The most well known theory of retail evolution is The Wheel of Retailing theory. This theory helps us understand retail changes. This theory suggests that retail innovators often first appear as low price operators with a low cost structure and low profit margin requirements, offering some real advantages such as specific merchandise which enables them to take customers away from more established competitors.
As they prosper, they develop their business, offering a greater range or acquiring more expensive facilities, but this can mean that they lose the focus that was so important when they entered the market. Such trading up occurs as the retailer becomes established in his own right. This in turn, leaves room for others to enter and repeat the process. They then become vulnerable to new discounters and lower cost structures that take their place along the wheel. Scrambled merchandising occurs as the retailer adds goods and services that are unrelated to each other and the firm’s original business to increase overall sales and profit margins. This is termed as the wheel of retailing .This is depicted in,
The Wheel of Retailing
Vulnerability phase >>
Top Heavy Conservative Declining ROI >>
Entry Phase >> ‘
Low status and price
Limited product offering
Extended product offerings
The theory of the wheel of retailing can be understood by taking the example of department stores, which started as low cost competitors to the small retailers; they developed and prospered; then they were 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 – here introduction may occur at a high price.
Hollander was a key observer of retail evolution and he used the analogy of an orchestra comprised exclusively of accordion players to describe the dynamically shifting retail structure.
This so called accordion effect describes how general stores moved to specialize, but the widened their range of merchandise again as new classes of products were added. Hollander suggested that the players either have open accordions representing general retailers with broad product ranges or closed accordions thus indicating a narrowing of the range, focusing on specific merchandise. He suggested that at any point in time, one type of retailer would outnumber the other, but that the situation would continually change through the arrival and departure of different stores. This analogy illustrates the complexity of the retail scene, and the way different attitudes to successful retailing will come in and go out of fashion at different times. The Accordion theory and the Wheel of retailing are known as the cyclical theories.
Conflict always exists between operators of similar formats or within braid retail categories. It is believed that retail innovation does not necessarily reduce the number of formats available to the consumer, but leads to the development of more formats. Retailing thus evolves through a dialectic process, i.e. the blending of two opposites to create a new format. This can be applied to developments in retailing as follows:
1) Thesis: Individual retailers as corner shops across the country
2) Antithesis: A position opposed to the thesis develops over a period of time. These are the department stores. The antithesis is a “challenge” to the thesis.
3) Synthesis: There is a blending of the thesis and antithesis. The result is a position between the thesis and antithesis. Supermarkets and hypermarkets thrive. This synthesis becomes the thesis for the next round of evolution.
Theory of retail Conflict:
Discount store (Antithesis) >> Discount department store
Department store (Thesis) >> Discount department store