Retail- Theories

Theoriesof Retail Development,

The concept of Life cycle in Retail Strategy
The Evolution of Retail Format

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

•Earlier markets were dependent on local sources for supplies of

perishable foods because journeys were far too. And long distance
transportation.

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

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Evolution of retail formats in different times

1. Social Developments and their impact:

 The development of trading has been intimately associated
with social developments over the ages.
Two important developments of the 18th century –
1. The development of rail roads and telegraphs which largely
affected the growth of retail trade.
2. In 1852 Bon Marche, the first departmental store , was set up
in Paris.
 Bon Marche revolutionized retail at time by relying on volume
rather than high mark up, to make money.
 By the year 1897,the store sold more than $30 million worth
of goods per year.

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

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

2. The Industrial revolution:

 The industrial revolution call for dramatic changes on the retail front.
 The increase in urbanization lead to the emergence of shops, to
serve the needs of the locals.
 The middle income consumers increased and mass transportation
become a way of life
 Mass manufacturing made it possible to manufacturing goods in
large quantities.
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3. The emergence of self service:
 Retail evolve in many ways over the 20th century.
 Self service as a concept started in 1916 when Clarence
Saunders started the first self service store.

4. The development of supermarkets and convenience

stores:
 The emergence of the supermarkets first saw in 1930’s. first
hypermarket that was developed by Carrefour in France in
1963.
 The new formats gave the customer the choice of picking up a
product, comparing it with others and then taking a decision
on buying.

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5. Speciality stores, malls & formats:
 As the needs of the consumers grew and changed it was visible the
emergence of commodity specialized mass merchandisers in the
1970s.
 The 70s were witness to the use of technology in the retail sector
with the introduction of the Barcode.

6. The Rise of the Web:

 The world of retail changed again in 1995, when Amazon. Com
opened its doors to Worldwide market on the Web.
 With the growth of the world wide web , both retailers and
consumers can find suppliers and products from anywhere in the
world.

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Theories of Retail Development

Retail Development from the theoretical perspective:

 No single theory can be universally applicable or acceptable. The

application of each theory varies from market to market ,
depending on the level of maturity and the socio-economic
conditions in that market.

 The retail scenario keeps changing continuously. These changes

are brought by ever changing customer requirement, economic
development of the nation , falling borders, new technologies and
by entrepreneurs.

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 Classification

 Growth in retail is a result of understanding market signals and

responding to opportunities that arise in a dynamic manner.
 Theories of retail development can broadly be classified as:

1. Environmental: where a change in retail is attributed to the

change in the environment in which the retailers operate.

2. Cyclical- where change follows a pattern and phase can have

definite identifiable attributes associated with them.

3. Conflictual: where the competition or conflict between two

opposite types of retailers, leads to a new format being
developed.

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Environmental theory

 Darwin's theory of natural selection has been

popularized by the phrase” survival of the fittest.”

 Retail institution are economic entities and retailers

confront an environment which is made up of
customers, competitors and changing technology.

 So the birth, success or decline of different forms of

retail enterprises is many a times attributed to the
business environment.

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

 Thus Following the Darwinian approach of survival of

fittest, those retailers that successfully adapt
technological, economic, demographic and legal changes
are the ones that are most likely to grow and proper.

 The Ability to adapt to change, ‘‘successfully “is at

the core of this theory

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 Cyclical Theory

 The most well know theory of retail evolution is the retail wheel of
retailing theory.
 This theory suggests that retail innovators often first appear as low
price cost operators with a low cost structure and low profit margin
requirements, offering some real advantages.
 As they prosper , they develop their business, offering a greater
range or acquiring more expensive facilities they lose the focus. (on
which they entered in the market). This phase is known as ‘trading
phase’. This in turn leave room for others to enter and repeat the
process.
 They then become vulnerable to new discounters and lower cost
structure as they are now Mature retailers.

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

se
p ha

Ent
ry p
ility

Mature retailer Innovative retailer

has
rab

Top heavy Low status and price

Minimum
Minimumservice
service
ne

e
Poor facilities
Vul

Declining ROI Limited product offering

Traditional retailer
Elaborate facilities
Higher rent
More locations
Higher prices
Extended product offerings

Trading
T up phase

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Conflict theory

 Conflict always exit between operators of similar

formats or within broad retail categories.

 Retail innovation does not necessarily reduce the

number of formats available to the consumer, instead
, it leads to the development of more formats.

 Retailing involves through a dialectic process, i.e.

blending of two opposite to creates a new format.

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The Concept of Life Cycle in Retail

 The concept of product life cycle as explained by Philip Kotler is

applicable to retail organization.

 This is because retail organization pass through identifiable

stages of innovation, development, maturity and decline. This is
commonly termed as the “Retail Life Cycle”

 Attributes and strategies changes as institutions mature.

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

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 A. Innovation:

 A new organization is born; it improves the convenience or create

other advantages for the final customers, which differ sharply
from those offered by other retailers. This is the stage of
Innovation.

 In Innovation organization have very few competitors.

 Because it is new concept , the rate of growth is fairly rapid and

the management fine-tunes its strategy through experimentation.

 At this stage the level of profitability re moderate and this stage

can last up to five years, depends on the organization.

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 B. Accelerated Growth:

 The retail organization faces rapid increase in sales.

 As organization moves to stage two of growth ,which is the stage

of development, a few competitors emerge.

 As company has been in the market for a while it is now in a

position to pre-empt the market by establishing a position of
leadership.

 At this stage since growth is imperative, the investment levelis

also high as is the profitability.

 This stage last from 5-8 years.

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 C. Maturity:

 The organizational this stages still grows, but competitive

pressures are felt acutely from newer forms of retailing that tend
to arise.

 Thus growth rate tends to decreases.

 Gradually as marketers become more competitive and direct

competition increases, the rate of growth slows down and profits
also start declining.

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

 A change may occur not only in the format but also in the
merchandise mix offered.
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 D. Decline:

 The retail organization looses its competitive edge and there is a

decline.

 At this stage organization needs to decide is it is still going to

continue in the market.

 The rate of growth is negative, profitability declines further and

overheads are high.

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 The Concept of Life Cycle in Retail
SALES

Maturity
Decline

Growth
Profit

Innovation

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

 Hence it is difficult to identify a retail organization which has passed

through all the four stages of the retail life cycle.

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

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

 Later competition gives lots of other angles also , like

Speciality store, book store, Music store etc.

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Classification of Retail Formats

1. Form of Ownership
• Independent retailer: Example only one retail outlet
Premsons, Benzer etc.
• Chain retailer: examples, Wills Sports, Louis Philippe,
Van Heusen
• Franchise: examples Mc Donald, pizza hut, Dominoes
etc.
• Leased departments: airport, malls Multiplexes. etc.
Leased one
• Consumer co-operatives: kendriya bhandar,apna bazar

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 Basis of the Merchandise offered
• Convenience stores

• Supermarkets

• Hypermarket

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Classification of Retail Formats

Classification of Retail Stores

Store Based Non-Store

Retailing Retailing

Form of Ownership Merchandise offered Direct selling

Independent retailer Convenience stores
Chain retailer Supermarkets
Mail order
Franchise Hypermarkets Tele marketing
Leased departments Speciality stores Automated
Consumer co-operatives Departmental stores
Off price retailers
Vending
Factory outlets
Catalogue showrooms

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