Chapter 3: Dynamics in retail Flashcards
The real disruption behind the technical change in the shopping process comes from developments in 3 areas:
- People (demographic developments)
- Economics (economic developments)
- Technology (technical developments)
- Retail
To understand the impact of these disruptions on retail, we use this PET model.
- people
1) People (‘94 - now)
- Single person households
o Growing faster than the average household in the Netherlands.
o Bad news: Less spending for consumers because of relatively high costs (rent). Exception: food (small packages).
- Number of 50+
o Growing faster than the average
o Bad news: they already have everything and experienced the most
o important moments in their lives that prompt many purchases (moving house…)
- Urbanization
o Big cities are growing more than the average.
o Good for concentrating retail → companies can select where they want to be.
- economy
2) Economy (’94 – now)
- Consumer confidence vs. Spending propensity
o Spending propensity is higher than consumer confidence
o Retail is doing well, but the difference is huge between categories.
- Retail sales
o Non-food not able to grow with inflation
o Retail should always grow faster than inflation because the cost components of retail are also growing with inflation.
- technology
3) Technology (’04 – now)
- Online sales growth
- Last purchase & buying preference
o More offline than online (pre-Covid)
o But online is growing!
- Distribution online spending
o Especially mobile is growing.
Retail (’94 – 2020): Combine People / Economy / Technology (PET)
Floor productivity = a KPI that can be used, among other things, to measure like-for-like growth.
- Number of square meters (in line with number of stores) Still growing!
- Shop floor area by industry
- Floor productivity (kpi)
- Floor productivity by sector
o Home & Living → Improved because they increased sales
o Food →
o Electronics → Improved because they reduced square meters DIY → Improved because they increased sales
o Fashion & shoes → Under attack!
retail development theory
- The Wheel of Retailing theory (McNair)
The theory assumes that in retail there is constant renewal according to a fixed evolution. The starting point for this theory is the life cycle of a retail formula or retail type.
This theory assumes that a new retail formula (box 1) starts out with a low price strategy, low costs and margins, low reputation and very limited services, and then slowly starts to up-trade during its life cycle. ‘All retailers start as discounters’.
As a retailer matures, the formula becomes more luxurious and the retailer applies higher prices, offers more added value and applies higher margins (due to more attractive stores, better locations, service and assortment improvements) → uptrading
According to McNair, this then provides the space for a new low-cost innovator to jump into the gap left by the maturing retailer. The room for new discounters is in fact created by the supposed success of the already existing retailers.
Increasing costs (scissors effect) force low-end retailers to extend their product range at first, then to upgrade, and finally to specialize in the more expensive segment.
retail development theory
- Theory of evolution (Dreesmann)
The idea that a retailer has to adapt to the environment. His starting point is in line with the ideas of Charles Darwin of the survival of the fittest: not those who are the strongest or the largest will survive, but those who are able to adapt fastest to the changing environment.
This theory doesn’t just look at competitors, but also at the customer and the demand pov. If the environment and demand change, retail must move quickly and in the right direction, in order to survive.
Retail is growing, but other markets are growing faster, including services. To arm yourself better against economic developments, it is better to be active in several markets within retail and services. If business is underperforming somewhere, there are other branches where thigs are better.
retail development theory
- The channel strategy theory (Bell)
The first wave of thinking in channels started with multichannel retailing. The idea is that a retailer should combine e-commerce with the physical store to improve the shopping experience for the customer (concept also called cyber-enhanced retailing).
When consumers buy in both channels, they spend more at the retailer, and thus the share of wallet increases.
Now is better to talk about omni-channel as an integrated sales experience in which the advantages of the physical shopping environment merge with the information-rich online shopping experience.
Bell shows that the role of retail has not changed over the decades. A retail must provide access to information, products and services. It can be done following 2 options: remotely or at his own location.
Bell created a matrix to ‘win’ in an omnichannel world. On one axis is the information fulfilment process and on the other axis the product fulfilment process. This creates 4 quadrants. The distribution of information can take place at the retailer’s location or remotely at a location where the customer is located. The same applies to the distribution of goods or services. Each of the quadrants has its own retail operations. *legacy retailers
Where you are active in more than one quadrant it means you are more omnichannel (although it is not necessary to be active in all quadrants to be successful).
The evolution of channels has led to an omnichannel approach: we can see legacy retailers start to embrace multiple quadrants, but also other players. Being active in multiple quadrants leads to a larger share of wallet.
Based on this vision, every organisation must develop a channel strategy to survive, whereby the solution direction does not have to be the same for everyone.
retail development theory
