Retailing may be defined as the selling of goods to the general public, rather than sales to businesses. The process usually involves sales of relatively small amounts of finished goods, with purchasers mainly motivated by their own consumption needs and not for resale.
Numerous theories have bene developed to explain the patterns and trends that manifest in the retailing and selling. These can be divided into two main categories; cyclic and non-cyclic theories.
Cyclic theories hypothesize the retail environment and competitive practices of retailers will follow a slightly, repeating pattern, with clear identifiable stages.
1. Wheel of Retailing Theory
The wheel of retailing theory is one of the most common cyclic retailing theory. This was first proposed by McNair (1958) is one of the oldest retailing theories, and is frequently cited. The idea is that retailers will enter the market and progress through a cycle of strategies. Initially, McNair believed that retailers would enter the market using a low-cost strategy, and accepting low profit margins, as a method of acquiring customers. Costs are kept to a minimum during this phase, with the retailer offering only limited service and product range. This was referred to as the entry phase.
As the retailer acquires customers and profits, they move onto the trading up phase of the cycle. At this stage the retailer has gained customers and is able to invest in the business in order to improve profits. Strategies that this stage may include obtaining better facilities, for example moving to higher locations, increasing the service level, expanding the product range, and investing more in displays and advertising. Notably, when one retailer moves into this phase, they may leave a gap in the retail sector for new discounters to enter.
The third stage is the vulnerability phase, where the retailer has become a mature business and may now have high overhead costs. At this stage the organization may be facing a declining return on investment, may need to renew their strategies in order to retain existing customer, who may be tempted to competing organizations where there are lower prices, high level of differentiation. Therefore, the mature retailer may move back to the entry phase, with a need to attract new customers, often achieved through increased discounting, and cutting costs to alleviate the heavy overheads.
This theory does explain many retailing trends in many countries. For example, Marks and Spencer in the UK started out as a market stall before the High Street, and then facing challenges and losses with high overhead in the 1990s. The weakness of this model is its focus on costs, and inability to explain the continuing presence of profitable premium market specialist firms.
2. Retail Accordion Theory
Retail accordion theory was developed to explain the way retailers choose the number and type of product categories they would retail, with the hypothesis that firms would go through a cycle of from general goods, towards more specific products, and then back to general goods again.
In the initial stages of setting up, and the early stages of retail, the retail stores would carry a wide range of products to satisfy different consumer category needs. As the retail environment grows there is an increased number of specialists attracting consumer attention. However, this trend of specialization may be shifted again to generalization as consumers may be attracted to convenience of different goods on one store, meaning specialist stores need to become more generalized to compete.
This pattern is present in the evolution of the UK retail sector; small general stores were the norm in many villages, where they were the only store, s the village grew, more shops arrived, with increased levels of specialization. However, as the retail environment has seen the development of out if town supermarkets becoming general stores, not only selling groceries, but many other product categories, such as household goods, fashion, and toys, while there are specialized variants of the major supermarkets such as the smaller neighborhood stores. However, it should be noted there are weaknesses with this model, including the continuing presence of firms which appear to resist expansion of merchandise lines, and its focus only on the goods/merchandise aspect of retail.
3. Retail Lifecycle Theory
This concept was developed in repose to weaknesses in the wheel of retail model; the focus on costs and overcome the weakness of the accordion theory which focuses on merchandise/goods. This theory reflects the general product lifecycle theory, hypothesizing that retail stores will traverse a lifecycle, starting with development introduction, and then growth which may be divided into early and later growth, with the potential for an accelerated growth category. Following this, the firm reaches maturity, which may be followed by decline, or the lifecycle may be restarted with a renewal. These may be applied not only to retail stores, but also retail formats and selling channels. Retailers may be attracted by new formats and trends which offer potential, but they may face intense competition as many firms may be attracted to new opportunities. Importantly, new opportunities may result from disruptive innovations. When initially introduced in the 19th century department stores were a disruptive innovation, just as catalogues were in the nineteenth century and ecommerce has been in the twentieth century.
Examining the current retail environment on the UK in 2016, the early growth stage may be typified with the new single brand stores, such as Apple and Samsung. Single price stores, such as £1 stores, and warehouse clubs, may be classified as accelerate growth stores. Retail stores in the mature category make up a large proportion of retailers, these include supermarkets, fast food chains, and department stores. The current retailers in decline include independent grocery stores and catalogue retailers.
Non Cyclic Theories
Non-cyclic patterns present the retail environment at one in which there are different forces, that constant adaptation without the presence of repeating pattern.
1. Conflict Theory
Conflict theory has its foundation in Dialectic theory, which is a recognized conflict theory based on Marx’s Theory of Evolution. The basic idea is that for progress to be made in any environment there must be conflict, with new ideas taking the place of the older ideas and practices, which may then be emulated creating a hybrid or new format, which itself will eventually be replaced.
In a retail environment, this means that one firm, or format, will be challenged by new or competing firms and formats. As the nee form or format become more effective, the older firms or formats will emulate the new ideas in a form of synthesis. For example, the supermarkets have emulated the online shipping environment by offering online grocery shopping. Recently, online firms have sought to compete with the supermarkets, as seen with Amazon offering a ‘save and subscribe’ service, to deliver regular items on a predetermined schedule, including some grocery items, and the recent launch of the grocery store offering same day delivery in trial areas.
It is hypothesized the best features of the preceding models are likely to be retained and combined with new competing ideas to create new retail models.
This model may explain how and why some trends appear to develop and are then adopted and spread creating hybrid models. However, there are weaknesses with the model; it does not explain why many traditional retail stores do not change and evolve, and the argument that the blending of ideas is not always easily visible, and as such means this model may be seen as ambiguous.
2. Environmental Evolution Theory
The main idea underpinning environmental evolution theory is that retail firms will evolve and change in response to changes in the microenvironment. This theory states that the firms which are best able to adapt and take advantage of changes in the environment are those most likely to survive and thrive. For example, planning with the use of tools such as a PEST analysis or a Porters Five Forces Analysis may provide information to be used.
The environmental evolution theory can be used to explain the rise of discount supermarket such as Aldi and Lidl who have become more popular following the recession, and have leverage their low price advantages to gain more customers and expand.
However, there are weaknesses with this model. While many firms do respond to external stimuli, many retailers take a proactive approach, seeking to gain first mover advantages.