Unit 2

Retail Theories & Strategy:

Theories of 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.
Evolution of retail formats in different times:
• 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.
• 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.
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.
4. 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.

4. 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.
 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.
• 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.
1. 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.
• 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
2. 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.
• The wheel keeps on turning and department stores,
supermarkets, and mass merchandise went through this
cycles

Innovative retailer
Mature retailer
Low status and price
Top heavy
Minimum service
Poor facilities
Declining ROI
Limited product offering

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

T
Trading up phase
3. Conflict theory (dialectic Process)

• 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. This can be applied to
development in retailing like;
A. Thesis: Individual retailers as corner shops all across the
country.

B. Antithesis: A position opposed to the thesis develops over a

period of time . (department store, discount store). The
antithesis is a challenge to the Thesis.

C. Synthesis: There is a blending of the Thesis and antithesis.

The result position between the thesis and antithesis.
Supermarkets and hypermarkets flourish. This “synthesis”
for the next round of evolution.
 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
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.
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.

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.
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.
SALES The Concept of Life Cycle in Retail

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.
• 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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Thank You