Retail Formats & Theories Chapter 2

Objectives The evolution of retail formats Theories of retail development The retail life cycle Classification of retail stores The role of franchising in retail

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

Theories of retail development Environmental theory Cyclical theory Conflictual theory Scrambled merchandising The Wheel of Retailing

The Retail Life Cycle SALES TIME Innovation Growth Maturity Decline   Innovation Growth Maturity Decline Profit TIME SALES

The Wheel of Retailing Vulnerability phase Entry phase Trading up phase Vulnerability phase 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

Growth of Retail Markets Characteristics: • Evolving, diffused formats Regional presence Conjectural presence in each market Lower market share per market Lack of availability of retail real estate space at reasonable cost High degree of competition from unorganised players Investment stage with high incremental investments Mainly promoter and angel investor financing Presence in few merchandise categories Lack of scientific merchandise planning process High bargaining power of vendors High logistivs and merchandise acquisition costs High degree of resistance from consumers towards organised formats Established format characteristics Development of speciality Movement towards national presence Rapid expansion phase Availability of retail space at reasonable costs Growth in internal and external competition Larger penetration into individual markets Accelerated investments in new projects with lower incremental Private equity, venture capital, debt and equity market financing accessible High cost of financing Increase in breadth and depth of merchandise categories Introduction of scientific merchandise planning process Focus on private label development Bargaining power with vendor increases Consumers start accepting new formats Increasing specialisation in formats National and international presence New store expansion tapers Oversupply of retail space Significant competition from other players and overlapping Increasing focus on differentiation strategies Peak penetration into individual Market share stagnates Low incremental investments required Investments funded through internal accruals Cost of financing declines Customer acquisition costs increase Substantially large breadth and depth of merchandise categories Private labels assume strategic significance for improving profitability Vendors enjoy low bargaining power Increasing collaboration with vendors to drive supply chain efficiencies Consumers demand higher service levels as awareness increases Characteristics : Consolidation of formats New store expansion stagnates or falls Retail space supply tapers, leading to higher acquisition costs/lease rentals players and alternative Over penetration into individual markets Growth decelerates Market shares of individual players decline Dependence on external finance to fund investments increases Customer retention costs increase Consolidation of merchandise Revamp in private label strategy Low bargaining power of vendors – vendors start losing out as competitive pressures lead to squeezing of vendors Consumers shift to alternative formats Risks: Availability of finance Low fixed cost coverage leading to high operating leverage High individual property risk Format risk due to lack of stability Market risk in terms of acceptability of format by customers Finance availability Highly geared financial structure Private label establishment IT integration Market risk due to increase in Consumer retention risks Business risk increases and payback periods from new projects increase Increasing finance risk New project risks in international Competition from alternative formats African markets Indian markets South Asian markets Developed markets INCEPTION (10 years) GROWTH (15 - 25 years) MATURITY (5 10 years) STAGNATION (5 TIME S A L E

Classification of Retail Stores Independent retailer Classification of Retail Stores Store Based Retailing Non-Store Retailing Form of Ownership Independent retailer Chain retailer Franchise Leased departments Consumer co-operatives Merchandise offered Convenience stores Supermarkets Hypermarkets Speciality stores Departmental stores Off price retailers Factory outlets Catalogue showrooms Direct selling Mail order Tele marketing Automated Vending Chain retailer Franchise Leased departments

Characteristics of select retail formats 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 product lines, largely non-food 75,000+ 5,000 – 40,000 Marks & Spencer, Shopper’s Stop, Pantaloons

Format Description Size (sq.ft) Examples Intl. 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 40,000 – 75,000 Wal-mart, Big Bazaar Single Price stores Offers a mix of branded & unbranded stores 5,000 – 20,000 2,000 – 5,000 Family Dollar, 9 to 9, 49 to 99

Format Description Size (sq.ft) Examples Intl. India Specialty stores Focus on a brand or category, narrow product line , but good depth 5,000 – 8,000 2,000 – 5,000 Walgreens, Crossword, MusicWorld Supermarket Food,laundry and household maintainance products. Self service, low margin, low cost 8,000 – 20,000 800 – 5,000 Asda, Kroger,FoodBazaar, Food World

Emerging trends in retailing Constant change – new formats. Professional management. Technology. Rise of extremes – mass merchandisers / specialty stores / category killers. Growth of franchising , leading to a global presence. Retail establishments are gradually turning into places where people meet & spend more time …