Marketing and retail business

Retail management
Unit 1
Theories of retail development

Objective of the Study

The basic objective of study is to analyze various theories like
 Environmental Theory
 Cyclical Theory
 Conflict Theory

The theories of Retail Development relate to environments and the conflicts occurring in market.
They are cyclic in nature because it is a continuous problem for all retailers to emerge and grow
in a sustainable way.
Environmental Theory:-
• Environment is changing with the impact of various forces to create innovations in the
retail industry.
• The customer is becoming more educated aware and updated to demand products which
relate to the intellectual life based on knowledge and creativity.
• The retailers are forced to design models which can give comfort and value to the
customers
The retail industry looks to be passive that it has direct communication between the retailer and
buyer but the industry is continuously being under pressure because of the changing
environment, where customer is becoming aware through the media and internet and is
demanding those products from the retailers. The customers want all comfort and convenience.
The channels of shopping are changing; it is not only on the one channel that the customer is
depending. He needs various channels to access as per his requirement of emergency and
comfort. If he has time and needs to entertain himself, he will want organized format l and will
go for a shopping for a pleasure. If he has no time and he is busy would prefer the online
channel. So it is essential for retailers to develop all the channels in a professional way.

Cyclical Theory by McNair

Retail innovators (RI) try to operate in market at Low-price operators. They have a Low cost
structure if the cost structure is low, profit margins are also low.
This offers real advantages and the customers get better benefits or they take away good prices
from retailers because the competition is high in market.
This theory says, there is a cycle i.e. If the retail investors want to operate in market, they have
to work at low structure. They try to find out solutions where labor is low. They try to source
goods at a cheaper rate. The advantage of all sourcing and designing goods is transferred to
customer. The customer enjoys because somebody is working for him to get solutions which are
sourced at an easy rate and developed at prices affordable for the customers.
Retail Innovators who develop and establish markets
Development is high but focus is lost on cost and what is important for business. This can give
space for new entrants to repeat process with good discounts and low cost structures.
Retail innovator and investors develop the market to give solutions to customers at lower costs
but in course of time the solutions are also copied by competitors and the whole exercise

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generally becomes difficult for the innovators to cash on to stay on that mark. For e.g. like Geo
was offering services at free of cost but the same innovation is also copied by other competitors
who are also giving better solutions to customers at very low cost. The solutions which are
generally attractive to the customers.
Conflict theory
The Retail innovation leads to development of more formats
• The consumers get more choices to fulfill their options
• The two opposite formats can combines to create a new format
Synthesis of formats - individual retailers and departmental stores can combine the stores to
form supermarket and hyper market.
Retail industry - In conflict theory, we develop stores which cater to the needs of 50 to 100
customers. There would be other retailer, who would be departmental store catering to 500
customers.
With the course of development and competition impacting both the streams of retailers, they try
to synthesize and collaborate so as to develop supermarket and hypermarket, so that, they can
have access to at least 700 customers. If 500 customers are coming and they are not getting
specialized services, the departmental store also has the fear that it may lose customers in long
run. It tries to collaborate with innovative people and come out with the development of
supermarket and hypermarket, where all facilities and solutions can be made available to the
customers at one location. This increases footfall, in that particular area.
Synthesis – The discount store and departmental store can emerge as a discount departmental
store. We can talk about a discount store, is like Snap-deal which emerged as a website and was
only offering promotional coupons, that was something innovative which the website has
thought and that came in the market as a cool breeze to the customers. They got those coupons
and were trying to shop on Amazon but with the course of time, there were millions of customers
emerging on it. Snap deal also had to merge so as to survive in the market. So, there are
takeovers and mergers happening in the market which try to emerge as a store where customer is
benefitted with each aspect.
Wheel of Retailing:-
Retailers often enter the market place with low prices, margins, and status.
• Low prices are usually resulting of innovative cost-cutting procedures and soon attract
competitors.
Wheel of Retailing - when initially, a retailer comes and tries to operate in market to attract the
customers at a low price because he tries to work and find out a solution which is innovative. He
tries to collaborate with people who have specialized services to give a package which is
innovative. But soon, the whole exercise is also copied by the competitors.
Business strives to broaden their customer base with increased sales. The operations and
facilities with larger scope and impact become more expensive.
Each business needs a base of customers. Customers are becoming demanding and to fulfill the
needs of operations and facilities are becoming expensive for the investors. It is very difficult
and the pressure for big investors to give all facilities related to parking, experience, joy,
entertainment. The every facility which is designed for customer involves the basis of cost and
investment.

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Retail Accordion: - Retail Accordion states that the retail institutions evolve with wide variety
of products and services but then evolve to build specialized stores with unique services needed
for particular segment of customers.
Now when big investors come, they try to land up with many facilities but with the course of
time, they try to understand customers and emerge with a facility which is very essential for
customers. They try to look after a segment of customers with specialized facility to attract that
customer. They develop all kind of services required to keep that base.
The retail accordion theory with time and wide assortment narrows to specialize assortments.
See, initially we come out with may be 2-3 lakhs of products but then we realize that the local
needs of customers connect with only this assortment. So, we work with that assortment and try
to build a range with that particular market segment, may be, it is a luxury or middle segment or
it is connecting to poor customers. Whatever location is and whatever is need of local market, the
assortment is generally specialized according to the area.
The Retail Life Cycle: - The retail development is impacted by four stages like Introduction,
Growth, Maturity and Decline.
Introduction: - The entrepreneurs enter the market to develop products which are innovative
and profits are low at this stage to attract the customers. The sales can be high with low margins.
The first investment that comes in market, like of mobiles, initially entered the market was the
introduction stage. They had to keep prices low to attract the customers.
Growth:-Sales and profits explode. New retailers enter the market and begin to copy others idea.
Late in this stage, both market share and profitability approach their maximum levels. You have
branded mobiles; you have china's investors coming up with local brands with same rates
offering solutions. So, obviously, a retailer who initially innovated and designed the idea has
been copied by the competitors. They are offering cheaper solutions because to understand the
market becomes easy for all the sellers.
Maturity:-Market share stabilizes and profits decline. There is shift in type of establishment.
There is overexpansion and competition,
Maturity of mobile markets in India - Most of the manufacturers are working with a meager
margin of Rs 500. So you can understand what the dealer will earn and what the retailer will
earn. The margins are minimum so as to get profitability and sustainability in the market.
Decline: The once promising idea is no longer needed in the marketplace. As a result, market
share and profits fall.
The once promising idea is no longer needed in the market place, as a result market share and
profitability falls. The customer shifts their base to other products. It is estimated that smart
phones in near five years will become outdated and the customer who is with the smart phones
will be considered remote. We will have other virtual telecommunication devices with virtual
screens. So, the decline in the industry is sudden. Again, a new idea comes and the life cycle of
the market starts.

Retail Institutions in the Various Stages of Retail Life Cycle

 Introduction
 Growth
 Maturity
 Decline

 Retailing in 1990’s,

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  Recyclers in 2000’s
 Liquidators in 2000
Growth was of food courts. The airport based retailers and supercentres in 2000. Then maturity
was of warehouse clubs, supermarkets, convenience stores and fast-food. The decline was of
variety stores in 1880’s, the factory outlet malls of1970's and departmental stores of 2000. The
new concept of E-commerce has emerged and has given a different shape to the retail industry.

Resource-Advantage Theory: - Business needs performance in the changing environment

impacted by various forces. Effective performance can build competitive advantage in the
market. Every destination has one resource which is an advantage. May be, if you talk about
economy like India, population is advantage, if we talk about a country like Germany, oil
resources is an advantage, if we talk about US, technology is an advantage. So every destination
has some advantage where access to that facility is easier and at a cheaper rate. So this advantage
can be used to make products which can be designed at lower cost as compared to other
destinations. The phase of wheel of retailing basically revolves into three phases
 Vulnerability Phase
 Trading up phase
 Entry Phase.

Entry Phase & Innovative Retailer -relates to small store with goods at low prices, attracts
customers, and costs at minimum, minimal service to customers, low rent area, Limited product
mix.
Its differentiates products for the process of trading up, then when you innovate i.e. you scale up
your facilities so that you can reach up to customers demand. You start up with low margins,
low profits and low cost based goods but then as the demand comes, you scale up.

Trading up Phases more elaborate changes in the external structure, you offers maximum
customer services, you have posh shopping atmosphere, you relocating to high cost area,
increase the cost of the retailer, and Institution will metamorphose into a traditional retail
institution so as to lead into vulnerability phase. Now once the business starts working the
retailers need to fulfill the needs of the customers. They upgrade the facilities; they try to
upgrade the locations also but with this up gradations ends up with the increase in the cost of
business leading to vulnerability. So when we talk about phases of retailing its difficult because
the markets are changing, it's not same every day, the perception, the experience, the customer,
the faith, sentiments everything is changing in the market and so the maturity and the levels of
the investments and the way the retailers work also change with the phase of development.
Vulnerability Phase - is to Deal with high costs, conservatism and a fall on ROI, Matures into
an established firm and becomes vulnerable to the new innovator who enters the market. The
entry of new innovator marks the end of cycle and beginning of new cycle into the industry.
Every industry has an end and the new industry which develops overtakes remote industry with
innovations, where cost is lower. If you about music industry, initially, we used to sell cassettes,
then CD’s, then you had MP3. Now because of the internet technology, we have downloads and
you- tube videos, where technology has given us access to direct connection with the music
composers. The entertainment industry has reverse cycle because of innovations. So how
industry designs and works on cost is changing up, with each phase of market.

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Melting Pot Theory - by Thomas J. Maronick and Bruce J. Walker
Formats with different advantages modify their retail structure that combines the advantages of
both formats. All the features are compiled in one store, Strategies and tactics are developed to
build the attraction for consumers.
Melting Pot - The two formats melt and try to evolve with an innovative format. We have
exhibitions, stores which are different from e- commerce websites. They different from
organized retail sectors, like Zara or H&N brands, which are based in London or US or India are
generally attracting customers with large foot falls because of tourism. It is because of
experience, which people get to see cultures, variety and sense of fulfillment to wear clothes and
see how they look. These formats are evolving with different innovative decoration and
experience to give pleasure of discount, sale and latest trends to customer to view production in
better way.
Melting Pot Theory - The products and services are modified and upgraded. The retailers adopt
to develop offerings, facilities, supplementary devices and prices. The synthesis is created by the
modification of various formats of retailers to give better solutions to customers.
Organized retailing - The malls invite brand. Most of the malls are now also inviting local
Manipuri, samosa, tatoos or mehindi. People who are looking into customer sentiments of
connecting with local culture and values. This is happening in market in a big way. It is not very
essential that retail segment will only survive with one format. Most of the formats have melted
and come up with a solution to give customer, the sense and desire of fulfillment of local needs.
Like if, Rakshbandhan is celebrated in India, even foreign agencies would offer products related
to that festival in that particular destination. May be the agencies are in other destinations, will
not offer that product. But if you don't celebrate local festival with people, people will not
connect because local traditions bring lot of joy and happiness to people's life.
New Entrants of Retailing market -They emerge in form of price cutting, low cost, narrow
profit margin operations. Improvement can be done by
 Displays and location
 Providing credit
 Delivery
 Raising advertising expenditure.
Retail formats - it’s always essential to look into the needs of customer with a cost which is
affordable and convenient. It can be designed by developing services and attracting customers
through advertisements. Retail maturity is impacted by high cost of operation because property
rates are increasing with high price conservative operators making them venerable to new and
low price infants. You develop malls and you develop big shopping location where the cost
automatically increases, you never realize that retailer would come to a cheap destination and
would give better facilities at lower rate. A low price retailer should avoid incurring extra costs
on the existing format and instead should open another store with better service levels and
premium brands catering to up-market segment. These stores should be distinct in their brand
name, offerings and operations. It is very essential that we can open up branches but we cannot
expand the structures to increase cost and create confusion for investors because when the stores
are small, cost is low and connection with customer is easy. It is connected to a specific segment.
Natural Selection theory -This theory is based on Darwin’s theory of Evolution. According to
this theory.
A retail institution will survive in a competitive market only if it is willing to change its:-
1. Price

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 2. Product line
3. Location
4. Promotional strategies
Social, economical, legal and technological advantages - Selection theory - “The survival of
the fittest" is any retail segment would survive in a local market. If it is able to change its price,
product and promotion according to customer need, their legal environment, economic aspects
will impact values and tradition because each market has a different disposable income.
Obviously if market is not ready to purchase costly products, investors need to understand that
they would fail in this market; they need to develop new product line in order to connect with
customer.
Most of automobile investors like car industries and other industries are trying to connect with
customers in a range which is between 2 to 3 lacs. Even luxury range is coming between 10 to 11
laces which were initially very high.
Summary -In this lecture, we have studied various theories of retail management where we have
studied environmental theory, conflict theory and we have also studied wheel theory and melting
pot theory.
All the theories have different concepts in terms of innovations and growth. The retailers need to
design products and solutions in such a way that they are affordable. The customers will connect
to discounts and promotions and advertisement, when retail formats try to expand operations in
terms of costly locations and of upgrading facilities, they increase operating cost. The return on
investment decreases and here is venerability phase. So retailers need to understand where
operation needs to be stopped so that the cost is maintained and customer segment has to be
specific to give them services according to their budget and way of shopping.