UNIT ONE

Dynamism in Retailing

Environmental theory
A whole array factors shape the nature of retail environments: factors of an economic, social,
political, regulatory, cultural and demographic nature all impinge upon the environment in which
retailers operate. It is easy to see direct links between some environmental conditions and retail
change: for example, a relaxation in regulations governing store opening hours changes the retail
offer available. Other changes in the wider environment may be less direct but still pay a
fundamental part in shaping the nature of retail development; for example, increasing acceptance
of female waged lobour influencing lifestyle and consumer purchasing patterns. Changes in
government planning guidelines may provide further examples of significant environmental
factors.

There are different environmental factors and they are:

1. Changes related to the customer

 Demographics changes- increases or decreases in population numbers, age
groups, racial groups, socio-economic groups etc.
 Attitudes and preferences to purchasing, brands and products;
 Changes in life style whereby time is more important and thereby fast food,
telephone banking, credit card payments and suchlike are becoming important;
 Economic influences based upon real incomes, confidence, numbers of women
working etc.
2. Changes in technology:
 Microwave cookers, food freezers, motor cars, the internet, computer applications
to business, just-in-time delivery systems, and so on.
3. Changes in competition:
  The competitive strength or otherwise of actual or alternative channels of
distribution, depending upon the nature and type of the retail organization. The
impact of the internet is a fundamental example of new types of competition that
can appear.

Conflict theory
Competition between retailers causes changes in the nature of the retail environment. However,
it is not so much the day to day competition between companies that causes institutional change,
but rather the imbalance caused by innovations. Brown (1987 states that a response to innovation
follows a process of four stages. Initially, retailers are in shock at the innovation; secondly. They
deny the threat by means of defensive retreat; thirdly, they then move into a stage of
acknowledgment and assessment; finally, they develop a strategy of adaptation.

An example of retail innovation as a catalyst for change is the introduction of self-service

supermarkets. As the supermarket developed and increasingly took market share from the
traditional specialist retailers a direct reaction by the independents was necessary; in order to
remain competitive, they formed themselves into voluntary groups and buying alliances. The
buying alliances also helped the independents to remain in touch with the prices offered by the
developing supermarket chains. A more recent example is multi-channel retailers. Traditional
bricks and mortar players felt threatened by this new channel of distribution and by the new
pure-play retailers. They seized the opportunity to develop a competing offer, and one that would
complement their existing offer, hence the bricks and clicks approach. Due to the heavy losses
incurred by e-retailing specialists it is now the multi-channel operators that, on the whole, are
more successful.

Cyclical Theories
a. The Wheel of Retailing
This theory addresses the issue of retail institutional change. This theory was given by
McNair in 1931, 1958. This concept proposes ‘a more or less definite cycle’ in the following
way. When retailers enter a market they compete by offering goods at the lowest
possible price or by providing innovative products in order to attract new customers.
As retailers develop their experience and gain capital, they tend to increase their level
of service and quality- and therefore price. This success allows mature retailers to move
steadily into an up market position. However, retailers in this position may become
vulnerable due to high costs, declining efficiency, and perhaps stagnating management
strategies which culminate in downturn sales. If this is the case the retailer may plunge
into decline and even be forced to withdraw from the market. The consequence of this
move around the wheel of retailing is that gap is left at the bottom end of the market-
an opportunity for a new retailer to enter.

In the classic phases of the wheel of retailing there are three strategies: entry, trading up and
vulnerability. At the entry stage a retailer enters a market as a low price, low status
competitor with reduced operating costs. This is reflected in restricted services, low rent
location, modest shopping atmosphere and limited product mix. As the retailers become
successful, an, accepted, other emulate the original business. The retailer then trades up
through success to improved facilities, and offers , enhanced services and improved or
additional product lines. With maturity, the retailer becomes more vulnerable due to inability
to adapt, producing a decline in the rate of return from mature business.

In the practice the wheel of retail can explain some of the changes in the UK retail
marketplace. The changes from corner store to supermarket as private vulnerability occurred
fit the model. However, the factors in model retailing such as size of operation of leading
retailers, the importance placed on branding the loyalty schemes, and a continual drive for
efficiency by all personnel create highly competitive operations. The basic difficulty in
utilizing the wheel of retailing approach is the timescale. It can vary extensively, depending
on the speed of economic, social and technol

\
ogical change.

b. The Retail Accordian Theory

This theory assumes that a retailer initially enters a market as a general retailer;
with experience they focus down on particular product sectors and/or consumer
groups. Over time they begin to diversify their offer in order to grow, but again will
revert to specialization. The premises of the retail accordion theory are that changes in
retail operations operation are related to strategies that alter the selection of the
merchandise mix. An example of this type of pattern is the establishment of small-scale
specialists food retailers such as groceries or bakers followed, overtime, by the takeover
of the food retail sector by large-scale superstores with diverse product ranges. We are
now witnessing the next stage in this pattern: the re-emergence of the small store in the
 guise of convenience formats such as Tesco’s Metro and Sainsbury’s Local and Central
with limited ranges for a different market but trading under the same name, brand and
reputation. The trend to become more general is due to:
i. Expansion of complementary lines as a part of the retail offer.
ii. A skimming policy- that is, carrying more of the profitable lines and creaming
these off those of the competition;
iii. A move to increase the density of shopper’s in-store by providing a complete
range offering.
iv. The growth of large shopping centers which outlets which allow for expansion of
lines and ranges.

c. The Retail Life- Cycle Theory

The retail life cycle theory suggests that retail developments pass through stages. At
birth there are slow rates of growth due to limited resources and experience. This is
followed by a time of rapid growth as efficiency and experience increase. Eventually
growth will level off into the mature stage due to increased costs and competition
and reduced efficiencies. In a mature market the competition remains intense,
growth slows and profits begin to fall. A continued decrease in market share and
profitability will eventually cause the development to decline and, if the situation
worsens, ultimately to withdraw from the market. The less competitive companies,
which have previously entered the market, will be forced out early as the market goes
through a shake-out period. An example, of a company which has had problems in
relation to the life cycle is Woolworths. In an attempt to remain competitive its range was
expanded to a point where the offer was undefined and it became a store of last resort.
The group realized it was not providing adequately providing for the needs of the
contemporary consumer survived only because it recognized the value of adopting a
focus strategy.