Retail Development

Theories have been developed to explain the process of retail development

Theories developed : Revolve around importance of Competitive pressuresInvestments in organizational capabilitiesCreation of sustainable competitive advantage

Growth in retail is a result ofUnderstanding market signalsResponding to the opportunities that arise

1. Environmental Theory Where a change in retail is attributed to the change

in the environment in which the retailers operate

2. Cyclical Theory Where change follows a pattern and phases can be

can have definite identifiable attributes associated with them

3. Conflictual Theory The competition or conflict between two opposite

types of retailers, result in a new format being developed

Environmental Theory

Retail institutions are economic entities

Retailers confront an environment (customers, competitors, changing technology etc.)

Environment can alter profitability of a single retail store as well as of clusters and centres

Environment in which retailer competes is robust to squash any retail form that is unable to adjust

The birth, success or decline of different retail enterprises is attributed to business environment

The ability to adapt to these environmental changes, successfully, is the core of this theory

Eg. Department stores I Western markets

Cyclical Theory

Also known as the “Wheel of Retailing” theory. One of the most well known theories

Described by McNair, helps us in understanding retail changes

Theory suggests that retail innovators often appear as 1. low price operators, 2. with low cost structure 3. and low profit margin requirements offering some real

advantages that enable them to take away customers

While prospecting they develop their business

Offer wide range and acquire expensive facilities

Such trading up occurs as the retailer becomes established in his own right

This in turn leaves room for others to enter and repeat he process

Cyclical Theory

Theory of the wheel of retailing can be better understood by taking the

example of a department store

Starts as a low cost competitor to small retailers They develop and prosper Then they are severely undercut by supermarkets and

discount warehouses This theory does not explain the development of retail in all

markets

In less developed markets, introduction may not necessarily occur at a low

Price

There introduction may occur at a high price

Conflict Theory

Conflicts will always exist between operators of similar formats or within broad retail categories

Belief : Retail innovation does not necessarily reduce the number of formats available to customers

But it leads to the development of more formats

Retailing thus evolves through a dialectic process ie. the

blending of two opposites to create a new format

Conflict Theory

This can be applied to developments in retailing as follows

a. “Thesis” : Individual retailers exist as corner shops all across the country

b. “Antithesis” : A position opposed to the thesis develops over a period of time. These are the department stores. Antithesis is a challenge to the thesis

c. “Synthesis” : There is a blending of thesis and antithesis

The result is a position between the thesis and the antithesis

Supermarkets and hypermarkets thrive

This synthesis becomes the thesis for the next round of evolution

Classification of Retail Stores : On the basis of ownership

Independent Retailer

One who owns and operates only one retail outlet Such an outlet features the owner & proprietor and

few local hands or family members Many independent stores are passed from

generation to generation In India large number of retailers are independent

retailers Example : local baniyas, kirana stores, paanwalla etc. Ease of entry into the retail market is one of the

biggest advantages available to an independent retailer

Depending on the location and the product mix independent retailers determine their own strategies

Chain Retailer Also known as a “Corporate Retailer” When two or more outlets are under a

common ownership Characteristics: Similarity in merchandise,

ambience, advertising and promotion Examples : Park Avenue, Parx (Raymond),Wills

Sport (ITC), Louis Phillipe, Van Heusen (Madura Coats), Arrow (Arvind Mills)

Department stores like West Side, Pantaloons, Globus, Shopper’s Stop, Music World, Planet M , etc.

The biggest advantage for the chain stores is the bargaining power over their suppliers

Cost effectiveness is also possible in advertising and promotion

Franchising

Franchise is a contractual agreement between franchiser and franchisee

Allows the franchisee to conduct business under an established name

The business format is specified The franchisee in return pays a fee or

compensationFranchising can be for the following A product or a trade mark franchise, eg.

Archie’s A business format franchise – Mc

Donald’s

Leased Departments These are also termed as shop-in-shops When a section of a department in a retail store is

leased / rented to an outside party A good method available to a retailer for

expanding his product offering to the customers In India many large department stores operate

their perfumes and cosmetics counters in this manner

This is a new trend emerging in Indian retail Large retail chains are setting up smaller retail

outlets Outlets or counters in high traffic areas like malls,

department stores, multiplexes Outlets in public places like airports, railway

stations Main aim is to be available to the customer near

his place of work or home

Consumer Cooperatives

Consumer cooperative is a retail institution owned by its member customers

Consumer cooperative may arise due to dissatisfied consumers, whose needs are not met by existing retailers

The members of the cooperative largely run these cooperatives

Thus there is limited growth opportunities Examples of cooperatives: Sahakari

Bhandars & Apna Bazaar in Mumbai and the Super Bazaar in Delhi

Kendriya Bhandars are probably the oldest examples operated by the government

Classification on the basis of merchandise offered 1. As food oriented 2. General merchandise retailers

Within this classification they may further be classified on

the basis of target markets they cater to Speciality stores, department stores and

convenience stores cater to a very specific target market

They are many a times referred to as products/ service retailers

Supermarkets, hypermarkets and department stores cater to mass market and are often called traditional product retailers.

Convenience Stores Small stores located near residential areas Open for long hours, seven days a week and

offer limited line of convenience products Eggs, milk, bread, toiletries etc. Store size ranges from 3,000 to 8,000 sq.ft. Targeted at customers who wish to make

purchases quickly Convenience stores as such do not exist in

India formally However retail stores have come up at petrol

pumps like HP, IOC, BPC, Speed Mart etc. These can be termed as convenience stores

Supermarkets These are large, low cost, low margin, high

volume, self service operations Designed to meet he needs for food, groceries

& other non-food items This format was at the forefront of grocery

revolution, and today, controls more than 30% of he grocery market in many countries

Internationally the size of these stores varies from 8,000 to 20,000 sq.ft.

ASDA, Safeway, Kroger and Tesco are some of the large international players

The concept of everyday low pricing (EDLP) is followed by some retailers

Under this the price charged by retailers are lower than those charged by other grocery retailers in the area

Hypermarkets These are huge retail stores occupying an area which

ranges anywhere between 80,000 to 2,20,000 sq.ft. Offer both food and non food items like clothes,

jewellery, hardware, sports equipment, cycles, motor accessories, books, CD’s DVD’s, videos, TV’s, electrical equipment and computers

They combine the supermarket, discount & warehousing retailing principles

Hypermarket concept was pioneered by Carrefour in France

Cheapest prices will normally be found in these stores

Across the world, hypermarkets are usually part of a retail park with other shops, cafeterias and restaurants

Other facilities include banks with cash machines, photo processing shops and pharmacies.

Internationally, hypermarkets are located at he outskirts of major towns and cities

Department Stores These as retail format, originated in the mid

nineteenth century They are large-scale retail outlets, often multi

leveled, whose merchandise offer spans a number of different product categories

The merchandise of various departments is displayed separately in the store

Apparel and furnishing are two of the most common product categories

Some of the well known international players in this format are Marks & Spencer, Sears, J C Penny, Harrods, Selfridges etc

This format of retailing has seen a lot of action over the last few years

Some of the national players are Shopper’s Stop, Westside etc

Speciality Stores

These are characterized by narrow product line, with a deep assortments in that product line

Speciality stores usually concentrate on apparel, jewellery, fabrics, sporting goods, furniture etc.

They have a very clear defined target market and their success lies in serving their needs.

Personal attention, store ambience and customer service are of prime importance to these retailers

Internationally most speciality retailers operate in an area that is under 8,000 sq.ft.

Examples of speciality stores in India are proline fitness station, Gautier furniture, etc

Speciality Stores

These are characterized by narrow product line, with a deep assortments in that product line

Speciality stores usually concentrate on apparel, jewellery, fabrics, sporting goods, furniture etc.

They have a very clear defined target market and their success lies in serving their needs.

Personal attention, store ambience and customer service are of prime importance to these retailers

Internationally most speciality retailers operate in an area that is under 8,000 sq.ft.

Examples of speciality stores in India are proline fitness station, Gautier furniture, etc

Off Price Retailers

Here the merchandise sold is less than the retail price

They buy manufacturer’s seconds, overruns and off seasons at deep discount

The merchandise may be in odd sizes, unpopular colours or with minor defects

Off price retailer may be manufacturer owned or may be owned by a speciality or departmental store

These outlets are usually seen by the parent company as a means of increasing the business

Factory outlets, if owned by the manufacturer, may only stock company’s merchandise

Examples Pantaloon, Levi’s, Raymond's factory outlets

These formats depend on the volume of sales to make money

Catalogue Showrooms

Catalogue retailers usually specialize in hard goods

House ware, jewellery, consumer electronics etc

Customers walk into these showrooms and go through the catalogue of products they would like to purchase

Sometimes customers are asked to write the code number and hand it over to the clerk, who hen arranges for the product to be brought out from the warehouse for inspection and purchase

Examples : Electronics & Electrical Equipment, Building Accessories, Sanitary Fittings, Paints etc

Non Store Retailing Ultimate form of retailing directly to the

consumers Direct relationship with the consumer Can be classified into direct selling and direct

response marketing

Direct Selling Involves making of personal contact with end

consumers at his home or his place of work Cosmetics, jewellery, food and nutritional

products, home appliances and educational materials are some of he products sold in this manner

Direct selling industry started in India in mid-1990s, went through a bad phase and today has attained a significant worth of Rs.1,500 crores

Direct Response marketing Involves various non personal methods of

communication with the consumers and these include

- Catalogue retailing - Television retailing - E- retailing

Mail Order Retailing/Catalogue Retailing It eliminates personal selling and store

operations Appropriate for speciality products Key is using customer database to develop

targeted catalogues that appeal to narrow target markets

The basic characteristic of this form of retailing is convenience

Television Shopping Asian Sky Shop was among the first

retailers who introduced television shopping in India

The product is advertised on the television, details about the product features, price and other things like guarantee and warranty are explained

Phone numbers are provided for each city, where the buyer can call in and place the order for the product

The products are then delivered

Electronic Shopping

This format allows customers to evaluate and purchase products from the comfort of their homes

Success depends on the products that are offered and the ability of the retail organization to deliver the product on time

Strong supply chains and delivery mechanisms need to be in place for it to be a success

Many retailers are opting to sell the products on the internet