase, market share stabilises and profit levels decline for several reasons. One
reason is the attack made by newer retailing institutions on the established retailing institution.
4. This trend continues in the decline phase. Retailers usually try to postpone the decline phase as long
as possible by attempts to reposition, modify or adapt the business. The application of the
merchandising techniques of the newer retailing institutions is another means that established
retailers use to prolong the life of their businesses. Retail types that took the major business away
from department stores are supermarkets and speciality shops.
• Reasons for, and successful examples of, retail internationalisation
» Foreign markets may represent better growth opportunities because of population and other trends.
» Domestic markets may be saturated or stagnant.
» A retailer may be able to offer products, services or technology that are not yet available in the
foreign markets.
» There may be less competition in the foreign markets.
» Foreign markets may be used to supplement domestic sales.
» Tax or other investment incentives may be available in foreign markets.
» Worldwide changes in government and economic shifts now make many countries more open to
foreign retailers.
• Those retailers that have managed to take advantage of international growth opportunities possess
the following four characteristics:
1. They have a globally sustainable competitive advantage, such as Aldi’s cost advantage flowing
from a reduced offering.
2. They possess an ability to adapt to local circumstances, such as Tesco that ensures that the majority
of its products offered are produced locally.
3. Their thinking is one with a global mindset, such as Carrefour that uses local managers as soon as
possible.
4. They own sufficient financial resources, such as Walmart that invests until a foreign operation
becomes profitable.
• Importance of retailing in the South African economy
Retailing is a major source of employment. The wholesale and retail sector of the South African
economy is the fourth largest contributor to GDP and employs about 20 per cent of South Africa’s
total formal workforce. This figure, however, only refers to officially recorded retailing activities. A
large number of people also work in informal retailing.
• Trends in South African retailing
These are some of the more salient trends that have been identified: convenience considerations;
expansion and growth of informal markets; shifting of channel power; expansion of services;
information management; retail innovation; revenue enhancement; consumer and lifestyle influences;
casualisation and professionalisation of the retail work force; and multichannel retailing.
CASE STUDY: The evolution of Cape Union Mart

South Africa’s favourite outdoor store, Cape Union Mart, is a family business with the “aim to be the most
trusted supplier of clothing, footwear and related items for people with an outdoor or desired outdoor lifestyle”.
Cape Union Mart is a family business, with a third-generation chairman from the founding family, Philip
Krawitz. Two of Krawitz’s three daughters, Martine Vogelman and Amanda Herson, joined the company’s
management team as the fourth generation. The current CEO is Andre Labuschaigne. Their goal is to produce a
sustainable after-tax return on investment in a morally responsible way.
Cape Union Mart was founded in 1933 as an army and navy store in Cape Town, and became famous for its
wide range of products, stocking “everything from an anchor to a toothpick”. The original shop was crammed
between two of the retail giants of the day, OK Bazaars on one side and Woolworths on the other. Cape Union
Mart realised that it could not compete with the giants, and that it needed to differentiate from its competition. So
Cape Union Mart stocked items that were hard to find and focused on service and customer relationships.
After World War II, Cape Union Mart had to adapt its value proposition as people did not require the same
products they did during the war. The company then became famous for selling off-season products for people
visiting different countries in different seasons. Cape Union Mart also became the first importer of many famous
products such as Levi Jeans, Hong Kong anoraks, Norwegian socks and Gore-Tex foul weather clothing.
From 1970, the company expanded from having just a single store in Cape Town following an organic growth
strategy, and to date has almost one hundred stores situated in prestigious, high-traffic shopping centres across
South Africa. This growth has taken place despite the 2009 recession and the poor economic conditions that have
followed it. Instead, Cape Union Mart managed to innovate, upgrading the in-store experience of its stores and
introducing two adventure centres, one at Canal Walk in Cape Town and the other in Eastgate shopping in
Johannesburg. The adventure centres provide an experiential shopping experience with facilities for customers to
test the merchandise such as a climbing wall, cold room, rain room, and different ground surfaces on which to
test boots. There are also other aspects adding to the feel of the store such as the live spiders kept in tanks.
Cape Union Mart is now not only famous for the international brands it stocks, but also for its private label
brands. It has ventured into manufacturing with its private label brand K-Way, and added two further private
label brands, called Poetry and Old Khaki. These two brands have been so successful that they also have
standalone retail stores. Poetry and Old Khaki mark Cape Union Mart’s venture into women’s leisure clothing.
Furthermore, Cape Union Mart also acquired Sparks and Ellis, a corporate uniform company, broadening its
product offering.
Sources: Adapted from Fundamental displays blog. 2010. Cape Union Mart – Store review, http://fundamental-displays.co.za/?s=cape+union
+mart20; Cape Union Mart turns 80 years old, www.fin24.com/Entrepreneurs/My-Business/Cape-Union-Mart-turns-80-years-old-20131101
21; Cape Union Mart celebrates its 80th anniversary this year, www.mediaupdate.co.za/marketing/57350/cape-union-mart-celebrates-its-80th
-anniversary-this-year;22
Questions
1. Describe Cape Union Mart’s retailing concept.
2. What typical discrepancies would exist between the manufacturer of Levi Jeans and South African consumers that Cape
Union Mart has helped them overcome?
3. What functions does Cape Union Mart perform for its international brands?
4. Cape Union Mart’s adventure centre has distinct physical aspects that contribute to its image, but what else can Cape Union
Mart focus on to build the retail image of its adventure centres?
5. Describe the wheel of retailing theory and apply it to Cape Union Mart.
Cape Union Mart’s shop at the Canal Walk Shopping Centre in Cape Town has a high climbing wall, cold
chamber, rain chamber and a footwear station that allow customers to test clothing, sleeping bags and foot wear in
the extreme conditions they are likely to encounter and cope with when the products are used. For instance, a
thermal monitor in the cold chamber will indicate if your clothing is adequate to preserve your body temperature.
These facilities offer customers the ability to experience indoors, in a realistic manner, an envisaged outdoor
experience. By offering these facilities, Cape Union Mart enhances an image that is conducive to its selling
marketing activities.
Form a group and discuss where else there are similar possibilities where retailers can help their customers to
experience their products and services in an almost tangible way. Explain your answers by using current or
proposed examples. Present your group report to the class for discussion.
References
1. Woolworths. Our values: About us. [Online] Available at: <www.woolworths.co.za/store/fragments/corporate
/corporate-index.jsp?content=/five-ways/fiveWays&contentId=cmp204259>. [Last accessed 18 January 2016].
2. Woolworths Holdings Limited. 2015. 2015 integrated report. [Online] Available at: <www.woolworthsholdings.co
.za/investor/annual_reports/ar2015/whl_2015_integrated_report.pdf>. [Last accessed 29 March 2016].
3. Levy, M. and Weitz, B.A. 2004. Retailing management. New York: Mc Graw-Hill, pp. 78.
4. Terblanche, N.S. and Boshoff, C. 2003. The controllable elements of the total retail experience: A study of clothing
shoppers. South African Journal of Economic and Management Sciences, 6(1): 143158.
5. Berry, L.L. and Gresham, L.G. (1986). Relationship Retailing: Transforming customers into clients. Business
Horizons, 29(6): 46. Copyright (1986) by the Foundation for the School of Business at Indiana University. Used
with permission.
6. Maronick, T.J. and Walker, B.J. 1975. The Dialectic evolution of retailing. In B. Greenberg (ed.), Proceedings of
the Southern Marketing Association, Atlanta: Georgia State University, pp. 147151.
7. Davidson, W.R., Bates, A.D. and Bass, S.J. 1976. The retail life cycle. Harvard Business Review, 54
(November/December): 8996.
8. Levy, M. and Weitz, B.A. 2004. Retailing management. 5th ed. New York: McGraw-Hill, p. 75.
9. Davidson, W.R., Bates, A.D. and Bass, S.J. 1976. The retail life cycle. Harvard Business Review, 54
(November/December): 91.
10. Leibold, M. 1977. The hypermarket: A detrimental factor in consumer welfare? Stellenbosch: University of
Stellenbosch, Bureau of Economic Research, p. 18.
11. Stern, L.W., El-Ansary, I.A. and Brown, J.R. 1989. Management in marketing channels. Englewood Cliffs:
Prentice-Hall, p. 49.
12. Leibold, M. 1983. The South African retailing environment. Johannesburg: Simpson, Frankel, Kruger Inc., p. 24.
13. Berman, B. and Evans, J. R. 2004. Retail management: A strategic approach. 9th ed. Upper Saddle River, NJ:
Pearson Education Inc., p. 71.
14. Levy, M. and Weitz, B.A. 2012. Retailing management. 8th ed. New York: McGraw-Hill Irwin, pp. 128130.
15. Berman, B. and Evans, J.R. 2004. Retail management: A strategic approach. 9th ed. Upper Saddle River, NJ:
Pearson Education Inc., p. 71.
16. Department of Higher Education and Training. Wholesale and Retail SETA. Sector skills plan: 20112016 update,
pp. 127128.
17. Statistics South Africa. Not dated. [Online] Available at: <www.statssa.gov.za/?p=4163>. [Last accessed 18
January 2016].
18. Department of Higher Education and Training. Wholesale and Retail SETA. Sector skills plan: 20112016 update,
p. 128.
19. Nielsen South Africa. Figures provided per email.
20. Fundamental displays blog. 2010. Cape Union Mart – Store review [Online] Available at: <http://fundamental
-displays.co.za/?s=cape+union+mart>. [Last accessed 29 January 2016].
21. Cape Union Mart turns 80 years old. 2013. [Online] Available at: <www.fin24.com/Entrepreneurs/My-Business
/Cape-Union-Mart-turns-80-years-old-20131101>, 1 November 2013. [Last accessed 29 January 2016].
22. Cape Union Mart celebrates its 80th anniversary this year. 2013. [Online] Available at: <www.mediaupdate.co.za
/marketing/57350/cape-union-mart-celebrates-its-80th-anniversary-this-year>. [Last accessed 30 January 2016].
• <www.bdlive.co.za/economy/2012/10/17/south-african-retail-sales-surprisingly-strong>
• <www.burgerking.co.za/>
• <www.fruitandvegcity.co.za/careers/general-info/>
• <www.iol.co.za/business/news/hm-opens-sa-store-1931872>
• <www.pwc.co.za/en/publications/retail-and-consumer-outlook.html>
• <www.pwc.co.za/en/publications/retail-and-consumer-worlds.html>
• <www.shopriteholdings.co.za/>
• <www.spurcorporation.com/>
• <www.woolworthsholdings.co.za/investor/financial_results.asp>
CHAPTER 2
Retail environment
Karen Corbishley
Learning Objectives
• Describe the nature of the South African retail landscape.
• Analyse the changes taking place in the retail environment and the potential impact on retailers.
• Outline the elements of the retail mix and explain the role they play in differentiating one store
from another.
• Identify and discuss forms of ownership as well as various types of retail outlet.
Opening vignette
Simphiwe Dube has just completed his studies and is searching for a job. He is considering a career in
retail as he has had some experience working as a casual in a supermarket while still a student. Then, he
gets a phone call which changes everything. A deceased relative has left him a large sum of money and
this could be enough for Simphiwe to start his own store. Simphiwe decides that he would like to open a
convenience store in an area that he knows well. He undertakes to do some research to see if this is the
right idea.
Simphiwe discovers that customers’ expectations have changed since he was a student and that the
current customer can be demanding. The reason for this is the variety of stores that are available and the
diverse products they have. Customers will shop at a number of stores rather than be loyal to one if they
cannot find what they want. Customers are also more technologically advanced and will shop online
because this makes their day-to-day lives easier. In addition, the economy is challenging, with poor
growth prospects, high unemployment figures, a volatile Rand and electricity supply constraints. This
results in limited and/or constrained spending as uncertainty prevails.
Because most people are busy and many women are now working, customers shop more often and
make smaller purchases. Many customers shop two or three times a week at their local supermarket. They
are looking for quality, fresh food and often for convenience meals. Customers look for parking, security
and for stores that are open longer hours. Convenience stores are well located and meet these needs.
Some customers choose to shop at a particular store because of specialty goods that are on offer.
Questions
1. Should Simphiwe purchase a store?
2. If he does buy a store, what should he be offering?
3. What will make him better than his competitors?
2.1 Introduction
Retailers cannot act alone. They are a vital part of a larger marketplace and are affected by a number of
different forces in the environment. This chapter discusses the South African retail landscape. It outlines
the types of environmental force that could impact on any particular South African retailer. It is important
for every retailer to monitor and evaluate changes in the environment continually. Where necessary,
retailers need to adjust their strategy to accommodate these changes.
This chapter also discusses the various forms of ownership and types of retail format that are evident
in the South African marketplace. It describes how they are made up and gives current examples of
retailers that fit the various descriptions.
2.2 The retail landscape in South Africa

Retailing in South Africa is a rapidly changing scenario, as new competitors enter the field and
technological advances provide additional methods of doing business. South African society is also very
dynamic, and the political and demographic changes that occur have an impact on the retail market.
South Africa has a wide range of retailers that have evolved to serve the needs of a marketplace that is
characterised by many different groups of potential customers in terms of race, income and culture.
Retailers are situated in urban, semi-urban and rural areas. They vary from large, sophisticated
hypermarkets to small, uniquely South African spaza stores. Many retailers are situated in shopping
centres, of which a few can be compared with those found in first-world countries. Examples include
centres such as Gateway in KwaZulu-Natal, Canal Walk in the Western Cape and Sandton City in
Gauteng. Competition in the retail environment is due to many factors. For example, both music and book
stores are experiencing declining sales, owing to the advent of electronic media, which allow customers
to purchase online. Emerging forms of retailing, such as farmers markets, street trading, e-shopping and
value-based stores like factory shops, are also factors.
Another area in which retailing is growing rapidly is in the townships, where new shopping centres are
opening up and major retailers compete to serve the customers in these locations.
Approximately 1 800 000 people are employed in the wholesale and retail sector in South Africa, of
whom about 81 per cent are employed in the formal sector. The remainder are employed in the informal
sector. The informal sector is made up of a number of different retail concepts, such as taverns,
tuck-shops, hawkers, spazas and take-aways. The Bureau of Market Research (UNISA) states that this
sector consists of approximately 750 000 outlets, which produce sales figures in the region of R32 billion.
1
It is important for businesses to monitor the environment continually, both inside and outside the
business, in order to decide how to plan for the future. Businesses need to make strategic changes so as to
take advantage of opportunities that occur in the environment or to avoid potential threats that are
anticipated. For example, if the management of Steers had heard that Burger King was planning to set up
in South Africa, wouldn’t it be important for Steers to make plans on how they would deal with this
threat?
2.3 Environmental trends in retailing

As the environment changes, both consumer needs and what retailers should be offering, are affected.
Examples of the types of change in requirements from consumers include the following:
• The choice of product in response to income, technology and lifestyle changes
• The choice of retailer as the format of retailers change
• The way in which they buy as the Internet becomes more accessible
• Shopping times as stores stay open later and new types of convenience store become available.
Two types of environment are apparent:

1. Micro-environment
2. Macro-environment
The micro-environment consists of elements close to the business that affect it and the way in which it
operates on a daily basis. Examples include its customers, competitors and suppliers. Any plans that are
made, both short- and long-term, must keep these factors in mind.
The macro-environment includes factors that fall out of the control of the retailer. These factors can
have an effect on the functioning of the business in both a positive or negative manner. We call these
effects either opportunities or strengths. For example, the farmworker strikes that took place in the
Western Cape during early 2013 could have resulted in a national shortage of fruit and wine, which
would have been a major problem for food retailers. Prices might also have increased as demand
exceeded supply. The aforementioned strikes would have been a threat to the retail industry.
Factors that could potentially fall into this sector include the following:
• Demographic patterns and trends
• Technology
• Competition
• Political and legal environment
• Economics
• Social and cultural patterns and trends
• Ethics in retail.
These factors are discussed in turn below, with reference to the South African scenario.
2.3.1 Demographic patterns and trends

The word demographics is used to describe statistics about the population that can be measured easily
and that have implications for market behaviour. These would include elements such as race, age group,
income and geographics. A good retailer must understand clearly the make-up of their customers in terms
of these elements, and what their needs are, in order to satisfy them.
The retailer must scrutinise carefully any demographic data and decide whether any changes might
have implications for their business. For example, if consumer incomes increase, so do their spending
pattern, in particular with respect to luxury goods and branded products.
In this chapter, we look at the following demographic elements:
• Population size
• Location of the population
• Income
• Household structure.
2.3.1.1 Population size

At present, the South Africa population stands at more than 50 million and is made up mainly of blacks
with smaller representation of whites, coloureds and Asians. Table 2.1 shows the make-up of the South
African population by race according to the 2011 Census.
Table 2.1South African population by race
Group Number Percentage of total

Asian 1 286 930 2.5%
Coloured 4 615 401 8.9%
White 4 586 838 8.9%
African 41 000 938 79.2%
Other 280 454 0.5%
Total 51 770 560 100%
Source: Statistics South Africa at South Africa.info. 2015. South Africa’s population.2
The prediction is that, up to at least 2030, the South African population will continue to grow, but in
diminishing numbers. White figures have already reached negative growth rates due to low fertility rates
and high emigration figures. In contrast, the black middle class has been recognised as the group with the
greatest spending power. The implications for retail are evident, as stores change their strategies in order
to satisfy the most lucrative markets.
2.3.1.2 Location of the population

Population by location is important for retailers to decide where to locate stores and distribution centres.
Gauteng is still seen as the powerhouse of South Africa with the most people, despite the fact that it is the
smallest province geographically. KwaZulu-Natal follows as the second largest province. The figures are
reflected in Table 2.2.
In 2013, it was estimated that approximately 62 per cent of South Africans were living in urban areas.4
This figure increases steadily each year. Around 1 million people have moved to Gauteng over the last
decade – highlighting the flow of people from rural to urban areas – and these people all have to shop at
some stage. The population is also becoming increasingly mobile, with both the use of public transport
and the purchasing of vehicles increasing as the black middle class grows.
Table 2.2South African population by province 2011
Province Population Percentage of total

Eastern Cape 6 562 053 12.70%
Free State 2 745 590 5.30%
Gauteng 12 272 263 23.70%
KwaZulu-Natal 10 267 300 19.80%
Limpopo 5 404 868 10.40%
Mpumalanga 4 039 939 7.80%
Northern Cape 1 145 861 2.20%
North West 3 509 953 6.80%
Western Cape 5 822 734 11.30%
Total 51 770 560 100%
Source: Statistics South Africa at South Africa.info. 2015. South Africa’s population.3
All of this has implications on the placement of retail stores. A number of shopping centres have also
opened in township areas in order to enable people to shop at more convenient locations.
2.3.1.3 Income
According to the Bureau of Market Research (2011), the number of households in South Africa amounted
to 14 000 000 in 2011. The combined income of these households was R2 trillion in 2011. Average
household income has increased from R48 385.00 in 2001 to R103 204.00 by 2011 per annum. However,
there are large disparities, with the wealthiest 20 per cent of South Africans earning 68.1 per cent of the
income, compared to only 1.6 per cent of the income being earned by the bottom 20 per cent of the
population.
A large percentage (22.4 per cent) of the households was represented by the emerging middle class.
Income for this group was estimated to be in the R151 000 to R364 000 sector. The emerging black
middle class is recognised currently as the biggest group in terms of expenditure, and is therefore very
attractive for retailers.5
2.3.1.4 Household structure

A household can be defined as a number of people who live together in a domestic arrangement. Some
households could be made up of family that are related by blood and marriage, while others might be
cohabiting for a number of different reasons.
Due to divorce, aging populations and a recent trend of couples deciding not to have children, there
has been an increase in one- and two-person households. This has implications for household spending.
People who are divorced and raising children on their own, might struggle financially and as a result will
search for value when shopping. On the other hand, a professional couple who have chosen not to have
children might spend more on luxury goods, famous brand products and entertainment. The smaller the
household, the smaller the package size of perishable goods as well, such as breakfast cereals, washing
detergents, and so on.
2.3.2 Technology
The word technology is defined in the Oxford dictionary as “the application of scientific knowledge, for
practical purposes, particularly in industry”. 6
The retail industry is certainly one in which various new technologies have become useful in
streamlining operations and improving the offering to the customer. One example is that of smart phones
where retailers now have the technology available to make use of location-based advertising. This enables
them to target consumers in the vicinity with sales messages.
Although South Africa tends to be a follower rather than a leader when it comes to technology,
consumers are becoming increasingly ‘techno-savvy’ and are making use of multi-media, such as social
media, and email with the assistance of cellphones, tablets and laptops. Thus, retailers also have to be
aware of shoppers’ ability to compare prices easily without visiting a competitor.
The effect technology has on a society can boost a retail store’s performance, while also undermining
traditional ways of doing business, forcing retailers to adapt or give way to more progressive competitors.
E-commerce has become common and a number of customers are participating in online shopping or
e-tailing. Pick n Pay Home Shopping, Takealot.com and NetFlorist are among some of the popular online
retailers in South Africa. Although many retailers saw e-marketing as a potential threat to their business,
a percentage of successful online retailers are traditional retailers that have used the Internet to provide an
alternative channel for customers. Examples include some prominent women’s stores, such as Truworths,
Miladys, Woolworths and Queenspark, who all now offer online shopping.
Electronic Point of Sale (EPOS) equipment has also changed the way things happen at the cash-out
point. Scanners transmit information to maintain stock control, implement pricing changes and give
up-to-date reports on the stock and sales situation. At any point in time, retailers can access information
on sales figures, which helps them to track stock and identify problems at an early stage. The advent of
radio frequency identification (RFID) has also made many possibilities available. Some of them have
been put into practice in South Africa, while others are not yet available, for various reasons.
Read Discussion Box 2.1, which mentions one of the possibilities of RFID, and discuss the questions.
2.3.3 Competition
Retailers face competition from many sides. In the 21st century, due to the globalisation of the industry,
competitive threats can come from anywhere in the world. For example, WalMart, an American retailer
has expanded throughout the world and has recently purchased a 51 per cent share in a major local
retailing group, Massmart. This has created interest from all over the world.
As retailers evolve, competitive challenges sometimes arise from unexpected sides. A concept called
scrambled merchandising describes how retailers often sell goods that are not traditionally their
domain. For example, traditional pharmacies feel threatened by the arrival of category specialists such as
Dis-Chem, as well as a number of other established retailers such as Clicks and supermarkets like
Checkers placing medical dispensaries in their stores.
Discussion Box 2.1 Radio frequency identification (RFID)
Lengthy queues at the supermarket are one of the things that everyone hates when they are shopping. Technology
is now available that can make this problem go away. RFID tags are intelligent bar codes that can ‘talk’ to a
networked system to track every product that you put in your shopping cart.
When the UPC (Universal Product Code) or the old bar code that everyone is familiar with, is replaced with a
RFID code, it will be possible for a customer to go to the supermarket, fill up their trolley and proceed right out
of the door to the car park. No longer will you have to wait in a queue or even for someone to scan each item in
your trolley one by one.
The RFID tags will link up with an electronic reader that will identify each item in the trolley and come up
with a total amount in an instant. The reader will be part of a greater network which will communicate with the
retailer as well as the manufacturer of the product. The reader will also be connected to your bank and the value
of the products purchased will be deducted from your account. No lines, no waiting.
Source: Bonsor, K., Keener, C. and Fenlon. W. 2012. How RFID works.7
Questions
1. Discuss with your fellow students whether you believe that the South African marketplace is ready for scenarios such as the
one described above.
2. Give reasons for your decision.
In order to survive as the marketplace evolves, retailers have to adjust their marketing strategies
continually to cope with the opportunities and threats that might arise.
2.3.4 Political and legal environment

The government in power can have a major impact on business. Issues such as inflation, unemployment,
interest rates and foreign competition could be approached in different ways by different governments.
All of this will have an impact on credit and borrowing, the cost of petrol (which impacts on transport
and hence product prices), importing and exporting, as well as on the potential arrival of foreign
competitors and how they are handled.
New laws can also have requirements that are costly for business. For example, revised smoking laws
required many restaurateurs to spend money on creating appropriate smoking areas. Retailers are also
affected by labour law, health and safety regulations, and any other laws that are involved with the
running of a business.
Discussion Box 2.2 Local retailers need to be aware of competition
On Thursday, 20 August 2015, one of the world’s oldest and most famous toy shops, Hamleys, opened in
Edenvale, Gauteng. Visited by many South Africans when they make a trip to London, Hamleys is usually an
amazing experience for young and old.
At a time where many retailers are blaming their poor sales on the economy, this seems to be a most
unexpected occurrence. However, there still appear to be many famous international brands entering the South
African retail marketplace, sometimes disrupting the local market, and succeeding in what appears to be a
difficult time for many local retailers.
According to Dave Nemeth, trend forecaster and business consultant, the Hamleys opening was spectacular,
complete with a parade accompanied by a marching band and many famous comic characters such as Spiderman
and Sleeping Beauty, dressed in meticulously designed and constructed costumes. The parade entertained
hundreds of cheering fans of all ages.
The store is much smaller than its British high-street counterpart and is situated in Greenstone Mall. It is
described as beautifully laid out and a feast for the eyes without being cluttered. In-store displays and interactive
areas match that of its mother store. As always, the quality of the merchandise is top notch with something for
everyone. Prices are not unreasonable.
This is Hamleys initial foray into South Africa, with future plans to expand into other centres. It has the
potential to become the biggest toy-store chain in Africa. The message here is that local retailers that see
Hamleys as competitors need to plan for the future or face harsh consequences. “There is a host of international
brands looking at entering this market, using this as a springboard into the rest of Africa. If local retailers wish to
succeed against these up-to-date traders, they will have to change their thinking and adopt new measures urgently
that will create outstanding experiences through every single touch point. From apps, online buying and
brick-and-mortar stores, the dynamics will need a huge overhaul, not to mention service levels and the proper
training of staff,” states Nemeth.
Figure 2.1 Inside a Hamleys store
Source: Adapted from Nemeth, Dave. 2015. Local retailers need to up their game.8
Questions
1. Examine the article above and comment on the environmental changes that are evident in this article.
2. Identify the types of retailer that you think should be concerned about a competitor such as Hamleys. Give reasons for your
choices.
3. What else can retailers do in order to cater for the changes in the environment that you have identified?
Example Box 2.3

The National Credit Act guarantees consumers the following rights:
• The right to apply for credit
• The right not to be discriminated against when applying for credit
• The right to be given reasons for credit being declined
• The right to be given documents in an official language that the consumer understands
• The right to be given documents in clearly understandable language
• The right to be given written documentation relating to the credit transaction
• The right to confidentiality of personal information
• The right to access and challenge the information held by a credit bureau
• The right to receive periodic statements.
Source: The National Credit Act 2005.9
The following two laws are fairly recent and have had a major impact on the retail industry:
1. National Credit Act
2. Consumer Protection Act.
2.3.4.1 National Credit Act

The National Credit Act came into effect in 2007. This act is intended to create an environment where
consumers can access credit in a fair and non-discriminatory manner.
It provides regulations to put an end to the irresponsible granting of credit. It also provides a means for
individuals who are over indebted to access assistance. The act has major implications for retailers that
offer any means of payment where instalments are involved. Retailers need to educate themselves as to
the provisions of the act and to make sure that relevant staff members are also made aware. They need to
put the necessary procedures and policies into place that apply to the provision of credit, as well as sales
and marketing procedures. Retailers should be aware that, if the customer feels that they have been placed
in a position that disadvantages them, they can lodge a complaint with the National Credit Regulator. See
Example Box 2.3 for a list of consumer rights.
2.3.4.2 Consumer Protection Act

The Consumer Protection Act is a ground-breaking legislation in South Africa. This act is intended to
deal with the way that businesses conduct themselves with respect to their customers. In the past,
consumers were protected by common law. This gave consumers an opportunity for recourse, but most
consumers were not aware of this, and their choices were limited as to how their problems would be
addressed. This was often not a satisfactory solution for the customer.
The Consumer Protection Act provides options that give an unhappy consumer different choices as to
how the problem might be rectified to his or her satisfaction. Example Box 2.4 tells you more about this
act.
2.3.5 Economics
The economic environment is subject to change. Retailers have to be aware of the current and impending
economic conditions in a country in order to deal with them in the best way possible. Economic
conditions can have a dramatic effect on consumer spending patterns. The main economic conditions that
impact on retailers are inflation, recession, interest rates and changes in the exchange rate. In 2015, South
Africans experienced a decline in the value of the Rand which caused us to experience price increases on
imported goods, as well as an impending recession.
Example Box 2.4

The Consumer Protection Act of South Africa
This Act has been brought into law to promote and advance the social and economic welfare of all
consumers and seeks to:
• Establish a legal framework for a fair, accessible, efficient, sustainable and responsible consumer
market.
• Reduce the disadvantages of accessing goods and services when the consumer is a person in a weaker
bargaining position, such as low-income persons or communities, rural communities, the disabled,
illiterate, elderly or young.
• Promote fair business practices.
• Protect consumers against unfair, unreasonable, unjust or improper trade practices.
• Protect consumers against deceptive, misleading, unfair or fraudulent conduct.
• Improve consumer awareness and information, and encourage responsible and informed consumer
choice and behaviour.
• Promote consumer confidence, empowerment and the development of a culture of consumer
responsibility.
• Provide a system for consensual (rather than adversarial) resolution of disputes arising from consumer
transactions.
• Provide an accessible, consistent, harmonised, effective and efficient system of redress for consumers.
Source: Consumer Protection Act South Africa. 2012. The SA Consumer Protection Act – How will you handle it? 10
An economic recession can result in changes in consumer expenditure. Consumers would probably
curtail their expenditure on luxury products, while discount stores such as Game might experience an
increase in sales.
These changes in expenditure might be temporary or in some cases might alter the way in which an
entire generation behaves. For example, the aging Baby Boomer generation experienced some good
economic times and were more inclined to spend and make use of credit. Retailers need to change their
strategies in order to cater for these changes.
2.3.6 Social and cultural patterns and trends

People’s needs evolve and change as time moves on, and new groups replace old ones. Retailers have to
be alert to changing lifestyle patterns. If customers do not perceive a retailer to be fulfilling their needs,
they will move on and spend their money elsewhere.
Some of the changes that have characterised both the international and the South African landscape
occurred within the following areas:
• Career and professional women
• Gender roles and poverty of time
• The elderly
• Shopping experience
• Social responsibility
• Conservation and green issues
• Health awareness.
2.3.6.1 Career and professional women
An increasing number of women have entered the employment sector, which has a few implications for
the retail market.
Firstly, the working woman has less time to attend to shopping and to prepare meals for the family.
Convenience meals have become much more important and the Home Meal Replacement (HMR) market
has become a critical area in the supermarket business.
Secondly, this has a significant impact on attitudes towards the purchasing of clothing and leisure
products, as women have to dress for work and also have money available to spend on themselves.
In order to accommodate the needs of working people, there has been a trend towards longer shopping
hours. Many South African shopping centres have adjusted their shopping hours and stay open until at
least 7 p.m. and sometimes later.
Example Box 2.5

Retail growth experiences a dramatic slowdown
Before the financial crisis of 2008, the South African retail industry was booming as consumers spent
freely. For many years, retail was seen to be the industry that supported the economy, outperforming
mining, industrials, resources and financial services. However, recent signs of growth as low as 3.3 per
cent, compared with the double-digit figures previously enjoyed, are reasons for concern.
The lower figures are a result of poor consumer confidence, a volatile Rand, low employment
prospects, a rise in the interest rate and diminishing credit growth. Economist Iraj Abedian stated that
sales for both luxury and durable goods have begun to decline as customers conserved their income to
afford the necessities, such as food and other basics, as well as to avoid debt.
Credit providers are also becoming more wary of extending debt, in light of the fact that many
consumers appear to be less able to service their credit. This effectively reduces customers’ spending
power. Edcon stated in August 2015 that their credit sales were expected to decrease, explaining that
“the overall trading environment remains soft as lower economic growth, combined with higher
inflation, power outages and currency weakness, continues to weigh on the consumer and the overall
macro environment”. One of the ways in which retailers have tried to cope with the weakness of the
Rand is by diversifying and expanding offshore. For example, Truworths is venturing into the UK,
Massmart into Africa, and Cashbuild has recently opened a store in Nigeria.
Source: Adapted from Lutho Mntongana. 2015. Retail wanes as big spenders face their debts. Sunday Times. Business Times. 11
2.3.6.2 Gender roles and poverty of time

Some years ago, shopping was seen as a predominantly female role, and most grocery shopping was done
by women. However, this perception has changed dramatically over the last twenty years or so. This
change is attributed to the fact that many more women are becoming part of the working world and
therefore have additional responsibilities and pressures.
For this reason, a lot of grocery shopping is carried out on weekends. The responsibility for shopping
might fall on husbands, couples or the only representative of a single household.
2.3.6.3 The elderly

There is a worldwide increase in the number of elderly people in the population. This is attributed to an
improved standard of living for many and a better knowledge of how to remain healthy. 12 As birth rates
decline, the average age of the population increases. The elderly must not be ignored as this sector of the
marketplace is profitable.
Retailers must take note of the number of elderly people in their area and make sure that they cater for
the different patterns of demand that they bring. For example, vitamins, health foods designed with the
elderly in mind and cosmetics catering for aging skins.
2.3.6.4 Shopping experience
Consumers are looking for more than just a place to purchase goods. They are looking for a shopping
experience. Many of the major shopping centres design their space so that this need is satisfied.
Customers see a visit to a shopping centre as an outing and often spend a long period of time there.
For this reason, shopping centres are designed to offer a pleasant environment where customers can
move around easily, and with many facilities for relaxation on offer, such as cinemas, bowling alleys,
restaurants and coffee shops. Think about Gateway shopping centre on the KwaZulu-Natal North Coast
where customers can attend a live show, watch a movie, try out a climbing wall, surf at the wave-park
and even go skate-boarding.
Interactive stores are also a part of the new retail environment that offers an experience. An interactive
store is one where you can actually try out a product, enjoy a cup of coffee, listen to music or watch a
movie. A good example would be Exclusive Books which has couches scattered around for people to sit
down and browse through a book, as well as coffee shops that are often attached.
Figure 2.2 Gateway shopping centre in KwaZulu-Natal offers many facilities for relaxation.
2.3.6.5 Social responsibility

In a country like South Africa which has great disparities, social responsibility becomes a critical issue.
Consumers are becoming more aware of how the money they spend impacts on society. A number of
retailers offer student bursary schemes or support various causes, such as McCarthy’s Rally to Read.
Woolworths and a number of other retailers participate in the My School Card schemes. Many customers
will choose to shop at a retailer that they believe is doing the right thing.
Customers might also choose to avoid retailers selling brands that are believed to engage in unethical
or exploitative practices, such as sweatshop practices in poorly developed countries. Negative publicity
about a supplier could damage sales for every retailer that supplies its products. It is therefore important
that retailers take their suppliers into consideration as well.
2.3.6.6 Conservation and green issues

There is an increasing awareness of the need to preserve our environment for future generations.
Customers are making choices about the products that they purchase according to how ‘friendly’ they
might be to the environment. Retailers are investing in programmes that contribute towards the
environment.
Retailers that support these issues would also make sure that they stock products that have been
produced with a careful consideration of the environment and the safety of animals and humans that are
involved in their research, development and manufacture. An example would be the Nedbank Green
Affinity programme, where holders of credit cards can agree to donate points towards ‘green’ causes.
2.3.6.7 Health awareness

Customers are now better informed and many are spending more on products that are hormone free,
organic, free-range, and free of any artificial additives. For example, Woolworths includes organic
options within its fruit and vegetable ranges.
2.3.7 Ethics in retail

Just like any other business, a retailer has to consider the ethical implications of any decisions or actions
that are taken.
Ethics Box 2.6

Game’s ethical code of conduct
Game, a major retailer in South Africa, outlines eight principles in their ethical code of conduct on their website:
• Our employees will be professional and honest.
• We will not do anything that is illegal.
• Our records of business transactions will be accurate and reliable.
• We will provide a stimulating and safe environment.
• We will act in the best interest of our customers.
• We will be honest in gaining advantage over our competitors.
• We will maintain strictly professional relationships with suppliers.
• We will be a compassionate and responsible corporate citizen.
Source: www.game.co.za/get-to-know-us/game-ethics/13
The word ethics covers the principles that are concerned with the judgement of whether something is
right or wrong and therefore has an impact on the behaviour of people. The issue behind this is the
interpretation of what constitutes appropriate behaviour in any particular situation. South Africa, with its
numerous cultural groups, makes this even more difficult. Ethics also varies from country to country and,
these days, buying of goods takes place on an international scale. It is therefore important for those
interacting internationally to have an understanding of the ethical principles of other countries as well.
A retail manager must make ethical decisions on a regular basis. The types of issue that must be
considered would include:
• Selling merchandise that might have been produced under disreputable circumstances, such as clothing
produced by children working in sweatshops
• Claiming that the customer would not find a better price elsewhere, when you have no way of proving
this
• Accepting gifts from suppliers
• Charging fees to suppliers in order to ensure that they obtain shelf space
• Pressurising a customer to purchase an item when you know that this is not the best purchase for their
needs
• Non-disclosure of information that might affect a sale
• Advertising a product as marked down, when it is not
• Telling customers that a price increase is due shortly when you have no knowledge of one
• Selling goods on credit at high interest rates, especially to low-income customers who do not understand
the concept.
2.4 Types of retail outlet

With the changes in the retail landscape, which include changes in the make-up and needs of customer
groups, as well as changes in the competitive situation, new formats of stores will arrive on the scene and
existing formats will change in order to survive in the marketplace. In order to understand the make-up of
the various types of retail store, it is important to understand some of the factors that describe how one
type of store differs from another. Thus, here we look at:
• Retailer characteristics
• Types of retailer.
2.4.1 Retailer characteristics

Retailers are usually characterised according to a number of different factors. These include the
following:
• The form of ownership
• The retail mix.
2.4.1.1 Form of ownership

A number of forms of ownership are available. Retailers might operate under one of the following forms:
• Sole proprietorship: This is a business owned by one person. All expenses, profits and losses accrue to
the owner. It is a fairly simple form of business. The main disadvantage is that experience and capital
input is limited to the abilities of the owner.
• Partnership: This is an ownership which is made up of two or more individuals. Each of them has some
financial interest in the business. All expenses and profits are shared. This helps when it comes to
spreading risk and raising finances.
• Limited liability company: This is a business that is set up according to the Companies Act. It can be
either private or public, and has laws that spell out the liability of directors during their term of office.
Figure 2.3 A spaza store in Southern Africa
The operational structure might also vary from an independent retailer, owning as little as one store, to a
chain store, where a company owns a large number of stores. The more common structures include the
following:
• Independent stores: There are a large number of independent stores in South Africa that are owned by
individuals. In particular, in the rural areas one would find a number of trading stores, spazas and
tuck-shops. The spaza store is a uniquely African concept that developed in response to a need for
convenience in townships and rural areas. These informal stores are situated in people’s homes, in an
outbuilding or on a street corner. In the more formal sector, entrepreneurs set up various types of
store, such as food outlets, in response to a need. Some stores might expand, and very successful
businesses can end up going the franchise route eventually.
• Multiple or chain stores: A chain store is usually a limited liability company or an organisation with
many branches. The stores could be in a number of formats such as discount stores, speciality stores
or supermarkets. Major chain stores include Mass Discounters (Game), Truworths and Pick n Pay.
These stores have a number of advantages over smaller stores, which include the following:
» Buying power
» Highly trained and specialised staff
» Established supply chains.
• Franchises: A franchise agreement is one in which a franchisor (the holding company) grants sole
rights to an individual called a franchisee to operate the business under the holding company’s name
in a specific location. In return for a number of items such as the use of the name, training, advertising
material and merchandise, the franchisee pays the franchisor a fee called a royalty which would
generally be based on turnover. Examples of franchise businesses are Debonairs, Wimpy, Cash
Converters and Multiserv.
2.4.1.2 Retail mix
The term retail mix is used to describe the various elements that retailers will combine in order to satisfy
their target market. The retail mix is made up of six elements that are listed here:
1. Location
2. Design and layout
3. Merchandise
4. Customer service
5. Price
6. Communication (which includes promotion and personal selling).
Four of the elements of the retail mix that help in the description of why stores might differ one from
another are discussed below.
1. Merchandise type: Retailers might differ one from another because they specialise in certain product
types, for example, a store might specialise in shoes, make-up or books. They might offer more
services than products, such as a hairdresser or a restaurant, or they might sell a number of different
products so that the customer can find everything under one roof.
2. Merchandise assortment: Retailers vary in the number of different products they offer to customers as
well as the number of variations of one type of product that is available. For example, a store such as
Game stocks many different types of product, whereas a store such as Froggie shoes specialises in
shoes only, but has many different styles and sizes of shoes available. These two different scenarios
are described by the terms variety and assortment. Other words which assist in the understanding of
these terms are the terms breadth and depth.
» Variety is the term used to describe the number of different kinds of product that the retailer has
available for sale. This would be measured in terms of breadth. For example, Game would stock a
wide variety, while Exclusive Books would stock a narrow variety.
» Assortment is the term used to describe the number of different variations available within a group
of products. This would be measured in terms of depth. For example, Game would stock a shallow
assortment of computers, while Incredible Connection would stock a deeper assortment.
Within the group of products, another term is important. An SKU stands for a stock-keeping unit.
This word is used to describe one unit of any different product. For example, an SKU for a shoe
might mean: men’s loafer, lace-up, brown, size 9.
3. Services offered: Retailers vary in terms of the services that they might offer to their customers. Some
stores offer many services such as changing rooms, accounts, return facilities, acceptance of credit
cards, free alterations, a bridal service, parking and delivery. Other stores will offer a minimal number
of services. This does not mean that the store is doing a bad job. Services cost money and if a store
chooses to go the value route and offer low prices, they will often find that they need to cut back on
services in order to keep their prices down. Many thrifty clothing shoppers choose to go to factory
shops and are happy to give up the services that they might have received elsewhere.
4. Price: Retailers might choose to differentiate themselves in terms of their low prices, for example PEP
stores. Others make the choice to position themselves as a store that offers quality and/or an exclusive
image. For example, Woolworths is a store that has positioned itself in this way in comparison to
other food stores. It should also be noted that in order to offer a large number of services as well as a
wide variety and a deep assortment, prices will have to be higher than average so as to accommodate
this. For that reason, you will very seldom find a store in South Africa that offers all three elements
together.
2.4.2 Types of retailer

Retailer types fall under the two major areas listed here:
1. Food retailers
2. General merchandise retailers.
These store types can be distinguished easily from each other by examining their merchandise offering
and services that are made available to the public.
2.4.2.1 Food retailers

The world of food retailing is changing rapidly. Fifty years ago, a customer would go to a counter and
request goods which were taken off the shelf and handed to them. This practice then evolved into that of a
conventional supermarket.
It is now possible to purchase food in a number of different formats. Large retailers such as
hypermarkets are part of the landscape in direct contrast to convenience stores located at petrol station
forecourts. In between are a number of different versions of supermarkets varying in size, as well as
speciality stores such as Fruit & Veg City which focus on fresh produce.
The most common food retailers seen in South Africa are as follows:
• Full-service supermarkets
• Hypermarkets
• Warehouse clubs
• Convenience stores.
Full-service supermarkets are designed to offer a one-stop shopping experience for the shopper. The
general idea is that they stock everything that their target market expects to find, such as groceries, meat
and produce, as well as an assortment of non-food items. The supermarket could include a bakery,
butchery and a fresh fruit and vegetable section. Examples include Boxer, Pick n Pay, SPAR, Shoprite,
Checkers and Woolworths. Supermarkets have evolved in some instances by offering very large stores
which are characterised by larger amounts of non-food items on offer as well as lower prices and fewer
services. A number of the major retailers in South Africa, such as SPAR, Boxer and Pick n Pay, now
offer superstores in urban areas in order to compete successfully and satisfy their customers.
Hypermarkets would also fit the description of full-service supermarkets. Even larger than the
superstore, bulk purchases are encouraged, rather than convenience shopping. These stores stock a large
variety of foodstuff, both fresh and frozen, as well as a number of items for the household, such as
clothing, furniture, appliances and audio-visual products. A number of these stores are stand-alone
buildings and have many parking spaces to cater for the number of customers who visit. Examples would
be Checkers Hyper and Pick n Pay Hypermarkets.
Warehouse clubs have a big-box format designed to offer customers a low-priced, no-frills
environment. These types of store are found in large metropolitan centres. They sell a large variety of
goods, such as food, alcohol, office equipment and hardware. Customers can be wholesale, informal
traders and small-store owners, to regular shoppers who are looking for value. An example of this would
be Makro.
Convenience stores are more often patronised for their location than for any other reason.
Convenience shopping is shopping which takes place more frequently at a local retailer, rather than
carrying out a major monthly shop. Many people prefer to shop more frequently for smaller amounts. A
convenience store enables you to make a quick and convenient purchase without having to make your
way through a busy shopping centre or wait in a long queue. Convenience stores are usually
food-oriented. They stay open for longer hours than usual so that customers can get what they need after
working hours and on the weekends. They are smaller than your traditional supermarket and stock a
smaller number of items. Most Kwikspars are between 300 m2 to 700 m2 in size. In exchange for the extra
services that they offer, their prices are usually higher than average. Most major South African
supermarkets have now adopted this concept and you will find convenience stores at convenient local
locations, including forecourts at petrol stations and airports. Other examples are Woolworths Foodstop,
Pick n Pay Express and Freshstop. An interesting trend in the South African scenario is that convenience
centres are becoming more apparent in townships. These centres are usually located within walking
distance from large communities, taxi ranks or high pedestrian areas.
2.4.2.2 General merchandise retailers
A number of stores could be categorised under the umbrella of the term ‘general merchandise’:
• Department stores
• Discount retailers
• Speciality stores
• Category specialists
• Off-price retailers.
Department stores are large stores that offer a large variety of merchandise under one roof. The
merchandise would be laid out in various departments, which is how they were given their name.
Department stores typically offer a deep assortment of merchandise as well high levels of service. This
ends up making prices rather high. Most of the typical department stores in South Africa have closed
down for this reason, as their customer base has been eroded by discount stores as well as the shopping
mall, which has the same offering under one roof supplied by a collection of stores.
Department stores that have remained, have done so in more streamlined versions of their previous
situation. Some still have departments but have specialised in soft goods instead of additional items such
as furnishings, toys and stationery. Stuttafords, Ackermans and The Hub are all examples of department
stores that have survived in a new format, by eliminating a number of categories. Edgars and Woolworths
could also be described as department stores, as they have a number of different departments, mostly in
the soft-goods categories, although Woolworths does offer food as well.
Discount retailers offer a wide range of general merchandise at value-based prices. They sell both
well-known brands, as well as a number of private brand offerings in order to give the customer a good
selection from which to choose. They are usually characterised by a lower service level, which would
incorporate self-service, in order to offer the lower prices that they do. They also often use a model that
makes use of heavy advertising and price-based promotions. Game is an example of a discount store that
makes use of weekly specials designed to attract shoppers to their stores.
Speciality stores are in direct contrast to the discount store, as they offer a limited number of
products, with a number of versions, such as colour, style, price and size, to the customer. The
customer-service level is often a lot higher than that of the value-based stores. Examples include
American Swiss, Green Cross, Donna Claire, @Home, Sportscene and Markham.
Category specialists are specialist stores that are far bigger than the average speciality stores. They
offer a narrow but deep assortment, with a self-service approach. Characterised by their size, they are able
to enjoy the discounts that come with bulk buying. Often located in cheaper areas, a little out of the major
shopping locations, they have created an enormous threat for both the typical discount store as well as the
regular speciality stores. The typical discount stores have more expertise in their product area and a
deeper assortment, and the regular speciality stores have lower prices. Often described as category killers
by other retailers, they have earned this name because of their buying power which enables them to ‘kill’
a category for other retailers. Examples in South Africa include stores such as HiFi Corporation, Toys R
Us, Sportsman’s Warehouse, Dis-Chem and Mr Price Home.
Off-price retailers are stores that are characterised by their buying practice which is opportunistic.
They wait until all the major retailer buyers have visited the manufacturer and then they make their move.
They are prepared to take whatever is left in terms of cancelled orders, over-runs and rejects for a much
lower price. They, in turn, give up any privileges that regular stores might have on offer such as paying at
a later date, returns, advertising and promotional benefits. Generally, they will also agree to locate their
store some distance away from any other store that might be selling similar merchandise. Pay a visit to
Access Park in Cape Town or the Value Centre in Durban and you will be sure to encounter a number of
off-price retailers. Examples include JAM, Easywear, Asmalls, and the Levi Factory Shop. Those owned
by manufacturers are usually known as factory shops.
Closing example
Let’s go back to Simphiwe, from the Opening Vignette of this chapter. Simphiwe gives his idea of
opening a convenience store a lot of thought and makes a decision. He realises that it would be a good
idea to open a convenience store near Umlazi, where he grew up.
He finds out through his research that the black middle class is a growing phenomenon and that this
would be a good group to be his target market. In order to attract them to his store, he has to make sure
that he provides more than any of the other retailers that are his competitors. It is essential that he
provides sufficient well-lit parking bays where customers will feel safe and have easy access to the store.
Because so many women are establishing themselves in careers, he works out that he can attract more
customers after work by making sure that he has an excellent Home Meal Replacement selection.
He also understands that he must stay open longer than traditional stores do, in order to provide a
service to customers on their way home from work. In order to communicate with his customers,
Simphiwe has plans to establish a database and to do some mobile marketing, as most of the people in his
target market are responding to this field of communication.
2.5 Summary
• Nature of the South African retail landscape
Retailing in South Africa is a rapidly changing scenario, with many changes taking place in the
environment that impact on the potential success or demise of retailers. The South African society is
also very dynamic with political and demographic changes happening that impact on the marketplace.
The South African marketplace is characterised by a wide range of retailers that have evolved to serve
the needs of many different groups of customers in terms of race, income and culture. Retailers are
situated in urban, semi-urban and rural areas, and vary from large, sophisticated hypermarkets to the
smallest and uniquely South African spaza stores. The entire chapter discusses this topic.
• Retail environment and the potential impact on retailers
The environment is made up of a number of areas that have to be observed for changes that take place
and impact on retail strategy continuously. These include population and demographic trends as well
as technology, the competitive environment, the political and legal environment, social and cultural
changes, economics, and ethical issues.
» Major population and demographic trends: Demographics include measurements relating to race,
age, gender, education and income. The South African population is predominantly made up of
black people, with the highest number of people living in Gauteng. Despite a section of the
population that is earning exceptional incomes, South Africa is characterised by one of the largest
disparities in income between the rich and the poor, in the world.
» Technology: This has a major impact on the retail industry. New technologies have become useful in
streamlining operations and improving the offering to the customer. However, technology can
also serve to undermine traditional business methods, creating a situation where retailers have to
change their methods or suffer the consequences. Areas such as online retailing (e-retailing) have
experienced the full impact of technology as well as the field of logistics which have many new
electronic innovations available to make operations more accurate, speedy and efficient.
» Competition: It comes in many forms. Retailers have to be aware of competition, where it is
potentially emanating from, and prepare for it.
» The political and legal environment: This is closely connected with the economic environment.
Retailers need to cater for new laws and regulations, as well as planning as far ahead as possible
for economic changes, including inflation, interest rates and changes in the exchange rate.
» Social and cultural changes: These changes happen as people’s needs evolve and change as time
moves on, and new groups replace old groups. Retailers have to be alert to these changes. If the
correct strategies are not put into place to cater for these changes, customers will move onto
retailers that are seen to be better at fulfilling their needs. Changes discussed in this text include:
women and their careers; the change in gender roles and the resultant poverty of time; the change
in the lifestyle of the elderly; new perspectives on the shopping experience; the public’s
perceptions of social responsibility; conservation and green issues; and new awareness of the
requirements for healthy living.
» Ethical implications: The ethics of any decisions or actions that are taken have to be considered by
retailers, including: selling merchandise that might have been produced under disreputable
circumstances; claiming that the customer would not find a better price elsewhere, when they have
no way of proving this; accepting gifts from suppliers; charging fees to suppliers in order to
ensure that they obtain shelf space; pressurising a customer to purchase an item when they know
that this is not the best purchase for their needs; non-disclosure of information that might affect a
sale; advertising a product as marked down, when it is not; telling customers that a price increase
is due shortly when they have no knowledge of one; and selling goods on credit at high interest
rates, especially to low-income customers who do not understand the concept.
• Elements of the retail mix and their role in differentiating one store from another
New formats of stores continue to arrive on the scene and existing formats will need to change in
order to survive in the marketplace. In order to understand the make-up of the various types of retail
store, it is important to understand some of the factors that describe how one type of store differs from
another. The format or type of store varies in terms of the retail mix, which is made up of a number of
elements including location; design and layout; merchandise; customer service; price; and
communication (which includes promotion and personal selling). The four elements of the retail mix
that help to describe why stores differ from one another are merchandise type; assortment; services
offered; and price.
• Forms of ownership and retail outlet types
Retailers might operate as one of the following forms of ownership: a sole proprietorship; partnership
or limited liability company. The operational structures include independent stores; multiple or chain
stores; and franchises. Store types that are discussed according to various combinations of the four
elements of the retail mix describing why stores differ, include:
» Food retailers: In South Africa, these include full-service supermarkets; hypermarkets; warehouse
clubs; and convenience stores.
» General merchandise retailers or general dealers: These include a number of different types as well,
namely department stores; discount retailers; speciality stores; category specialists; and off-price
retailers.
CASE STUDY: The challenges of the South African supermarket environment
South African retailers operate within an environment that can be described as exciting and dynamic. Retailers
are being tested continually as they face the challenge of keeping up with the opposition. Competition is evident
from all sides, both locally as well as the possibility of it coming from the international marketplace. The
relatively recent arrival of Walmart could signal the potential arrival of other large foreign retailers.
The Nielsen Global Consumer Confidence Index, which is involved with keeping track of consumer
confidence figures, stated in 2010 that inflation figures for food have been increasing steadily. This affects
expenditure in supermarkets. There has been a year-on-year decline in the growth rate in FMCG (fast-moving
consumer goods) sales in South Africa. Along with the decline, the choice of what consumers spend their money
on has changed as consumers battle to afford petrol price increases.
When it comes to competition in the supermarket scenario, independent stores have been battling against an
ever-increasing onslaught from the four major groups. These major groups are spending a lot of money on
promotion and advertising in order to increase their penetration into South African households. Major chains are
opening new stores, some of them in the townships, and are revitalising stores that have grown old and tired. For
example, in the last five years, Pick n Pay Family stores have increased from 130 to 224, and Shoprite has
increased the number of U-Save stores from 62 to 169. Many stores are also diversifying and opening alternative
retail formats in order to reach the consumer base. SPAR now has about 400 TOPS liquor stores and a number of
groups, such as Woolworths, Freshstop and Pick n Pay, have embarked on forecourt retailing, collaborating with
some of the major petrol retailers. Other stores have entered the world of medical dispensing by opening
pharmaceutical dispensaries in their stores.
In addition to the above, foreign investors have also begun to display interest in South Africa as a potential
investment opportunity. The recent WalMart/Massmart deal is an excellent example of this. South Africa in
particular is seen by many as the gateway to the rest of Africa.
The words ‘rainbow nation’ commonly used in South Africa means that you can find many different types of
potential customer out there in terms of race, culture, age and income, to name a few. For this reason, retailers
have to recognise who they are going to cater for and adjust their offering accordingly. This may change from
store to store that serves different communities.
In addition, retailers all compete in order to earn the loyalty of their customers. A number of supermarkets are
offering some form of loyalty card that offers card holders a number of discounts and rewards in exchange for
points that they earn when shopping in the store. Retailers also have to think about the number of customers that
are now computer literate and wish to engage with their retailer on the Internet. Online shopping is now
becoming more common and customers often would like to access their retailer with their smart phone or their
tablet.
Source: Adapted from an article by Laura Durham. 2011. Oportunities and challenges for South African retailers. 14
Questions
1. Who do you think the four major South African supermarket groups are?
2. Name and describe some of the environmental factors that they have to deal with.
3. Describe how you believe they differ one from another in terms of target market and retail mix.
Visit the website below and read the KPMG article entitled, “How will demographic trends in the UK affect the
retail sector?” Then discuss with your group whether you believe any of these trends are happening in South
Africa. If so, how will they affect the South African Retail sector? Explain your answers by using current
examples. Present your report to the class for discussion.
Website to visit: www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/how-will-demographic-trends-in-the-uk
-affect-the-retail-sector.aspx
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PART 2
Marketing Activities
CHAPTER 3
Shopper behaviour
Nic Terblanche
Learning Objectives
• Describe the various motives that underlies consumers’ shopping behaviour.
• Compare the different types of shopper.
• Explain the classification of products based on consumer shopping habits.
• Examine perceived risk and its influence on consumer behaviour.
• Contrast the outlet selection process of consumers and the factors that influence in-shop behaviour.
• Discuss the behaviour of consumers under certain economic conditions.
• Differentiate impulse buying from other buying processes.
Opening vignette
Shopping is a hobby of many women, but what about men? Men also like to shop, but not as frequently
as women do. More women than men seem to enjoy devoting time and money in pursuing their shopping
desires and take delight in the happiness of exchange, irrespective of whether it is on a website or in a
physical store. Generally men buy for their needs and women shop for their wants.
What is the situation in respect of grocery shopping? South Africa’s major grocery retailers have
traditionally focused their marketing efforts on female consumers. As women in South Africa become
more educated and empowered, they experience more pressure and less discretionary time for activities
such as grocery shopping because of the demands their careers place on them. As a result, marketing
focus has shifted to a previously overlooked South African demographic: the male consumer. Both
middle-class female and male consumers have similar shopping behaviour, such as shopping in bulk once
a month, choosing to rather do their shopping over a weekend, planning their shopping excursions and
frequenting the same channels, with most of their grocery spend at Checkers, Shoprite, Pick n Pay and
SPAR. There are also a number of differences between them. With regard to in-store decision-making,
women do not participate as much as men do for certain product categories such as confectionaries,
snacks, cleaning and household product categories. Men are more likely to have a store card and use their
own car when doing grocery shopping.
Sources: Adapted from Shah, A. 2015. Diversities in shopping habits: Men vs women; 1 Researching Dad’s buying habits.
Bizcommunity, 19 April 2012.2
Questions
1. Men and women seem to exhibit different shopping behaviour. What are the implications of this for retailers?
2. Would men and women also display different shopping behaviour for clothing? Motivate your views.
3.1 Introduction
Any company that wants to be successful in marketing must place the consumer at the centre of its
decision-making processes. The consumer should be the pivot on which all marketing activities are
focused. A retailer, who wants to remain competitive and survive, has to take note of the behaviour of
consumers.
This chapter deals with various aspects of consumer behaviour that are important to retailers:
• Consumers’ motives for shopping: The decision processes which consumers apply
• Different types of consumer: When and how consumers purchase goods, which enables retailers to
classify products on the basis on which consumers purchase them
• Classification of products based on consumer shopping habits: The consumers’ decision process and the
way in which they perceive and handle risks.
These aspects, together with the process which consumers use to select outlets, are very important
behavioural features of which retailers should take note. In a later section of the chapter, consumer
behaviour under specific economic circumstances such as inflation and recession are attended to, with the
emphasis on how retailers should adjust to consumer demands under adverse economic conditions. The
final section of this chapter deals with impulse buying by consumers.
3.2 Consumers’ motives for shopping

Consumers shop for various reasons other than buying. These other reasons can be split into personal and
social motives. Personal motives:
• Role playing
• Seeking variety
• Seeking sensory stimulation from the retail environment
• Learning
• Fulfilling hedonistic needs
• Relaxing.
Social motives:
• Social interaction away from one’s residence
• Mixing with peer group members
• Fulfilling status and authority needs
• Challenge of bargaining and negotiation
• Being with others with similar interests.
It is possible for a retailer to influence shoppers to make purchases even when the primary purpose of the
trip is social or personal. These different shopping motivations also need to be considered by retailers so
that they can attract customers. Figure 3.1 illustrates the various personal and social motives for
shopping.
3.2.1 Personal motives

The inner needs of a consumer are the reason for personal motives. These needs are different from those
which are fulfilled when a consumer purchases a product or service.
• Role playing: Consumers often take part in activities which they regard as necessary to their roles in life.
Typical family roles are those of housewife, son, student, husband or mother. For example, a father
may perceive that, in his role, he should only buy gifts that enhance the security of his children.
Figure 3.1 Personal and social motives for shopping
• Seeking variety: Shopping is a good opportunity to break the daily routine. Window shopping enables a
consumer to stay informed of the latest trends in fashion or styling, or the newest innovation.
Shopping centres stage special events, such as a ‘Bride of the Year’ competition or communication
exhibitions, to attract customers. Regional shopping centres are popular because of air conditioning,
attractive architecture and layout of the centre. The variety of shops and decor influences which shops
customers visit and where they spend in shopping centres.
• Seeking sensory stimulation from the retail environment: Background music, scents, odours, colour and
movement are types of sensory stimulation that make the shopping process more attractive. Research
shows that customers feel more relaxed, spend more time and pay more visits to a shop that plays
background music.3
• Relaxing: Many shopping areas or centres are visited for the opportunity to walk for exercise in a safe
and often temperature-controlled environment. Shopping centres stay open for much longer shopping
hours and are ideal for the purpose of walking.
• Fulfilling hedonistic needs: Hedonistic needs are fulfilled when a shopping trip leads to arousal,
intensified involvement, perceived freedom, fantasy fulfillment and distraction. Shopping is often
used to alleviate emotional stress. People-watching and talking to other customers and salespersons
are ways in which some people overcome loneliness or other emotional pressures.
• Learning: For some people it is emotionally important to stay on top with knowledge about new
fashions, trends and products. They visit shops and talk to sales staff to get information about the
qualities and other features of new products.
The satisfaction of customers’ psychological inner needs is becoming a differentiating factor for retailers.
3.2.2 Social motives

Social motives include the desire for group interaction, such as the following:
• Social interaction away from residence: Shopping is also a social activity and going shopping with
friends or meeting new people at shops are ways to socialise. Shopping centres satisfy this need by
presenting demonstrations, promotional activities and exhibitions.
• Mixing with peer group members: Individuals may shop to mix with members of peer or reference
groups. Browsing in exclusive boutiques or interior decorating shops reflects such behaviour.
Teenagers, for example, will often hang out at a Wakaberry Frozen Yoghurt Bar which offers flavours
and toppings that appeal to their tastes.
• Fulfilling status and authority needs: Being served and catered for while shopping makes a person feel
important and respected.
• Seeking the challenge of bargaining and negotiation: Some people enjoy bargaining and negotiation
while shopping. Successful bargaining and negotiation provide psychological satisfaction and fulfill
personal needs.
• Being with others with similar interests: Interest in a hobby or sport brings people together. Retailers can
provide a gathering place for people with similar interests, such as computer outlets and sports shops.
The reasons for shopping other than buying, especially in shopping centre settings, help explain why
many people today are of the opinion that shopping centres have replaced the central business district as
the centre of social activity in a community. Where a retailer can choose to locate in any of a number of
shopping centres, a careful analysis should be made of which of the different centres caters best for the
personal and social motives of its target consumers.
3.3 Different types of shopper

The increase in channels for retail shopping has led to the identification of shopper segments in respect of
shopper information search and purchase behaviour in the multichannel environment. In a study of Dutch
shoppers, three segments of shoppers based on information search and purchase behaviour were
identified.4 The three categories are labelled as multichannel enthusiasts, uninvolved shoppers, and
store-focused shoppers. Although these types of shopper are based on an earlier Dutch study, this
classification can also be applied to present-day South African shoppers. Table 3.1 shows the more salient
characteristics of these shopper types.
These segments describe consumer composites; it is possible that real shoppers may possess elements
of more than one segment. It is also important to note that research has already produced many other
segments of shoppers as well. However, those mentioned above are sufficient to illustrate typical shopper
segments. A consumer may, for instance, be a quality (store-focused) shopper for jewellery, yet not be
loyal when it comes to buying groceries that will be seen and used in the home only by the family.
Table 3.1 Different shopper segments
Multichannel enthusiasts • Have positive attitudes toward multiple channels for search and buying
• Are highly innovative
• Enjoy shopping
• Show low loyalty.
Uninvolved shoppers • Are not positive toward any channel for all transaction stages
• Do not enjoy shopping
• Show low loyalty
• Have low price consciousness.
Store-focused shoppers • Favour brick-and-mortar stores
• Have negative attitudes toward channels other than stores
• Are very loyal
• Show little innovativeness.
The growth in online shopping has also led to extensive research on differences among consumers that
purchase online. In a study of online shoppers, six different types of online shopper were identified.5
Table 3.2 shows the six shopper types and the characteristics of each type.
It is important that a retailer should understand the profiles of the customers patronising a store. It is
impossible for a retailer to cater effectively for each type of consumer, but it is necessary to have a
thorough knowledge of which consumers are responsible for the largest volume of business.
Table 3.2 Different online shopper types
Economical purchasers • The distinctive behavioural characteristic of this shopper type is that they
favour purchasing low-price items and take a long time to make a buying
decision.
• They enjoy seeking information on items and comparing items online but do
not like to communicate with others.
Active-star purchasers • This shopper type is fond of communicating with others about their shopping
experiences.
• They are the most influential group with a great deal of word-of-mouth
interaction and they also display a strong repurchase willingness.
Direct purchasers • This type is task-oriented shoppers with clear-cut targets and they use little
time to make a buying decision.
• They primarily buy low-price items and they do not like to communicate with
others.
High-loyalty purchasers • They have clear preferences, are willing to add the items they are satisfied
with to their favourites list and share their shopping experiences via word of
mouth.
• They know the products and services that they buy well, which leads to high
loyalty.
Risk-averse purchasers • Risk-averse shoppers take a long time to decide whether to buy a high-price
item.
• The price of an item indicates the level of risk to them. To avoid risk, they
spend a long time on comparing the information on items in different stores.
• They have a very cautious approach when they buy high-price commodities
and spend a lot of time on comparison and selection.
Credibility-first purchasers • The major characteristics of this group is their strong preference for
high-reputation stores.
• They spend relatively little time on purchashing high-price items and are
primarily concerned about the online store’s reputation.
The customer base of any retail outlet consists of a core base of customers, a secondary shopper base
and a tertiary shopper base.
• Core customers: Use the outlet because it is their first choice. They represent a small percentage of the
outlet’s shoppers, but are responsible for the majority of its sales.
• Secondary shoppers: Use the outlet to compare price and merchandise, and it is not necessarily their first
choice when considering a purchase.
• Tertiary shoppers: Browse the outlet occasionally but seldom make purchases.
Core customers are outnumbered by secondary and tertiary customers. A retailer must adjust the outlet’s
merchandise, decor and all the services to the needs and wants of the core customer.
3.4 Classification of products based on shopping habits

Different products types are purchased in different ways by consumers. The consumer behaviour
displayed when products are purchased enables retailers to classify products on the basis of these
shopping habits. Over time, four distinct product classes have developed:
1. Convenience products
2. Shopping products
3. Speciality products
4. Unsought products.
3.4.1 Convenience products

Convenience products are purchased frequently and are relatively inexpensive. Little or no comparison
shopping is undertaken and the minimum of time and effort is spent on the purchase. Typical convenience
products are cigarettes, newspapers, bread and sweets. Three groups of convenience products can also be
identified:
1. Staples (for example, bread and cigarettes)
2. Impulse goods (for example, lighters, magazines and sweets found at the checkout)
3. Emergency goods (for example, umbrellas and suntan lotion).
3.4.2 Shopping products

Shopping products cause consumers to engage in a comparison process before buying. Products are
compared in terms of price, style and quality. Shopping goods cost more and are purchased less
frequently than convenience goods. Examples of shopping products are clothes, furniture and appliances.
These items are available at fewer outlets than convenience goods since customers shop around to make
comparisons. Differentiation is the focal point in the marketing strategy for such products.
3.4.3 Speciality products

Speciality products have unique characteristics for which consumers are not prepared to accept any
substitutes. Consumers purchasing such products are well informed and make special efforts to acquire
the product they want. Examples of speciality products are certain photographic and electronic
equipment, and designer clothes.
3.4.4 Unsought products
Unsought products are those which the consumer does not know about or knows about but does not
normally consider buying. Examples of unsought products are new products of which the consumer has
not previously been aware, and products such as insurance which the consumer does not want
immediately.
Each of the previously mentioned classes requires certain definite actions on the part of the retailer.
Retailers selling convenience products should be in locations that are within easy reach of consumers
because the consumers do not make any special purchasing effort. Convenience products are sold mostly
on a self-service basis and because many of these products are bought impulsively, shelf position and
point-of-purchase advertising are crucial. Because there is a lack of brand preference and insistence for
shopping products, the name of the retailer is often more important to the buyer of such products than that
of the manufacturer. The retailer must therefore be prepared to pay a substantial portion of the
advertising, display and other marketing costs. Retailers who sell speciality goods do not need convenient
locations. It is, however, imperative that prospective buyers know where to find these retailers.
3.5 Perceived risk and its implication for retailers

The amount and kind of risk perceived depends largely on the consumer. Perceived risk is the level of
risk a consumer believes exists in respect of purchasing a specific product or service from a specific
retailer. The emphasis here is on ‘perceived’, which indicates that consumer beliefs are not always based
on facts.
There are eight types of perceived risks identified, which are shown in Table 3.3 on page 64.6
Various factors influence the way in which consumers perceive risk. Perceived risk will be highest
when the retailer and/or the brands it carries are new, the consumer is on a tight budget and has had little
previous experience, there are many alternatives from which to choose, and the purchase is socially
visible. Figure 3.2 on page 65 illustrates a number of factors affecting perceived risk and some possible
behavioural outcomes.
Retail outlets are also perceived as having varying degrees of risk. Traditional outlets are perceived as
low in risk, while more innovative outlets such as direct mail, telephone shopping, television shopping
and online shopping offers, are viewed as carrying higher risk. These findings have the following
implications for retailing strategies:
• Traditional outlets have a major advantage with high perceived-risk products. Their reputation and
well-trained salespersons are reassuring to consumers.
Table 3.3 Eight types of perceived risk
1. Functional risk • Risk that the product will not perform as expected
• Concerns that the product may break down, may not have the expected service
life or may have some defect.
2. Physical risk • Risk to self and to others which the product poses
• Concerns of the possibility of a health hazard and physical injury to the
consumer.
3. Financial risk • Risk that the product will not be worth its cost, either in time or in money
• Possible further intermediate cost and the loss in terms of money that a
product will require to make it work properly.
4. Social risk • Risk that shopping at a specific retailer will cause embarrassment
• Possibility that the retailer will not meet with peer approval.
5. Psychological risk • Risk that a poor product choice will harm the consumer’s ego
• A purchase might be incompatible with the consumer’s self-image.
6. Time loss risk • Risk of spending too little or too much time on the purchasing of a product or
service
• Inconvenience and delays if the product has to be repaired or replaced.
7. Future opportunity cost • Risk that an improved or lower-cost product may be available at a future time
• The ability of technology to deliver new products explains this risk.
8. Source risk • Risk of trusting the retailer or organisation involved in the transaction
• Especially relevant for direct mail order or online retailers.
• Non-traditional outlets which sell items associated with high perceived risks need to minimise the
perceived risk for shopping. They need to offer more risk-relievers to alleviate the risks perceived.
• Financial risks can be reduced by offering guarantees and trial periods. Social risks can be reduced by a
skilled sales force and established brands.
• Physical and functional risk can be addressed by using respected organisations as endorsers for the
quality and functioning of a product, and by offering workshops and other training options to
customers.
The occasion when the product is consumed also influences the perception of risk. For example, wine for
home use have low social risks and wine offered to guests have high social risks. Table 3.4 illustrates a
combination of social and financial risks for a variety of products.
The ways in which consumers deal with risk differ from one consumer to another. The more general
risk-reduction behaviour of consumers includes the use of the following risk-relievers:8
Figure 3.2 The impact of perceived risk on consumers
Source: Based on Berman, B. and Evans, J.R. 2007. Retail management: A strategic approach.7
Table 3.4 The financial and social risks of different types of product
• Seeking information from friends, family members and colleagues
• Having brand loyalty
• Obtaining expert advice
• Selecting by brand image
• Relying on shop image
• Buying the most expensive model
• Seeking reassurance
• Requiring guarantees
• Product testing undertaken by private or government organisations.
Retailers should pay special attention to the way in which consumers seek information, rely on shop
image and need reassurance. Various sources provide information, and retailers must ensure that
salespeople, non-verbal information in the shop and the mass communication used are all applied to
deliberately inform the consumer. Since consumers tend to rely on information from existing shoppers,
retailers can try to influence word-of-mouth communication in their advertisements. For example,
advertisements showing people representing the target market having group discussions of possible risks
and the overriding rewards may reassure high-risk perceivers and encourage them to shop at the retailer.
If consumers have little information about a product or service of a reputable and well-established shop,
they will trust the judgement of the merchandise buyers and will depend on them to have made careful
decisions in selecting products or services for the shop.
Shop image also creates the impression of product testing and the assurance of service, return
privileges and adjustments in case of dissatisfaction. It is not a single concept and has many facets.
Consumers who are not sure about a particular product choice will note guarantees, reputable testing
organisations and pre-purchase trial (such as free samples or limited free trials) as proof of its behaviour.
How much reassurance consumers require will depend on the type of product. More expensive and
potentially harmful products, such as domestic appliances and electrical tools, will require more
reassurance than convenience goods. The question of reassurance should be an important input into the
service mix decision.
3.6 Retail outlet selection process of consumers
The process of selecting a retail outlet is similar to choosing a brand. Generally, the consumer recognises
a problem which makes it necessary to select an outlet, engages in an internal and possibly external
search, evaluates the alternatives and makes a decision. The criteria that consumers frequently use in
choosing retail outlets and the characteristics that influence the criteria used, are discussed next.
3.6.1 Retail outlet criteria

The three major retail outlet criteria that consumers use to evaluate different retail outlets are are
discussed in this section:
1. Outlet image
2. Market communication of retailers
3. Outlet location and size.
3.6.1.1. Outlet image

Outlet image refers to consumers’ perceptions based on all the features associated with a retail outlet.
Table 3.5 contains various dimensions and their components, which form the retail outlet image.
The components in Table 3.5 include both rational and emotional perceptions. The rational
components include elements such as price, parking and credit, while emotional perceptions include
components such as décor and shop atmosphere.
Table 3.5 refers to the image of a retail shop. The images of other retailing formats such as online
retailers, party plan, catalogue retailers and mail-order companies are formed according to different
dimensions and components.
Different groups of consumers want different things from different types of retail outlet. It is thus
important that a retailer is in control of most of the dimensions and components which will project a
well-focused image. Retailers should be concerned with their own image as well as with that of the
shopping area in which they function. Projecting a consistent, integrated and well-managed image, is a
significant advantage for a shopping centre.
Retailing history contains examples of images that were not well managed. Department stores saw
their role as one of being ‘all things to all people’. The increased segmentation of markets resulted in
major losses to competitors who specialised in their offerings. Department store images become too
scattered to appeal to customers. Other retail formats started to concentrate on one or more attributes that
are important to a particular segment of consumers. PEP Stores have successfully followed this approach.
They appeal to a segment that wants low prices but not necessarily in-shop sales help or pleasant decor.
SPAR outlets follow another approach, which is to provide customers with ‘what they want, when they
want it, where they want it’. They focus on offering convenience to consumers for whom convenience is
an important prerequisite.
3.6.1.2. Market communication of retailers
Many consumers rely on advertising as a major source of their information. Retailers can utilise
advertising effectively to communicate image to consumers. Price advertising draws consumers to a shop.
However, the impact of price advertising varies by product category, brand, initial price level, consumer
group and retail outlet.
Table 3.5 Dimensions and components of retail outlet image
Dimension Components
Merchandise Quality, depth, width, style, price, innovativeness
Service Lay-by plan, returns, credit, delivery, packaging, complaints handling
Clientele Browsers, buying customers, passing trade
Physical facilities Cleanliness, store layout, decor, flooring, aisle width, traffic flow,
displays
Convenience Location, accessibility, parking provision
Communication Advertising, sales promotion, sales staff
Institutional Shop reputation, time in operation, size of firm
Post-transaction Follow-up calls, performance on guarantees, response to calls.
3.6.1.3. Outlet location and size

The location of a retail outlet affects a consumer’s choice of shop. Generally, the consumer will most
often select the shop closest to him or her. The size of a retail outlet is a further important factor in choice
of shop. Larger outlets tend to be preferred over smaller outlets, unless a customer wants fast service or
convenience. Various models to calculate the level of shop attraction, based on shop size and travel
distance, have been developed. One of the popular models is called the retail gravitation model, and it can
be expressed as:
where SMi = share of market held by shop i

Fi = floor area of shop i
Ti = travel time to shop i
= attraction factor for a particular product category.
In the retail gravitation model, shop size is generally measured in square metres and portrays a measure
of breadth and width of merchandise. The distance or travel time to a shop is a function of both the
physical and psychological effort necessary to visit a given retail area. Product class determines a
consumer’s willingness to travel and travel time is therefore raised to the power. This provides for the
effect of varying distance or travel time according to type of product.
Shoppers are unwilling to travel very far for convenience goods. In such a case, the attraction
coefficient is large for such items. For expensive and complex products, such as motor cars or speciality
items such as photographic equipment, consumers are willing to travel long distances. Here the attraction
coefficient is small, thereby reducing the effect of travel time as a deterrent. Chapter 4 contains a more
detailed discussion of retail gravitation models.
3.6.2 Consumer characteristics

The two consumer characteristics that are particularly relevant to outlet choice are:
1. Perceived risk
2. Consumers’ shopping orientation.
In Section 3.2 of this chapter, it was pointed out that consumers can go shopping for reasons other than
simply purchasing a product. The pleasure of bargaining, social experiences, physical activity and
diversion from routine activities are all non-purchase reasons for going shopping. The relative importance
of the motives differs from individual to individual and also among individuals over time.
Consumers’ shopping orientation is a shopping style that emphasises certain activities. It is related to
their lifestyle and influences both the selection of a specific retail outlet and the general type of outlet. A
consumer who tries to avoid the personal interaction of normal shopping is, for instance, a good target for
online shopping.
3.7 Factors influencing in-shop consumer behaviour

A number of factors influence the behaviour that consumers display in shops. Consumers sometimes
enter a shop with the intention of purchasing a specific product but leave without any product or with
other products. The factors that influence in-shop behaviour are the following:
• In-shop information
• Point-of-purchase displays
• Shop layout and traffic patterns
• Product displays
• Pricing strategies and promotions
• Shop atmosphere
• Sales personnel
• Out-of-stock situations.
3.7.1 In-shop information

The information available in a shop can influence consumer behaviour, especially where the consumer
was unaware of such information before visiting the shop. Many bigger retailers provide some form of an
information service, but there is a definite need for information programmes which benefit consumers and
also serve as a competitive technique for the retailer. The consumers of today are more knowledgeable
than ever before and retailers can benefit from fostering this consumer need.
3.7.2 Point-of-purchase displays

Point-of-purchase displays have almost become a part of the normal layout of a retailer. They attract
consumers’ attention and impact positively on sales. Displays must be used correctly in order to achieve
their potential. It may be argued that displays take sales away from and reduce ordinary shelf sales.
However, the net combined display and shelf sales are usually well above average, which means that the
use of displays is strongly substantiated. Experiments have indicated that once an item is removed from
display there is a quick return to normal shelf sales. This means that customers are not just stocking up on
such an item, but have actually increased their consumption of the item. Displays provide support for
their continued use as a merchandising tool to influence consumer behaviour.
3.7.3 Shop layout and traffic patterns

The positioning of items inside a shop has an important influence on the purchase of both product
categories and individual brands. Greater visibility increases the chance that a product will be purchased.
Retailers study traffic patterns to determine the good and bad sales areas within a shop. The objective of
these studies is to design the optimum layout pattern for the placing and spacing of products. These
layouts will include shopper activity such as both density and main direction of shopper traffic for each
aisle, and for passing and buying frequencies in the aisles. These statistics reflect that shoppers move
through a shop in different ways. The time spent in the shop also differs among shoppers. Different types
of shopper and differences in the duration of shopping result in different expenditures.
3.7.4 Product displays
Product displays influence consumer behaviour. The height at which products are displayed as well as the
number of rows presented (facings) can influence sales. The use of shelf signs and extenders can further
affect sales. Consumers normally purchase a limited number of products within a limited period of time.
This makes the eye-level shelf position a prime spot. The number of facings for a product is just as
important, because without adequate shelf facings the product item will be lost in the many other facings
in a shop.
3.7.5 Pricing strategies and promotions

Most consumers are not fully informed about actual product prices. When a retailer wants to project a
low-price image it is important to focus on advertising the most popular items, as consumers will
normally know these prices. This is achieved by the use of loss leaders – products that are sold at cost or
slightly above cost to create an impression of low prices. Loss leaders generate a lot of consumer traffic
for a shop.
Sales increases in response to price promotions can be for a number of reasons. Firstly, many current
product users buy ahead of their anticipated needs. This behaviour is called stockpiling and leads to
increased consumption of the product since it is readily available. Secondly, users of competing brands
find the price reduction worthwhile and switch to the reduced-price brand. It is possible that these brand
buyers may become repeat buyers. Thirdly, non-product-category buyers may buy the brand because it
now offers superior value to the substitute product. Finally, the price promotion draws new consumers to
the shop to buy the brand.
3.7.6 Shop atmosphere

Where a shop’s layout influences the efficiency with which the traffic flows through the shop, its
atmosphere or internal environment influences the shopper’s mood and willingness to visit and browse.
This atmosphere is made up of attributes such as lighting, layout, presentation of merchandise, fixtures,
floor coverings, colours, sounds, odours, dress and behaviour of sales personnel, and the number,
characteristics and behaviour of other customers. The retailer controls most of the components of shop
atmosphere and ‘manages’ it to create a specific atmosphere that positively influences the consumers’
willingness to spend.
3.7.7 Sales personnel

Sales personnel are often the consumer’s first point of contact with the retailer, and can exercise their
influence to generate consumer purchases. Retailers consider the training of a skilled sales force a
priority. But the high cost and turnover of sales staff have caused many retailers to use self-service as far
as possible. Self-service is essential for products bought under low-involvement decisions. Salespersons
are required to help consumers with products where the decision to buy is more involved. There is no
simple explanation for effective sales interactions. This is largely determined by the following
interactions:
• Resources available to the salespersons
• Complexity of the customer’s buying task
• Relationship between the customer and the salesperson.
Each target market and product category requires its own personal selling strategy.
3.7.8 Out-of-stock situations
A shop that does not have a certain brand in stock forces a consumer to reconsider a purchase decision.
He or she is then confronted with four options, which are the following:
1. Buy the same brand but at another shop
2. Switch brands
4. Delay the purchase and buy the desired brand later at the same shop
5. Cancel the purchase.
No matter which option the consumer selects, his or her behaviour and attitudes towards the shop may
change. A shopper’s loyalty to the particular out-of-stock brand or shop and the urgency of the purchase
will influence his or her behaviour after the out-of-stock experience. The outcome is usually not
favourable for the initial shop or brand.
3.8 Consumer behaviour under certain economic conditions

Inflation is defined as a continual and substantial increase in the general level of the prices of products,
and is measured by the Consumer Price Index (CPI) in South Africa. An excess in the demand for
products over the supply results in demandpull inflation and an increase in prices. Price increases can also
be the result of cost increases which have no direct bearing on demand factors, such as costpush inflation.
The impact of inflation on consumer behaviour is wide and retailers should be aware of certain changes in
consumer behaviour that can impact negatively on their businesses.
Besides inflation, retailers have had to face and cope with the other economic realities of stagflation,
recession and shortages.
3.8.1 Inflation
South Africa has been subjected to very high rates of inflation, especially since the 1980s. The rate of
inflation, as measured by the Consumer Price Index, was higher than 10 per cent for the latter part of the
1980s and the beginning of the 1990s. In 2008, the South African inflation rate was above 11 per cent.
Figure 3.3 on page 72 illustrates the inflation situation in South Africa over the last ten years. 8 Since
2012, it has hovered around 6 per cent. Consumers are forced to reconsider their consumption priorities
because of price increases resulting from inflation. In the market for consumer products, it was found that
the consumer’s behaviour revolves around increased price awareness, the stockpiling of consumer
products, a search for information on products and the functional improvement of products. With the
emphasis on functionalism, the consumer tries to find greater value for his or her shrinking purchasing
power. In the case of durable consumer products such as furniture or household cleaning products, there
appears to be a paradox. The consumer may even be prepared to pay a higher price for a durable
consumer product if he or she is of the opinion that the product will give better service and have a longer
lifespan. In times of high inflation rates, consumers use comparative shopping, visit more retail outlets
per shopping expedition, stick to shopping lists and avoid impulse buying. The trend is also towards a
smaller variety of foods and an increase in bargain hunting. Actual price rises, as well as the expectation
that prices will rise even further, make the consumer uncertain since this concerns his or her future
purchasing ability. The outcome is a postponement of discretionary purchases by consumers, the net
result of which will be a decrease in sales of durable consumer products. Some consumers try to beat
inflation and such behaviour can lead to a further increase in the inflationary demand.
Inflationary pressures result in changes in the consumer’s traditional behaviour, attitude, lifestyle and
purchasing patterns. These changes try to minimise the impact of new circumstances in the retailing
environment.
3.8.2 Recession
As far as retailers are concerned, the most important aspects of a recession are the decrease in the growth
of employment opportunities and the increase in the number of the unemployed. South Africa is still
currently experiencing the effects of the 2008 recession. It is the impact of a recession in particular,
combined with inflation, that has severe consumer behaviour implications for retailers.
The result of the combined influence of continuous inflation and an increasing number of recessions is
a decline in the real income of the consumer, high unemployment rates and a general feeling of
uncertainty among consumers with regard to the present and the future. During such periods consumer
values change, and they eventually adjust their behaviour to the realities of the economic situation. These
changes and adjustments are similar to those under conditions of inflation.
Figure 3.3 Inflation and inflationary pressures in South Africa for selected years
Source: South Africa inflation rate. 2016. Trading economics. 9
3.8.3 Stagflation
Stagflation is a word given to stagnation in production and employment along with creeping price
inflation. It has similar implications for retailers as the combined working of inflation and a recession.
The specific behaviour that consumers display during periods of stagflation is discussed under Section
3.8.5.5.
3.8.4 Shortages
A wide range of shortages, especially of raw materials, energy and food, represents a further variable of
the economic environment which has implications for retailing management. Shortages affect the supply
of products, contribute towards inflation and drastic price increases, and necessitate other production
methods. A reorientation in marketing to customers is required.
The issue is whether it is necessary to study consumer needs and preferences, and to apply advertising
and personal selling in a marketing strategy in times when the non-availability of the product is the major
problem. Is a marketing effort necessary when the consumer does everything possible to get hold of the
product? This question poses significant implications for retailers.
3.8.5 The impact of certain economic conditions on consumer behaviour

Various studies have been undertaken to identify changes in the behaviour of consumers during periods
of inflation and recession.1012 Consumers have two choices when it comes to making ends meet or to
maintaining their lifestyle. They can do one of the following:
• Try and increase their income
• Modify consumption behaviour in order to live within their current income.
On the surface, it appears that consumer reactions to inflation are simply to reduce the consumption of
certain products or to stop consuming others. The methods consumers use to deal with inflation are much
more complex. To fully grasp the combined effects of inflation and recession on consumer behaviour,
you must consider that how consumers have adjusted their consumption behaviour under normal
economic conditions is also affected by periods of inflation and recession. Consumers do not always react
to changing economic conditions in a rational and predictable fashion.
The more important findings of the previously mentioned studies on consumer behaviour during
periods of inflation and recession, and their implications for retailers, are discussed next.
3.8.5.1 Consumers try to become more self-sufficient

Consumers’ attempts to be more self-sufficient include doing own car repairs, re-upholstering furniture,
sewing, knitting, gardening and crafts. Retailers that sell do-it-yourself products have obvious
possibilities. Courses to provide do-it-yourself consumers with some of the necessary skills are an option
for a retailer’s service mix.
3.8.5.2 Consumers rely more on family and friends
Sharing, trading and general co-operating with family, friends and neighbours take place between
consumers. Trading of services, bartering, swopping of children’s clothing, pooling of resources to
qualify for bulk discounts, or the purchase of a major item such as a lawnmower, are some of the forms of
co-operation that take place.
Many of these strategies satisfy consumers’ needs without their engaging in conventional purchasing
behaviour. Retailers should take note of the increase in practices such as the sharing of assets (as in the
joint purchase of a lawnmower), and the purchasing of used items. These activities represent an increase
in non-market-related behaviour, as consumers become a smaller part of the market. Their needs are
satisfied through alternative means and the role of retailers is reduced. Some aspects of this non-market
behaviour remain in place even after the economy improves.
3.8.5.3 Decrease in shop loyalty

Consumers do more bargain hunting, buying many things on sale, buying more generic or ‘no name’
brands and using coupons on a larger scale. Consumers shop around, try to avoid buying on impulse and
plan their purchases carefully, which benefits retailers who offer low prices. Retail shops that have not
discounted in the past will have to reconsider in order to attract customers. Food retailers that offer
generic and bulk food products will have a competitive edge on other food retailers as long as consumer
incomes remain under pressure.
3.8.5.4 A shift to functionalism and value of products

Consumers expect more value and less waste. This change in consumer values will remain a
characteristic of the market for some time as consumers have more alternative options to choose from.
Shifts to durability rather than fashion and style; to nutritional content rather than ease of preparation; to
fuel economy rather than ‘body styling’ are likely to remain important in the purchase of certain products.
Such attributes increase in importance and influence purchasing decisions. Product design should show
such attributes. There is a definite trend towards food with high nutritional value and a move away from
junk food.
3.8.5.5 Simplifying lifestyles
Consumers spend more of their leisure time at home and do more things for themselves. Home
entertainment (with television as the focus) is preferred and visits to movie theatres and other forms of
entertainment are less frequent. Television-based video games, video recorders and home computers will
continue to appeal to many consumers. Home entertainment also offers many possibilities to retailers in
respect of foodstuffs and recreational equipment.
As far as stagflation is concerned, most of the research undertaken has led to consumer behaviour
findings similar to those mentioned above under inflation and recession.1314 Economy, functionalism and
the lasting quality of durable goods become more important as a result of stagflation. The voluntary
simplicity consumer movement also developed among Americans during the late 1970s as a result of
stagflation. The following are some of the preferences of these voluntary simplifiers:
• Smaller products, that is, ‘small is beautiful’; fewer products; ‘less is better’
• Simple, more functional products
• Quality products
• Products that promote interest and involvement
• Do-it-yourself products
• Smaller, more personal shops
• Innovative outlets, such as flea markets and street hawkers
• Co-operative buying
• Print and radio, informative promotion.
Shortages influence consumers to reduce consumption and to practise responsible consumption. The most
important consumer need is the one for useful information. Information is necessary for consumers to
decide between products on the basis of durability, after-sales service and quality; in other words, those
characteristics that make products last longer. Consumers will spend more time on information gathering
and retailers must ensure that they prioritise the provision of information during periods of shortages.
3.9 Models of consumer decision-making

Retailers must understand the process of consumer selection of outlets and products. Models have been
developed over time to help marketers and retailers understand the complexities of consumer
decision-making. Such models are essentially descriptive diagrams of behavioural processes that enable
retailers and marketers to view the buying behaviour of consumers. The study of buyer behaviour help
retailers to improve their strategies by understanding the following:15
• The psychology underlying how consumers think, feel, reason and choose among available alternatives
• The impact of aspects of a consumer’s environment on their decision-
making
• How consumer decision processes differ between products and services as well as among different levels
of consumer involvement
• How to give effect to the retailing concept by understanding and responding to customers’ needs and
wants.
Various models of consumer decision-making have developed over time. The typical consumer
decision-making process consist of six phases:
Phase 1: Stimulus – this makes the consumer aware of a need
Phase 2: Need recognition – the stimulus has created an awareness that the product or service under
consideration might solve a problem or a need
Phase 3: Information search and comprehension – the activity undertaken to gather information needed to
make a decision
Phase 4: Evaluation of alternatives – here the alternative products or services available to address the
need are compared to find the most suitable one
Phase 5: Purchase decision – decision to buy a particular product or service
Phase 6: Purchase evaluation (outcomes) – here the consumer reflects on the decision-making process by
weighing up all the advantages and disadvantages of the purchase.
3.9.1 Stimulus and need recognition

Both stimulus and need recognition occur when the consumer becomes aware of a difference between his
or her present situation and his or her concept of an ideal situation. This activation may occur internally
because of a motive, such as the desire for a new car or clothing, or may be triggered by an external
stimulus, like an advertisement or something seen in a shop. If the stimulus causes the consumer to take
action, the following stage becomes the search for information.
Subconsciously, the consumer uses the memory component for recall of stored information and
experience concerning the problem. This information is the consumer’s ideas and attitudes which
influence his or her preferences for certain products or brands. When an internal search does not provide
information, the consumer will use an external search and more comprehensive problem-solving
behaviour. External sources may be market-dominated or non-market-dominated.
3.9.2 Information search

This is also a function of observed risk. It is the importance of the product category and the consumer’s
subjective uncertainty of what the brand or service may possibly add to his/her satisfaction. The
information inputs are subject to the way in which the consumer processes information to add substance
to stimuli. The consumer will only react to stimuli he or she regards as important, so the first step in
information-processing is the exposure to stimuli which catch the conscious attention of the consumer. In
the following step, namely comprehension, accumulated information is transformed into useful concepts
which are stored in the short-term memory for possible further processing.
3.9.3 Evaluation of alternatives

The last two steps in information-processing are related to the fourth phase of the decision-making
process, namely alternative evaluation. In the alternative-evaluation stage, information acquired through
the search process is compared with the product standards (evaluation criteria) stored in the long-term
memory. This evaluation process is concerned with the yield/acceptance stage of the
information-processing component. As soon as information is compared with the evaluation criteria,
existing ideas in the long-term memory are either strengthened or weakened – at this stage acceptance
may occur. Information will strengthen or change existing ideas which the consumer retains from
information previously received. If acceptance occurs, the information is fixed in the permanent memory.
Absence of the yield or acceptance process leads to the loss of this information.
3.9.4 Purchase decision

Attitudes are positive or negative reaction trends towards specific products. This is learnt from earlier
experiences and influences future behaviour. Changes in a consumer’s ideas will influence attitudes
towards the purchase of a product. Favourable attitudes will result in a purchase intention, meaning the
consumer’s feelings regarding the probability that a specific product will be bought. An influence that has
an effect on intentions is called normative compliancy. This is the degree to which a consumer may be
influenced to fulfil the expectations of members of a group or family. Choice is usually exercised after
strong positive intentions. Unexpected circumstances, such as lowering of income and lack of financing,
may prevent the purchase temporarily or permanently. However, if no obstacles exist, the purchase will
take place.
3.9.5 Purchase evaluation (outcomes)
The consumer’s choices regarding the product, the specific place of purchase and the chosen brand, all
have different results. One is the satisfaction of needs during the consumption or use of the product. This
experience may be traced back to ideas and evaluation criteria regarding the brand. Dissatisfaction can
also give rise to a reconsideration of his or her evaluation criteria. The consumer learns from experience
and will try to prevent similar situations in future. Another result may be cognitive dissonance (also
called buyer blues). Cognitive dissonance refers to after-purchase doubt regarding the merit of the
product compared to alternatives that were not chosen. This emotional stress situation can result in the
consumer having a need for more information in order to support his or her choice. New inputs will
provide information that will be processed through an external search. For example, it was found that
people read more motor car advertisements after they have bought a car than before the purchase. This
can be partially associated with dissonance where more information is sought to justify and reinforce a
buying decision.
Purchase evaluation includes the following behaviour:
• Extended problem-solving behaviour: This occurs in the decision-making process when consumers have
relatively few fixed criteria for evaluating product categories or specific trademarks. At this level, the
consumer requires a larger information input to develop a set of criteria for evaluating products.
• Limited problem-solving behaviour: This occurs when basic criteria have already been developed for
evaluating a product. Searching for additional information takes place in order to develop preferences
and to distinguish between different brands.
• Routinised response behaviour: This is characterised by the fact that the consumer has experience of
products and makes use of well-developed criteria as a basis for evaluating such products. There is
little, if any, search for additional information.
Figure 3.4 is a schematic illustration of the typical consumer decision-making process.

You can also consider the amount of time and effort devoted to each phase of the consumer
decision-making process. The effort will depend on whether the problem-solving behaviour demanded is
extensive, limited or routine. The customer’s involvement with a product or service, namely how
important it is, will determine the effort the consumer will put into the process. Most consumer behaviour
is low-involvement-related and the necessary decisions are based on existing information. Where more
information is necessary, the amount of search and evaluation that will follow will be small. Typical
products that are purchased by way of low involvement behaviour are convenience goods such as
groceries, cigarettes and sweets.
Figure 3.4 The typical process of consumer decision-making
High involvement takes place when consumers actively search for more information and evaluate
alternative products with greater caution. High-involvement decisions are those that are relevant and
important to the individual. High involvement leads to extended problem-solving which begins with
problem recognition and is followed up by search for information; considerable alternative evaluation
which leads to changes in beliefs, attitudes and intentions, and choice and post-choice outcomes.
3.9.6 Implications of consumer behaviour models for retailers

The stages in the decision-making process are useful for retailers to identify areas in which they can
manipulate or influence consumer behaviour. The problem-awareness stage can be initiated through a
good advertisement. This is applicable in respect of products for which the retailer has the sole agency.
The emphasis in the other stages is the provision of information. Providing in-shop information and using
advertisements which contain endorsements and testimonials from opinion leaders, are useful. Effective
after-sales service will also reduce any possible consumer dissonance.
3.10 Impulse buying in retail outlets

Impulse buying, or unplanned purchasing, is a form of consumer buying behaviour that has huge
implications for retailers. Although the term ‘impulse buying’ suggests unplanned action on the spur of
the moment, this is not the case. Here the consumer also goes through all the phases of the decision
process. Impulse buying normally takes on one of the following forms:17
• Pure impulse: A novelty or escape purchase which breaks a normal buying pattern
• Reminder impulse: A shopper sees an item and is reminded that the stock at home runs low, or recalls an
advertisement or other information about the item and a previous decision to purchase
• Suggestion impulse: A shopper sees the item for the first time and visualises a need for it
• Planned impulse: A shopper enters the shop with the expectation and intention of making some
purchases on the basis of price specials or coupons.
Indications are that various product, merchandising and consumer characteristics are responsible for the
impulse buying behaviour of consumers. Products that enhance impulse purchasing are typically low in
price, have a short product lifespan, are tiny, weigh little and are easy to store.
A variety of in-shop marketing factors influence impulse buying:
• Attractiveness and graphic appeal of the package
• Product information on the package
• Point-of-purchase displays
• Price promotions
• Shelf space allocated to the product
• Position of the product on the shelf.
Impulse buying challenges retailers. Many consumers do not use shopping lists and this creates
opportunities for retailers to use in-shop merchandising, point-of-purchase displays and personal selling
to increase turnover. When retailers fully understand the different types of impulse buying, this
knowledge can be very useful in the design of shop layouts, display and allocation of merchandising, as
well as the use of point-of-purchase promotional material.
Closing example
The Opening Vignette explained how South African grocery retailers are starting to shift focus from
women to the increased role of men doing shopping for the household. After studying this chapter,
students should be aware of how buying decisions are made for diverse product types and services by
men and women. This chapter introduces the student to the buying behaviour of shoppers. After studying
this chapter, students should be able to answer the questions in the Opening Vignette.
3.11 Summary
• Motives that underlie consumers’ shopping behaviour
Consumers’ motives for going shopping are of either a personal or a social nature. Their attitudes
towards shopping influence their behaviour as shoppers, which enable retailers to distinguish between
five categories of shoppers. In this instance, it is important that the retailer should know who the core
customers are so that the shop’s offerings are in line with the demands of these customers.
• Different types of shopper
Three shopper types, based on information search and purchase behaviour are identified:
1. Multichannel enthusiasts: They have positive attitudes toward multiple channels for search and
buying, are highly innovative, enjoy shopping and have a low loyalty.
2. Uninvolved shoppers: They are not positive toward any channel for all transaction stages, do not
enjoy shopping, have low loyalty and a low price consciousness.
3. Store-focused shoppers: They favour brick-and-mortar stores, have negative attitudes toward
channels other than stores, are very loyal and possess little innovativeness.
Six online shopper types can be identified, namely economical purchasers; active-star purchasers;
direct purchasers; high-loyalty purchasers; risk-averse purchasers; and credibility-first purchasers.
• The classification of products based on consumer shopping habits
The products based on consumer shopping habits are the following:
» Convenience products: These are purchased frequently and are relatively inexpensive. Little or no
comparison shopping is undertaken and the minimum of time and effort is spent on the purchase.
Typical convenience products are cigarettes, newspapers, bread and sweets.
» Shopping products: These cause consumers to engage in a comparison process before buying.
Products are compared in terms of price, style and quality. Shopping goods cost more and are
purchased less frequently than convenience goods. Examples of shopping products are clothes,
furniture and appliances.
» Speciality products: These have unique characteristics for which consumers are not prepared to
accept any substitutes. Consumers purchasing such products are well informed and make special
efforts to acquire the product they want. Examples of speciality products are certain photographic
and electronic equipment, and designer clothes.
» Unsought products: These are those which the consumer does not know about or knows about but
does not normally consider buying. Examples of unsought products are new products of which the
consumer has not previously been aware, and products such as insurance which the consumer
does not want immediately.
• Perceived risk and its influence on consumer behaviour
Eight different types of risk can be identified:
1. Functional risk: This exists when there is risk that the product will not perform as expected.
2. Physical risk: This is when the product may pose a risk to self and to others.
3. Financial risk: This is when there is a perception that the product will not be worth its cost, either in
time or in money.
4. Social risk: This is when shopping at a specific retailer will cause embarrassment.
5. Psychological risk: This is when a poor product choice will harm the consumer’s ego.
6. Time loss risk: This is when the consumer feels that there is a risk of spending too little or too much
time on the purchase of a product or service.
7. Future opportunity cost risk: This is when the consumer is of the opinion that an improved or
lower-cost product may be available at a future time.
8. Source risk: This is when the retailer or organisation involved in the transaction is not trusted.
The more general risk-reduction behaviour of consumers includes the use of the following
risk-relievers: Seeking information from friends, family members and colleagues; remaining brand
loyal; obtaining expert advice; selecting products on the basis of brand image; relying on shop image;
purchasing the most expensive model; seeking reassurance; requiring guarantees; and buying products
that were tested by private or government organisations.
• The outlet selection process of consumers
The three major retail outlet criteria that consumers use to evaluate different retail outlets are outlet
image, the market communication of retailers and outlet location and size. Outlet image are
consumers’ perceptions based on all the features associated with a retail outlet. Many consumers rely
on retailers’ advertising as a major source of their information. Retailers can utilise advertising
effectively to communicate image to consumers. Price advertising draws consumers to a shop.
However, the impact of price advertising varies by product category, brand, initial price level,
consumer group and retail outlet. The location and size of a retail outlet affects a consumer’s choice
of shop. Generally, the consumer will most often select the shop closest to him or her. Larger outlets
tend to be preferred over smaller outlets, unless a customer wants fast service or convenience.
• Factors influencing in-shop behaviour
These factors are in-shop information; point-of-purchase displays; shop layout and traffic patterns;
product displays; pricing strategies and promotions; shop atmosphere; sales personnel; and
out-of-stock situations.
• Behaviour of consumers under certain economic conditions
Consumer behaviour during times of inflation, recession, stagflation and shortages takes on various
forms. Initially, consumers have two choices to make ends meet or to maintain their lifestyle, namely
to try and increase their income, or to modify consumption behaviour in order to live within their
current income. The typical consumer behaviour during periods of inflation and recession and their
implications for retailers are that consumers try to become more self-sufficient; they rely more on
family and friends; there is a decrease in shop loyalty; there is a shift to functionalism and value of
products; and simplifying lifestyles. As far as stagflation is concerned, the consumer behaviour is
similar to the aforementioned. Economy, functionalism and the lasting quality of durable goods
become more important as a result of stagflation. Shortages influence consumers to reduce
consumption and to practise responsible consumption. Consumers will spend more time on
information gathering and retailers must ensure that they prioritise the provision of information during
periods of shortages.
• Differentiating impulse buying from other buying processes
Impulse buying normally takes on one of four forms.
1. Pure impulse: A novelty or escape purchase which breaks a normal buying pattern.
2. Reminder impulse: A shopper sees an item and is reminded that the stock at home runs low, or
recalls an advertisement or other information about the item and a previous decision to purchase.
3. Suggestion impulse: A shopper sees the item for the first time and visualises a need for it.
4. Planned impulse: A shopper enters the shop with the expectation and intention of making some
purchases on the basis of price specials or coupons.
CASE STUDY: Woolworths enters the supermarket fray

Woolworths has recognised a need to service its growing customer base by providing a more comprehensive
shopping experience. Until now, most shoppers have used its stores as an auxiliary format to purchase only
certain items on their shopping list or as a ‘top up’ type daily purchase of convenience items. Woolworths has
performed well on this basis but has found itself vulnerable when trading conditions have tightened. It has
already adapted pricing strategies with more products falling into line with competitive supermarkets, a premium
shopping experience without the associated cost is certainly a comfortable proposition for consumers.
With pricing being addressed on an ongoing basis, availability of a wider range of products becomes the
pre-eminent issue. Again, the management team are on the case. In certain stores, customers will notice the
availability of a wider range of branded products available across a wider range of product categories. This trend
is set to continue but the focus will remain heavily weighted towards private label products. The new
supermarket format will be designed to convert Woolworths’ customers from ‘basket shoppers’ to ‘trolley
shoppers’, increasing the retailer’s share of monthly grocery spend from its existing customer base. There will be
much more on offer for shoppers. Apart from the availability of more products in more categories, there will also
be bigger pack sizes in most product lines and far more emphasis will be placed on the health and beauty, home
care and long-life food categories. In addition to that, shoppers can expect to see more liquor lines in-store. More
than 7 500 SKUs will be available in the new store and food categories alone will see an increase of 1 000 SKUs.
Woolworths is adopting a new, bigger store format to house all of this. The new store in Bryanston is
significantly bigger than any existing Woolworths food store, standing at a fraction under 2 500 m2, it is certainly
designed to compete head-on with the offerings of Checkers and Pick n Pay. Woolworths’ move into
large-format supermarket shopping seems logical and well thought out, while there may be some lessons to come
from the first big store opening, it is likely that Woolworths will be actively seeking floor space all around the
country.
Source: Adapted from Ballantyne, C. 2012. Woolworths enters the supermarket fray.18
Questions
1. What is Woolworths trying to accomplish by changing its retail format?
2. Describe Woolworths’ core customers, secondary shoppers, and tertiary shoppers. Do you think that Woolworths’ new large
format will still be attractive to its core customers?
3. What aspects of the retail outlet image does Woolworths need to consider for its new Bryanston store?
4. What factors can Woolworths use to influence in-store consumer behaviour to convert its customers into ‘trolley shoppers’
while maintaining a premium shopping experience?
5. How have the economic conditions of inflation and recession resulted in tightening trading conditions for Woolworths?
It has been stated that e-commerce and m-commerce will grow to such an extent that physical (brick-and-mortar)
stores will conduct less and less business, and some stores will eventually have to close down as they will become
unprofitable in the future. The major forces that are responsible for the growth of e-commerce and m-commerce
are the ease and convenience to access and search on the Internet; rapid download speeds; enhanced delivery;
trustworthy online payment methods; and a shift towards greater usage of mobile phones and tablets. However,
e-commerce and m-commerce cannot provide the experience of physically touching merchandise and the
undergoing of ‘retail therapy’. A physical store also provides the opportunity to inspect the quality of the
merchandise and assess how comfortable it is. Stores also allow for bargaining, negotiation and socialisation.
Discuss with your group whether you believe that e-commerce and m-commerce will grow to such an extent
that physical stores will have to close down. If so, how will they affect the South African retail sector? Explain
your answers by using current examples. Present your report to the class for discussion. Read the following article
to help you with this assignment.
Article to read: Edelman, D.C. and Singer, M. 2015. Competing on customer journeys, Harvard Business Review, 93(11): 88100.19
References
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3. Morrison, M., Gan, S., Dubelaar, C. and Oppewal, H. 2001. In-store music and aroma influences on shopper
behavior and satisfaction. Journal of Business Research, 64(6): 558–564.
4. Konus¸, U., Verhoef, P.C. and Neslin, S.A. 2008. Multichannel shopper segments and their covariates. Journal of
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Pearson Education, p. 203.
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and continuous impulse buying intention. Journal of Consumer Behaviour. Article first published online, 7
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18. Ballantyne, C. 2012. Woolworths enters the supermarket fray. [Online] Available at: <www.fastmoving.co.za
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accessed 24 February 2016].
19. Edelman, D.C. and Singer, M. 2015. Competing on customer journeys, Harvard Business Review, 93(11): 88100.
• <www.bdlive.co.za/business/retail/2012/10/09/retailers-in-for-rough-post-recession-ride--report>
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• <www.wpp.com/wpp/marketing/hottopics/downturn/the-new-consumer-behavior-paradigm.html>
CHAPTER 4
Location
Nic Terblanche
Learning Objectives
• Explain the importance of location in retailing.
• Examine the principles on which retail location decisions should be based.
• Describe the major location alternatives that are available to retailers.
• Provide an overview of most of the factors that influence the location of a retail outlet.
• Stress the importance of market area demarcation and evaluation, as well as methods suitable for
doing so.
• Explain a procedure for the selection and evaluation of retail sites.
• Identify the major aspects to be assessed when location in a shopping centre is considered.
• Describe why and how a network of retail outlets should be developed.
Opening vignette
‘Location, location, location’ is an old adage that refers to the importance of location in retailing. Scratch
Mobile, a panel-beating business located at O.R. Tambo International Airport in Johannesburg, has taken
location to a new level of convenience for their clients. People who take a flight from the airport can
leave their motor vehicle at Scratch Mobile for repairs, go on their trip, and collect their repaired vehicle
on their return. A client is thus not inconvenienced by being without their motor vehicle, as they are
away. Scratch Mobile’s location gives them a sustainable advantage over their competitors.
Source: Based on: Scratch Mobile. About us, <www.scratchmobile.co.za>.1
Question
1. Why does location contribute to the success of Scratch Mobile?
4.1 Introduction
The well-known adage cited in the Opening Vignette that the three most important factors in retailing are
location, location and location may be an overstatement, but it is very true. Even the best retailing
business cannot overcome an inferior location. This chapter first deals with the importance of location in
the following ways:
• The importance of retail locations
• Retail location principles
• Major location alternatives
• Factors which influence location decisions
• Demarcation and evaluation of market areas
• Location in shopping centres
• Developing a network of retail outlets.
Apart from various techniques and procedures that are dealt with in this chapter, the chapter also
emphasises the strategic importance of location in a retailing strategy.
4.2 The importance of retail locations

Choosing the most suitable location for a retail outlet helps ensure a successful undertaking, and also
lessens the chance of retail failure. Recently, retailers have not only experienced increases in the prices of
land and buildings, rentals and interest rates, but also a reduction in the number of sites suitable for retail
location. These factors require a systematic approach to identify and assess alternative retail locations to
ensure a successful location strategy.
Elements of the retail mix, such as price and product assortment can be changed in a relatively short
time. However, the location of a retail outlet is the least flexible element when compared with the other
elements of the retail mix, and also has more long-term implications for a retailer. The following reasons
make the location element less flexible:
• The location of a retail outlet is normally subject to long-term investment in the property, or a long-term
rental or lease-back agreement with a landlord. It is not unusual for a supermarket or hypermarket site
to be leased for 20 years.
• The installation of fixtures and fittings, shop front renovation and stocking are time-consuming and
expensive.
• The cost of making a new address known to the target market is high.
The retailer has to be very careful to ensure that a specific location will provide for their present and
future needs. Even the most competent retailer cannot overcome the deficiencies of a poor location.
While marketing focus on the consumer, retail location focuses attention on the target market. It
determines the type of offering which the retailer must make available and also the location where the
target market wants the retailer to be situated. Various factors offer challenges to retailers in meeting
demands of target markets:
• Continual changes in consumer preferences and purchasing patterns
• Accessibility
• Social composition of the population.
In the past, many retailers based their location decisions on their own practical experience. The escalation
in retailing competition continually changes market conditions and this limits the application of practical
experience. The experience gained on existing sites will need to be supplemented by extensive
assessments since less attractive and suitable sites might have to be considered in the future.
The retailer operates in an ever-changing environment, and the competition for ideal retail location
sites will increasingly complicate the location decision in the future. When a retailer has to relocate, the
change of location creates other problems such as the following:
• Loyal customers and even employees may be lost: The greater the distance between the old and new
locations, the greater the possibility of losses.
• Shop fixtures and fittings may not be suitable for the new location: The remaining value, where such
equipment has not been fully depreciated for tax purposes, is then lost.
4.3 Retail location principles

Whether a retailer wants to relocate, start up or open a new branch, there are certain principles that must
always be adhered to. These so-called principles of retail location are the following:2
• Adequacy of present market area potential
• Accessibility of site to market area
• Growth potential
• Business interception
• Cumulative attraction
• Compatibility
• Minimising of competitive hazard
• Site economics.
4.3.1 Adequacy of present market area potential

The adequacy of the present market area is established by counting the people in the market area and
determining their purchasing power as well as their willingness to spend money on the type of goods or
services offered by that particular shop. This step answers the question: If we manage to secure all the
business available in the market area, how much would it be in monetary terms? The further analysis of a
site focuses on determining how much of the total business can potentially be captured by an outlet there.
4.3.2 Accessibility of site to market area

A major reason for choosing a particular site is to secure maximum accessibility to the market area. This
ensures that a retailer will have as much of the available business potential as possible. Accessibility must
be measured in terms of the sources of various types of business. The potential business from various
sources must be identified, after which the possible capture for each source can be estimated. Three types
of business are found, namely:
1. Generative business
2. Shared business
3. Suscipient business.
4.3.2.1 Generative business

Generative business is generated by the shop itself. This may be the result of effective advertising or
promotions, or because of a reputation for unique merchandise. Generative business must be calculated
for each segment of the market area. Public knowledge that a large variety of merchandise is available in
a particular location is of itself generative. A shop which generates all its own business wants to be in the
most accessible location commensurate with cost. Motor car showrooms, which generate a large part of
their business through heavy advertising expenditures, might find the most accessible location at the
intersection of two major streets or highways. A corner is much more expensive than an off-corner piece
of land nearby. The off-corner location might be less accessible, but this will be more than compensated
for by lower costs.
4.3.2.2 Shared business

Shared business is a second source of business that can be distinguished. This business flows from the
generative power of a retailer’s neighbours and is made up of customers who, although making purchases
at this particular shop, have as their main purpose a visit to a neighbouring shop. An example of this is a
pharmacy located in the heart of the central business district of a large city. The customer is in the central
business district to shop for clothing from boutiques but pays an unplanned visit to the pharmacy to buy
headache tablets or cough medicine.
4.3.2.3 Suscipient business

Suscipient business is neither generated by the shop itself nor by neighbouring shops. This business
emanates from consumers whose primary purpose for being at or near the shop, is other than buying. A
virtually 100-per-cent suscipient business is a fast-food outlet at an airport. It does not advertise,
generates no business and is merely a service to travellers. Some shops located in business areas
specifically serve the working population from surrounding businesses and do not generate business on
their own. In other words, they do not attract customers directly from their place of residence. For shops
like these, it is not enough that the location is accessible; the accessibility requirements become so
specific that they can perhaps only be satisfied at one particular site and at no other site because of
distance, time and convenience considerations.
The sales volume of most shops is made up of a combination of generative, shared and suscipient
business. An analysis of a site’s accessibility should assess all three types of business.
4.3.3 Growth potential

The profitability ratios of retailers are constantly under pressure because of competition. For a retailer to
maintain or increase profits, it is important to increase total business volume. One of the principles of
retail shop location is that the site should be in a market area with a growing population and income, for
example, townships.
4.3.4 Business interception

Consumers tend to visit shops which they are used to. When a site is selected in accordance with the
principle of business interception, it requires a shop to be established between the market (the consumers
in the market area) and the marketplace (the traditional shop where purchases are made). Consumers will
then be intercepted on their way to the marketplace. People rarely go through a business district or pass
by a shopping centre or shop to get exactly the same product further on. It is easier to stop consumers
along their route than it is to pull them away from an established route.
4.3.5 Cumulative attraction

The theory of cumulative attraction (or cumulative generation) states that a given number of shops
dealing in the same merchandise will attract and do more business if they are located next to or close to
each other than if they are scattered widely apart. Site selection sometimes requires a choice to be made
between taking advantage of the principle of cumulative attraction and that of interception.
Essentially, two types of cumulative attraction are found:
1. Similar shops together draw more business than they may do on their own.
2. Complementary shops consist of compatible shops with a high incidence of customer interchange.
Shared business occurs in both instances.

Four clothing shops located close together will do more business than the same four shops located
several blocks apart. A cluster of clothing shops become a kind of clothing centre and their closeness to
one another enlarges the total market area of all four of them. In many instances, their percentage share of
business from the market area is also increased because of the depth of penetration.
When a retailer plans to open a new shop, a decision must be made whether it is more desirable to
locate in (or near) a cluster of shops of a similar type, or to establish in a position where it can intercept
business. The landlord or property developer who leases shopping space is also faced with the problem of
deciding whether to follow the principle of cumulative attraction. The cluster position is preferred where
the merchandise sold involves a good deal of shopping for style, design, colour and cut. The lower the
generative power of the individual establishment, the more important a cluster position becomes.
Jewellery shops are a good example. Shopping for jewellery is usually a deliberate activity where
comparisons between alternatives are made, and shoppers would like to see several different styles,
designs and price ranges. Generally, the intercepting position is preferred for convenience goods like
groceries.
4.3.6 Compatibility
The principle of compatibility requires that there must be no interruption in shopper traffic and that
customer interchange be maximised. Some businesses are compatible, while others are not. The extent to
which two shops are compatible, lies in the answer to the questions:
• Does Business A help its next-door neighbour Business B?
• Does Business A harm Business B, or does it have no effect on Business B?
Compatibility is important in planning the placement of shops in shopping centres. The individual retailer
should give a lot of attention to the selection of its location.
Compatibility is measured by the degree to which two businesses interchange customers. There is a
high degree of compatibility between two businesses which do more business together than they would if
separated. High compatibility can result from businesses which either complement each other or are in
competition, offer merchandise of different styles, lines and prices, and increase total visits through
cumulative attraction.
The rule of retail compatibility states that two compatible businesses located close together will show
an increase in business volume directly proportionate to the incidence of total customer interchange
between them, inversely proportionate to the ratio of the business volume of the larger shop to that of the
smaller one, and directly proportionate to the sum of the ratios of purposeful purchasing to total
purchasing in each of the two.
Two or more shoe shops are compatible with each other. Whether there should be two or ten, should
be determined by the market potential. The theory of cumulative attraction determines compatibility
because compatibility, like other aspects of retail location study, cannot stand on its own. Two businesses
which are compatible will do better side by side, all other things being equal.
There is another group of factors which influence compatibility negatively. These factors tend to
reduce the business of neighbouring shops. For example, it is a principle of trade that interruptions in
pedestrian traffic flow harm adjacent retail establishments. Such interruptions may be created by the
following factors:
• Dead shop frontage which causes shoppers to lose interest
• Driveways and other physical breaks in the sidewalk
• Vehicular or pedestrian cross-traffic
• Areas that are identified with hazard, noise, odour, unsightliness, or other pedestrian-inhibiting qualities
(such as uncontrolled street trading)
• Businesses that generate traffic in the form of heavy trucks and public vehicles
• Pedestrians who are not shoppers and who create congestion
• Businesses whose average parking time is extremely long.
The same facility may be compatible in some situations but detrimental in others. In places where the
parking time needed is short, a parking garage or area is a desirable neighbour for shops. But when this
parking facility has a long, wide driveway lead-in crossing the sidewalk, it becomes highly incompatible
for those retailers who are situated so that the driveway lead-in is between them and the major business
generators in the shopping centre. The effect of this on pedestrians is also as negative as that of a street
crossing. The negativity created by such a driveway can be seen when parents clutch the hands of small
children as they cross the driveway.
4.3.7 Minimising of competitive hazard

Site selection processes and sales volume projections should consider the location, character, size and
type of existing competitive units. An analysis of vacant shops or sites which could be occupied in the
future by competitive retailers must also be undertaken.
The principle of minimising competitive hazard should lead the retailer to do the following:
• Selecting a location as far away as possible from competitive sites
• Considering the viability of controlling or earmarking the use of competitive sites for non-competitive
purposes
• Selecting a location which makes it difficult for competitive sites to intercept business.
By selecting a retail location away from competitors, the retailer can minimise competitive threats and
possibly identify untapped market segments that may exist in the environment.
4.3.8 Site economics

Site economics is the final principle of retail location. This principle requires an analysis of the site in
respect of the relationship between its cost and its productivity. This analysis requires an examination of
the availability of services and the site characteristics such as the following:
• Size
• Shape
• Topography
• Ability to carry large and heavy building structures
• Adjacent amenities such as street lighting, street parking, condition of pavements and street furniture.
In the case of existing buildings, the retailer should look at the following factors:
• Size and efficiency of the building
• Load-bearing capacity of its floors
• Modernity
• Character of its shop front
• Air-conditioning facilities
• Attractiveness
• Cost of maintenance
• Other factors involved in building valuation.
4.4 Major location alternatives

From a geographical point of view, retailers may be found in a large number of locations. These locations
can range from the central business district of a town or a city to shopping centres or hypermarkets on the
outskirts of built-up areas, with locations in suburbs between these two areas. Retail outlets tend to
concentrate in clusters known as retail concentrations or shopping areas. Because of this variety of retail
locations, various attempts have been made to classify retail locations based on different shopping
concentrations. In most cases, they grow in a natural or haphazard way, but if a retail concentration is
planned deliberately, and constructed and managed as a unit, it is known as a shopping centre. Because of
variations in size, shopping mix and other characteristics, retail concentrations are usually classified
according to a hierarchical system which is used extensively for planning purposes, as well as for the
location of retail magnets and other retail outlets, depending on type and activity. Retail concentrations
grow naturally and form a continuum rather than a clear-cut hierarchy, while planned centres are usually
focused at a particular hierarchical level.
The type of goods sold by a retailer, namely convenience, shopping or speciality goods, will determine
which shopping area or centre is most suitable for its location. The most important factor in selecting a
site at which to sell convenience goods is the volume of traffic that will pass the site. When consumers
consider purchasing shopping goods, they prefer to compare the goods of various shops before making a
buying decision. Although they are prepared to travel further to purchase shopping goods than
convenience goods, no special effort will be made to reach an outlet if others are more easily accessible.
Consumers normally make a special effort to purchase speciality goods. Outlets selling speciality goods
are not required to be within a certain distance or in a certain place since they generate their own traffic.
Table 4.1 contains the hierarchical structure of South African shopping centres.3
Table 4.1 The classification of South African shopping centres
Source: South African Council of Shopping Centres.
4.5 Factors influencing location decisions
Retail outlets are virtually all market-orientated. For this reason, it is necessary to consider all the factors
that may enhance or impede the interaction of a specific retail location with its market when evaluating a
specific location. Various factors influence any location and these factors vary in importance regarding
the type of retail outlet to be operated from a specific location. For instance, hypermarkets rely on a road
system which makes the location accessible to consumers with motor vehicles, while a greeting-card
stand relies heavily on pedestrian traffic. Table 4.2 shows a summary of the factors that should be
considered when a location for a retail outlet is assessed.
Some of these factors are discussed in greater depth in the following section.
4.5.1 Demographic features

The population and their purchasing power are the main components of a market. There must be a large
enough population base for a retail outlet to attract customers. When assessing the population base it is
necessary to measure its past, current and future size for two reasons:
1. To establish whether the existing size of the population justifies the opening of a retail outlet
2. To determine whether trends in population will ensure future growth in the market.
On a micro scale, it is important to know specifically where growth or decline will occur within a market.
Certain areas which are farmland today might be developed townships in the near future because of
urbanisation pressures. Alternatively, a densely populated area which might be subject to expropriation
for a major road and as a result may have no residents at all in a few years’ time. For a retailer, the net
effect of an increase or decline in population figures lies in the increase or decrease in demand for its
products and services.
Age composition is another population characteristic which needs close scrutiny. Where aging has
started in a community, the market for children and teenage products might be reduced to a non-profitable
size in the future. The opposite situation might indicate that a community could have no or a limited
demand for more expensive prestige products.
The ability of consumers to purchase goods and services is determined by their purchasing power. The
levels of purchasing power differ between suburbs and geographical areas, and have significant
implications for the location of retail outlets. A small retail outlet such as a café which provides
convenience goods, can survive in an area with a low average income as long as the population is large
enough to support a profitable turnover. But a regional shopping centre with a variety of shops that offer
durable and speciality goods needs a larger number of customers with high incomes who can afford more
expensive goods. When calculating the amount of purchasing power available, you must be aware of the
amount of purchasing power that flows in or out of the market area of the retail outlet.
Table 4.2Factors to consider when assessing retail outlet locations
Evaluation of retail outlet locations

Demographic features Competitive features
Population size Number and size of competitors
Population shifts Geographic coverage
Age distribution Saturation level
Disposable income Strengths and weaknesses of competitors
Growth trends Competitive growth trends
Education levels Institutional life cycles
Occupation distribution and trends
Cultures Features of the local economy
Labour features Number and type of industries
Availability of different types – permanent and casual Dominant
Activities of trade unions Growth projections
Wage levels Cyclical fluctuations
Service and supply features Location features

Logistic services Number and type of locations
Delivery times Accessibility to customers
Delivery costs Availability of parking
Availability and reliability Owning versus leasing opportunities
Servicing of equipment
Statutory features
Promotional features Town planning regulations
Type of media coverage Local by-laws
Costs Licensing requirements
Traffic flow and accessibility Costs

Motor car traffic Rental levels
Road system serving the site Escalation rates
Accessibility to major roads Local rates and taxes
Pedestrian traffic Contribution to promotion fees
Accessibility to public transport
Building structure considerations
Age of building
Length of shop fronts
Condition of mechanical structures
Demographic variables such as consumer education level and occupation distribution have a strong
correlation since white-collar workers and professionals tend to have the highest educational
qualifications. The opposite is true for blue-collar and other workers who require less education and
training to do their jobs. Certain products and services appeal to certain groups which have certain
occupations and educational training. Culture is another factor that manifests itself in the demand for
certain specific goods and services such as particular foodstuffs or personal care products.
4.5.2 Competitive features

The structure of competition in retailing is illustrated in Table 4.3.
A complete analysis of competition is of paramount importance in the location decision. All the
different types of competition may not always be found in a specific area. It is the well-organised and
-managed chain and corporate outlets, in particular, which warrant careful examination. Various
dimensions can be examined, such as number of shops per capita, total number of shops and selling space
per capita. The analysis of competition will identify both the qualitative and quantitative dimensions. The
quantitative analysis enables the retailer to determine whether an area is under-stored, over-stored or
saturated with similar retail outlets in relation to the size of the population.
• An over-stored area means that there are too many shops selling the same product or service. In such a
case, the retailers are unable to earn a sufficient return on investment.
• An under-stored area means the opposite.
• A saturated area means there are more than enough retail facilities to satisfy the demand for a particular
product or service.
Table 4.3 Typical competition in the retailing sector
Type of competition Extent of competition South African examples

Intratype Between the same type of retail outlet Checkers vs Pick n Pay
Intertype Between different types of retail outlet PEP Stores vs Shoprite
Vertical system Between different types of vertically Spur vs Dros
integrated system, including voluntary
groups, co-operative groups, franchise Kwikspar vs OK Grocer
networks and corporate chains Queenspark vs Edgars
Measures of saturation are based on the thinking that an area can only support a certain number of shops.
Ratios are used to express shop saturation and are only useful if a formula is set, namely the level of
saturation in an area can be measured against a standard set by a retailer, or it can be compared with the
shop saturation index of an existing area. The ratios used to calculate an area’s level of saturation are
these:
• The number of persons per retail establishment
• Average sales per retail shop
• The shop sales per capita
• Sales per square metre of selling area.
These figures enable an analyst to compare market areas in terms of their levels of saturation.
When analysing an area’s level of saturation for a specific product or service, a retailer must interpret
the saturation ratios carefully. Sometimes the variations between areas may not be true indicators of
differences in saturation. An index of retail saturation was developed by La Londe. This index measures
shop saturation in a specific area and is calculated as follows:4
where: IRSi =index of saturation for market area i for the particular product or service
Ci =number of customers in area i for the particular product or service
REi =expenditure (in Rand) per customer in area i for the particular product or service
RFi =total square metres in area i allocated to the particular product or service
Using the formula above, the index of retail saturation calculated is compared with a predetermined
turnover figure required to break even. If the index figure is higher than the predetermined turnover
figure, it indicates that there is potential for another retail outlet. The index figure is also used to evaluate
relative opportunities for different locations.
The qualitative dimensions of existing competing retail facilities are more difficult to evaluate, but
must be considered. Shop image, growth trends and the impact of institutional life cycles contribute
substantially to competition.
4.5.3 Labour features

The most important point is whether there are sufficient trained workers available who can be employed
by the retailer. Retailers need part-time employees from time to time and the available part-time casual
labour force, such as students and housewives, is a further potential pool of potential employees that
needs to be examined. A retailer must investigate the extent of trade union activity in the area.
Negotiations with certain trade unions are complex and highly politicised, and this must be considered
before employees are appointed. The appointment of managers is separate to the other levels and types of
labour required.
4.5.4 Economic features

The stability and future outlook of the particular area should be examined from an economic point of
view. An immediate question is whether the economic base of the area is dependent on one industry or
whether it is diversified. An area with a more diversified economic base tends to be more stable. If one
industry is affected by negative market conditions, such as a depression, the other industries ensure a
continuous stream of business. An area with a more diversified economic base will also be better off
during a strike in a given industry, as it can depend on non-affected industries during the strike. Although
a retailer will generally sell to a wide range of people in an area, much of their income will be tied
indirectly to the major industries in a town. The economic stability of an area with a limited number of
industries is always under threat. The decline of South African mining towns is a good example of this.
Retailers must also investigate the growth possibilities of the industries in an area to ensure the future
success of an outlet. The seasonal or cyclical nature of industries such as agriculture, for instance, also
demands varying levels of service by retailers and it is necessary to identify and plan for this.
4.5.5 Location features

Each possible location identified must be evaluated in terms of its accessibility. Accessibility to a site is
determined by how easily a customer can reach a proposed shop or shopping centre. Because it is always
relative to the attractiveness of the competition and to the expectations of customers, accessibility is not a
clearly quantifiable measurement. Various factors affect accessibility, such as the following:
• Road patterns
• Road conditions
• Ingress and egress
• Traffic flow (such as congestion)
• Visibility
• Public transport
• Barriers
• Cost involved (such as toll fees).
The complex interrelationship of these factors makes them difficult to measure. Each factor has positive
and negative qualities which influence the rating of any particular site.
4.5.5.1 Road patterns

The most important factor to consider is the road pattern. The road pattern surrounding a particular site,
as well as the location and type of tenant within a shopping area or centre, will influence the extent and
shape of the market area of potential customers. Here the important question is: Can all the customers
reach the site easily on major roads or streets?
4.5.5.2 Road conditions

The conditions of the roads also restrict or improve accessibility. The better the conditions and the surface
of the access roads, the more attractive the site will be. Other factors to consider are the age and width of
a road, the number of stop streets and traffic lights, and congestion. Here the important question is: Will
these factors discourage customers from travelling to our shop?
In the evaluation of the accessibility characteristics of a site, the immediate surrounding area must also
receive attention. The focus here will be on ingress and egress, traffic flow and visibility.
4.5.5.3 Ingress and egress

This refers to the ease with which the parking area of a shop can be entered or left. Traffic flow should
not be so intense that it obstructs access. The ease of entrance and exit for potential customers from both
directions should be considered. One-way streets, median barriers that physically separate opposing
traffic streams, left-turn holding lanes, traffic signals and the number of points of entry to the proposed
parking area, all contribute to traffic obstruction.
In decentralised areas, large retail outlets, such as hypermarkets and superstores, provide their own
on-site parking. In more densely built-up areas, consumers rely on public or private parking. Consumers
try to reduce their shopping time and prefer areas with ample parking space. The retailer must assess the
number and closeness of available parking areas. Here the important question is: Is the proposed site
more or less convenient for potential customers than the sites of existing competitors?
4.5.5.4 Traffic flow

Traffic flow depends on a number of contributing factors:
• Traffic count
• Number of traffic lanes
• Sequences of traffic lights
• Number of road intersections
• Number of feeder streets
• Speed limit.
These factors make it difficult to determine traffic flow. The proposed site should be on a street which has
a large amount of regular car traffic without congestion. This will ensure that the location is exposed to
the car traffic, but is not congested to the extent that it will prevent passing traffic from shopping at the
store.
The direct effect of traffic flow differs greatly between urban, suburban and rural areas. Several factors
are relevant to all of these areas. The most desirable situation is one where there is a high local traffic
count. This is bound to prevent any through traffic consisting of heavy, large vehicles that may intimidate
customers. Changes in the periodic traffic flow should also be considered. Large places of employment,
tourist attractions or schools which could affect traffic flow must be examined as well.

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Typeset in Utopia Std 10pt on 13pt

PART 2 MARKETING ACTIVITIES

5. Design and layout

12. Customer service

13. Assets and risks

PART 5 RESOURCE MANAGEMENT

PART 6 STRATEGIC RETAIL MANAGEMENT

Dr J.W. (Whitey) Basson

Instructor’s ancillary material

1.2 Marketing functions of retailing

1.2.1 Retailing as the link between production and consumption

1.2.1.1 Spatial gaps

1.2.1.2 Time gaps

1.2.1.3 Quantity and assortment gaps

1.2.1.4 Ownership gaps

1.2.1.5 Information gaps

1.2.1.6 Value gaps

1.2.2 Functions performed in the marketing channel by retailers

1.2.3 The ability of retailers to create an image conducive to marketing

1.3 The retailing concept

Essentially, consumer service is made up of two components:

1.4 The dynamic nature of retailing

1.4.1 Wheel of retailing

Figure 1.3 Phases of the wheel of retailing

Figure 1.3 shows the phases of the wheel of retailing.

1.4.2 The dialectical process

1.4.3 The retail life cycle

Figure 1.4 The dialectical process

Figure 1.5 Phases of the retail life cycle

1.4.3.1 Introduction phase

1.4.3.2 Fast-tracked development phase

1.4.3.3 Maturity phase

1.4.3.4 Shrinking phase

1.4.4 The retail accordion

Discussion Box 1.2 Expansion into foreign markets

1.6 The role of retailing in the economy

1.7 Trends in South African retailing

1.7.1 Convenience considerations

1.7.2 Expansion and growth of informal markets

1.7.3 Shifting of channel power

1.7.4 Expansion of services

1.7.5 Information management

1.7.6 Retail innovation

1.7.7 Revenue enhancement

1.7.8 Consumer and lifestyle influences

1.7.9 Casualisation and professionalisation of the retail work force

1.7.10 Multichannel retailing

CASE STUDY: The evolution of Cape Union Mart

2.2 The retail landscape in South Africa

2.3 Environmental trends in retailing

Two types of environment are apparent:

2.3.1 Demographic patterns and trends

2.3.1.1 Population size

Table 2.1South African population by race

Group Number Percentage of total

2.3.1.2 Location of the population

Table 2.2South African population by province 2011

Province Population Percentage of total

2.3.1.4 Household structure

Discussion Box 2.1 Radio frequency identification (RFID)

2.3.4 Political and legal environment

Figure 2.1 Inside a Hamleys store