retailing

Some theoretical Concepts

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Ranjan Chaudhuri

Some Constructs

Theories of Retail Development

No single theory can be universally applicable or acceptable. The retail scenario keeps changing continuously. These changes are brought by ever changing customer requirement, economic progress of nations and new technologies

Classical Theories of Retailing

Environmental Theory:A whole array of factors shape the nature of Retail Environments. Factors

Changes related to the Consumer

Demographic changes Attitudes and preferences to purchasing, brands and products Changes in Life Style Economic Influences

Changes in Technology Changes in Competition :The competitive strength of actual or alternative channels of distribution depending upon nature and type of Retail organization.

NATURAL SELECTION

An earlier theory, natural selection, has the stronger intuitive appeal for explaining change in retailing institutions. It follows Charles Darwins view that organisms evolve and change on the basis of survival of the fittest. In retailing, those institutions best able to adapt to changes in customers, technology, competition, and legal environments have the greatest chance of success. The Ability to adapt to change, successfully is at the core of this theory

Cyclical Theories of Retailing:

Retailing Wheel Retail Life Cycle

Wheel of Retailing: McNair, 1958

When Retailers enter a market they compete by offering goods at lowest possible price or bold new concept or innovation etc. in order to attract customers. As they develop their experience and gain capital, they tend to increase their level of service and quality and therefore their price. This success allows mature retailers to move steadily into an up-market position. But Retailers in this position may become vulnerable due to high costs, declining efficiency and stagnating management strategies which culminate in down turn in salescontd.

Wheel of Retailing

..contd.

Due to low sales the retailer may plunge into decline and even be forced to withdraw from the market. Around the Wheel of Retailing a gap is left at the bottom end of the market.

An OPPORTINITY for a NEW RETAILER

The Wheel of Retailing

The wheel keeps on turning as the department stores, supermarkets, and mass merchandisers pass through these cycles

r ry Ent s Ent se ha pha

Vul n pha erabil ity se

Mature retailer Top heavy Declining ROI

Innovative retailer Low status and Minimum price Poor service Limited facilitiesproduct offering

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

TTrading up phase

Retail Wheel
Basic Hypotheses:
1.There are many price sensitive shoppers willing to trade customer services, wide selections and convenient location for LOWER PRICES 2. Price sensitive shoppers are often not store-loyal and are willing to switch to retailers offering lower prices. Other prestige-sensitive customers like to shop at stores with high-end strategies. 3. New institutions are frequently able to implement lower operating costs then existing institutions. 4. Retailers typically move up the wheel to increase sales, broaden the target market, and improve store image.

The RETAILING WHEEL High End Strategy vulnerability

High Prices Excellent Facilities Upscale consumers Medium Strategy trading up

Moderate Prices Improved Facilities

Low end strategy innovation

Broader base of valueand-service conscious consumers

Low prices,

Limited facilities and services

Prices sensitive consumers

Limitations of Wheel of Retailing

A) Focusses exclusively on changing cost and gross margin relationship as the key to understanding Evolutionary Retail Behaviour.

B) It was only intended to determine the pace with which retail innovations rise and fall

THE ACCORDION THEORY

The Accordion Theory, the second cyclical theory, proposes that the retail institutions fluctuate from the strategy of offering many merchandise categories with a shallow assortment to the strategy of offering a deep assortment with a limited number of categories. This expansion and contraction calls to mind an accordion.

Figure 1(a) The wheel of retailing; (b) the retail accordion

The Dialectic Process

Retail Life Cycle

(Davidson, Betes and Bass, 1976)

Retail institutions pass through A Life Cycle having following stages: INNOVATION ACCELERATED DEVELOPMENT MATURITY DECLINE

Retail Life Cycle

Accelerated Innovation Development

Maturity

Decline

Retail Life Cycle

Number of Competitors

Accelerated Innovation Development Very Few

Very Few Moderate

Maturity
Many Direct Moderate Indirect

Decline
Moderate Direct Many Indirect

Retail Life Cycle

L Growth/Profitability/Duratio n

Accelerated Innovation Development Very to Moderate Low Few

3-5 Years Very Rapid Rapid High 8 Years

Maturity
Moderate to Slow Moderate Indefinite

Decline
Slow or Negative Very Low Indefinite

Retail Life Cycle

L Investment/Growth/Risk Decisions

Accelerated Innovation Development Very Few High Risk

Accepted Necessary Investment Min Investment High to Sustain Growth

Maturity

Decline

Tightly Controlled Growth Marginal Capital in Untapped Markets Expenditures, & Only if

Retail Life Cycle

L Central Management Concerns

Accelerated Innovation Development

Maturity

Decline
Engaging in a Run-Out Strategy

Concept Refinement Establishing a Excess Capacity & Very Few Through Adjustment Preemptive Overstoring; Prolonging & Experimenting Market Position Maturity & Revising the Business Concept

Retail Life Cycle

Use of Management Control Techniques

Accelerated Innovation Development Very Few

Minimal Moderate

Maturity
Extensive

Decline
Moderate

Retail Life Cycle

Most Successful Management Style

Accelerated Innovation Development Very Few

Entrepreneurial Centralized

Maturity
Professional

Decline
Caretaker

Implications of Retail Life Cycle for the Retailers Stay Flexible Analyze risks and profits Attempt to extend maturity stage Emphasize RESEARCH