Retail Formats & Theories Chapter 2 2/16/2024 Retailing Management - Swapna Pradhan 1 Objectives • • • • • The evolution of retail formats Theories of retail development The retail life cycle Classification of retail stores The role of franchising in retail 2/16/2024 Retailing Management - Swapna Pradhan 2 The Evolution of Retail Formats • • • • • • Social developments and their impact Bon Marche 5 and 10 cent stores Montgomery Ward Atlantic & Pacific The Industrial Revolution Self service Supermarkets Speciality stores, malls and other formats The World Wide Web 2/16/2024 Retailing Management - Swapna Pradhan 3 Theories of retail development • Environmental theory • Cyclical theory • Conflictual theory Scrambled merchandising The Wheel of Retailing 2/16/2024 Retailing Management - Swapna Pradhan 4 SALES The Retail Life Cycle Maturity Decline Growth Profit Innovation TIME 2/16/2024 Retailing Management - Swapna Pradhan 5 The Wheel of Retailing Mature retailer Top heavy Conservative Declining ROI Innovative retailer Low status and price Minimum service Poor facilities Limited product offering Traditional retailer Elaborate facilities Higher rent More locations Higher prices Extended product offerings Trading up phase 2/16/2024 Retailing Management - Swapna Pradhan 6 Growth of Retail Markets MATURITY (5-10 years) GROWTH (15-25 years) INCEPTION (10 years) Characteristics: Characteristics: S A L E S • Evolving, diffused formats • Evolving, diffused formats • Regional presence • Regional presence • Conjectural presence in each market • Conjectural presence in each market • Lower market share per market • Lower market share per market • Lack of availability of retail real estate • Lack of availability of retail real estate space at reasonable cost space at reasonable cost • High degree of competition from • High degree of competition from unorganised players unorganised players • Investment stage with high incremental •investments Investment stage with high incremental investments • Mainly promoter and angel investor •financing Mainly promoter and angel investor financing • Presence in few merchandise • Presence in few merchandise categories categories • Lack of scientific merchandise planning • Lack of scientific merchandise planning process process • High bargaining power of vendors • High bargaining power of vendors • High logistivs and merchandise • High logistivs and merchandise acquisition costs acquisition costs • High degree of resistance from • High degree of resistance from consumers towards organised formats consumers towards organised formats • Risks: • Risks: • Availability of finance • Availability of finance • Low fixed cost coverage leading to • Low fixed cost coverage leading to high operating leverage high operating leverage • High individual property risk • High individual property risk • Format risk due to lack of stability • Format risk due to lack of stability • Market risk in terms of acceptability of • format Marketbyrisk in terms of acceptability of customers format by customers African markets Characteristics: Characteristics: Characteristics: Characteristics: • Established format characteristics • Established format characteristics • Development of speciality formats • Development of speciality formats • Movement towards national presence • Movement towards national presence • Rapid expansion phase • Rapid expansion phase • Availability of retail space at reasonable • Availability of retail space at reasonable costs costs • Growth in internal and external • Growth in internal and external competition competition • Larger penetration into individual •markets Larger penetration into individual markets • Accelerated investments in new •projects Accelerated investments in new with lower incremental projects with lower incremental investments investments • Private equity, venture capital, debt and • Private equity, venture capital, debt and equity market financing accessible equity market financing accessible • High cost of financing • High cost of financing • Increase in breadth and depth of • Increase in breadth and depth of merchandise categories merchandise categories • Introduction of scientific merchandise • Introduction of scientific merchandise planning process planning process • Focus on private label development • Focus on private label development • Bargaining power with vendor • Bargaining power with vendor increases increases • Consumers start accepting new formats • Consumers start accepting new formats • • • • • • • • • • • Increasing specialisation in formats • Increasing specialisation in formats • National and international presence • National and international presence • New store expansion tapers • New store expansion tapers • Oversupply of retail space • Oversupply of retail space • Significant competition from other • Significant competition from other organised players and overlapping organised players and overlapping formats formats • Increasing focus on differentiation •strategies Increasing focus on differentiation strategies • Peak penetration into individual • Peak penetration into individual markets markets • Market share stagnates • Market share stagnates • Low incremental investments required • Low incremental investments required • Investments funded through internal •accruals Investments funded through internal accruals • Cost of financing declines • Cost of financing declines • Customer acquisition costs increase • Customer acquisition costs increase • Substantially large breadth and depth • Substantially large breadth and depth of merchandise categories of merchandise categories • Private labels assume strategic •significance Private labels strategic for assume improving profitability significance for improving profitability • Vendors enjoy low bargaining power • Vendors enjoy low bargaining power • Increasing collaboration with vendors to •drive Increasing with vendors to supply collaboration chain efficiencies drive supply chain efficiencies • Consumers demand higher service • Consumers demand higher service levels as awareness increases levels as awareness increases Risks: Risks: Finance availability Finance availability Highly geared financial structure Highly geared financial structure Private label establishment Private label establishment IT integration IT integration • Risks: • Risks: • Market risk due to increase in • Market risk due to increase in competition competition • Consumer retention risks • Consumer retention risks Indian markets South Asian markets STAGNATION (5-10 years) Characteristics: Characteristics: • Consolidation of formats • Consolidation of formats • National and international presence • National and international presence • New store expansion stagnates or falls • New store expansion stagnates or falls • Retail space supply tapers, leading to • Retail space supply tapers, leading to higher acquisition costs/lease rentals higher acquisition costs/lease rentals • Significant competition from other •organised Significant competition from other players and alternative organised players and alternative formats formats • Over penetration into individual markets • Over penetration into individual markets • Growth decelerates • Growth decelerates • Market shares of individual players •decline Market shares of individual players decline • Dependence on external finance to • Dependence on external finance to fund investments increases fund investments increases • High cost of financing • High cost of financing • Customer retention costs increase • Customer retention costs increase • Consolidation of merchandise •categories Consolidation of merchandise categories • Revamp in private label strategy • Revamp in private label strategy • Low bargaining power of vendors – •vendors Low bargaining power – start losing out of as vendors competitive vendors start losing out as competitive pressures lead to squeezing of vendors pressures lead to squeezing of vendors • Consumers demand higher service • Consumers demand higher service levels as awareness increases levels as awareness increases • Consumers shift to alternative formats • Consumers shift to alternative formats • Risks: • Risks: • Business risk increases and payback • Business risk increases and payback periods from new projects increase periods from new projects increase • Increasing finance risk • Increasing finance risk • New project risks in international • New project risks in international markets markets • Competition from alternative formats • Competition from alternative formats • Consumer retention risks • Consumer retention risks Developed markets TIME 2/16/2024 Retailing Management - Swapna Pradhan 7 Classification of Retail Stores I n d e p e n d e n t r e t a i l e r C h a i n r e t a i l e r F r a n c h Classification of Retail Stores Store Based Retailing Form of Ownership Merchandise offered Independent retailer Chain retailer Franchise Leased departments Consumer co-operatives Convenience stores Supermarkets Hypermarkets Speciality stores Departmental stores Off price retailers Factory outlets Catalogue showrooms 2/16/2024 Retailing Management - Swapna Pradhan Non-Store Retailing Direct selling Mail order Tele marketing Automated Vending 8 Characteristics of select retail formats Format Description Size (sq.ft) Examples Intl. India Category Killer / Specialist Narrow variety, but deep assortment 50,000+ 15,000+ Toys R Us, Nallis, The Loft Convinience stores Mix of products 3,000 – 8,000 500 – 1,000 7-Eleven, Speedmart Department stores Several 75,000+ product lines, largely nonfood 5,000 – 40,000 Marks & Spencer, Shopper’s Stop, Pantaloons 2/16/2024 Retailing Management - Swapna Pradhan 9 Format Description Size (sq.ft) Intl. Examples India Factory Outlets Branded merchandse at a discount 5,000 – 10,000 500 – 1000 Levi’s factory Outlet, Reebok Factory Outlet Hypermarket Large self service stores, mix of food & non food. Essentially low price 80,000 – 220,000 Wal-mart, Big Bazaar Single Price stores Offers a mix of branded & unbranded stores 5,000 – 20,000 2,000 – 5,000 2/16/2024 40,000 – 75,000 Retailing Management - Swapna Pradhan Family Dollar, 9 to 9, 49 to 99 10 Format Description Size (sq.ft) Intl. India 5,000 – 8,000 2,000 – 5,000 Walgreens, Crossword, MusicWorld Specialty stores Focus on a brand or category, narrow product line , but good depth Supermarket Food,laundry 8,000 – and 20,000 household maintainance products. Self service, low margin, low cost 2/16/2024 Examples 800 – 5,000 Retailing Management - Swapna Pradhan Asda, Kroger,Food Bazaar, Food World 11 Emerging trends in retailing Constant change – new formats. Professional management. Technology. Rise of extremes – mass merchandisers / specialty stores / category killers. 5. Growth of franchising , leading to a global presence. 6. Retail establishments are gradually turning into places where people meet & spend more time … 1. 2. 3. 4. 2/16/2024 Retailing Management - Swapna Pradhan 12
