Retailing Theory

The wheel of Retailing (Malcomb McNair)

 Theory of cyclical or circular development
 Retail firms enter as low margin,low
price,low status stores,with few customers
service
 Entry phase: Decide on competitive strategy
say discount pricing.stores are designed &
built,merchandise assortment selected &
distribution system developed to offer broad
range of general merchandise at lowest
possible price (Wal-mart)
 The wheel of Retailing
 Trade-up phase : stores become more profitable &
competitive,begin to upgrade
offerings,design,layouts,add more services
&amenities & upscale the merchandise & prices
 Vulnerability phase :stores evolve into high cost
merchants thereby becoming vulnerable to low
cost,low service competitors in the entry phase
 Wheel of retailing has been criticized for not
explaining all changes in retailing.In fact many stores
do not start as low price,low service outlets
 Retailing Life Cycle

Cash flow

0
Intro Growth Maturity Decline

Time
 The Dialectic process
Blending of two opposing store types into a
superior form
 Specialty stores + Discount stores
specialty discount stores
 Natural selection
 Retail stores evolve to meet changes in
macroenvironment – adopting successfully to
technological, social, demographic, economic &
political/legal changes grow & prosper
 Variety store – failed
TV home shopping n/w –success
 More inclusive than wheel of retailing & dialectic
process –based solely on profit-cost analysis
 Retailers will succeed only by knowing their
customers tastes, wants, desires & expectations
 Retail mix
Retailers differentiate their product\service mix by:
 Merchandise policy: degree of variety within

product lines
 Scope of mkt. Coverage: range of mkt segments

a store attempt to attract

 Level of customer service:
 Marketing programs: pricing policies, use of brand &

promotional practices
 Forms of ownership

Types of retail ownership are

 Independent,single store establishment
 Corporate chains
 Franchises
Independent,single store establishments

 Retailers own & operate a single store

 Mgt has direct contact with customers & can
respond quickly to the needs
 Aren’t bound by any bureaucratic rules that
restrict store location & types of merchandise sold
 Can tailor their offerings to customer needs
 Rely on owner manager’s capabilities to make
broad range of retail decisions
 Corporate Retail Chain
 Consists of multiple retail units under common
ownership
 Range in size from a drug store to retailers with
1000 stores(wal mart,kmart.J.C.Penny)
 Large retail chains can be very bureaucratic
 Many retail chains are divisions of large
corporations or holding companies
 Many corporations permit individual chains to
operate independently,others fully integrate acquired
chains into the corporation
 Concern that it will drive local retailers out of
business
 Franchising
 Contractual agreement b/w a franchisor & a
franchisee that allows a franchisee to operate a
retail outlet using a name & format developed
& supported by franchisor
 Franchisee pays an annual fee + royalty on all
sales for the right to operate the store in a
specific location
 Franchising
 Agrees to operate the outlet in accordance
with the procedure prescribed by franchisor
 Franchisor provides legal, Training, financial,
marketing, training assistance & also locating
& building store, product development
 Advertising, product development & system
development are efficiently done by
franchisor, with cost shared by all franchisees
 Both franchisor & franchisee are motivated