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             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
2.   The Industrial revolution:

    The industrial revolution call for dramatic changes on the retail
    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
    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

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

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

   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

                                        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

                               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

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.


                Antithesis                         Thesis

               Discount Store                Department Store

                                Department Store

         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

    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

    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


                     Growth   Profit



   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

   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.

             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
•    Franchise: examples Mc Donald, pizza hut, Dominoes etc.
•    Leased departments: airport, malls Multiplexes. etc. Leased
•    Consumer co-operatives: kendriya bhandar,apna bazar

   Basis of the Merchandise offered
•   Convenience stores

•   Supermarkets

•   Hypermarket

           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
                         Factory outlets
                         Catalogue showrooms


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