1. Retail Formats & Theories
Chapter 2

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

3. 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

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

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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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 …