Theories of Retail Development

Specialty Stores, malls & Other Formats:

As the needs the consumers grew and changed, one saw the emergence of commodity specialized mass merchandisers in the 1970s. The seventies were also witness to the use of technology entering retail sector with the introduction of the barcode. Specialty chains developed in the 80s as did the large shopping malls.

Shopping malls, a late 20th century development were created to provide for the consumer’s need in single, self contained shopping area. Although they were first created for the convenience of suburban populations, they are now found in many main city thoroughfares. A large branch of a well known retail chain usually serves as a mall’s retail flagship, which is the primary attraction for customers. In Asian countries, many malls house swimming pools, arcades and amusement parks. Hong Kong’s City Plaza shopping mall includes one of the territory’s two ice rinks.

The rise of the Web:

The world of retail changed yet again, when in 1995, opened its doors to a worldwide market on the web. With the growth of the worldwide web, both retailers and consumers can find suppliers and products from anywhere in the world.

Thus, the evolution of retail formats worldwide has been largely influenced by a constantly hanging social and economic landscape. One of the main reasons for new formats emerging is the consumer himself. Today’s consumer when compared to the consumer of the earliest generation is definitely more demanding and is focused on what he wants. Consumer demand is the prime reason for the emergence of various formats.

The retailer on the other hand, has been influenced by factors like the availability of real estate and the increase in its prices. He is faced with the challenge of adding on new services and the need for differentiation. This has led to specialization and the emergence of specialists. Supply chain complexities and the increasing pressure on margins have also forced retailers to look at new formats.

Retail development can be looked at from the theoretical perspective. No single theory can be universally applicable or acceptable. The application of each theory varies from market to market, depending on the level of maturity and the socio-economic conditions in that market.

The theories developed to explain the process of retail development revolve around the importance of competitive pressure, the investments in organizational capabilities and the creation of a sustainable competitive advantage .this requires the implementation of strategic panning by retail organizations. Growth in retail is a result of understanding market signals and responding to the opportunities that arise in a dynamic manner. Theories of retail of retail development can broadly be classified as:

1) Environmental – where a change in retail is attributed to the change in the environment in which the retailers operate.
2) Cyclical – where change follows a pattern ad phases can have definite identifiable attributes associated with them.
3) Conflictual – the competition or conflict between two opposite type of retailers leads to a new format being developed.

Environmental Theory:

Darwin’s theory of natural selection has been popularized by the phrase survival of the fittest. Retail institutions are economic entities and retailers confront an environment, which is made up of customers, competitors and changing technology. This environment can alter the profitability of a single retail store as well as of clusters and centers. The environment that a retailer competes in is sufficiently robust to squash any retail form that does not adjust.

Thus, the birth, success or decline of different forms of retail enterprise is many a time attributed to the business environment. For example the decline of department stores in the western markets is attributed to the general inability of those retailers to react quickly and positively to environmental change. Those retail institutions which are keenly aware of their operating environment and which react without delay, again from the changes.

Thus, following the Darwinian approach of survival of the fittest, those retailers that successfully adapt technological, economic, demographic and legal changes are the ones that are most likely to grow and prosper. The ability to adapt to change, successfully, is at the core of this theory.

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