Retail Industry For Commercial Activity

Historical Development of Department Stores and Discount Stores

Disacuss about the Retail Industry for Commercial Activity.

Retailing is an integral part of the commercial activity wherein the customers can buy the products of different merchants from a single place. It is defined as a combination of customer-centric activities where the merchandizers identify the specific needs of the customers and import the products from different parts of the world. Traditionally, the retail outlets evolved from small shops at villages and towns which used to sell food, vegetables and dairy products. These outlets were usually small in their size and cater to the needs of the local customers. These stores typically served as the center for the local economic activities and provided the customers with advices and informed services. However, with the changing times, the face of the retail industry has also changed. At present several multinational retailers have evolved which operates in different parts of the globe (Findlay & Sparks, 2002). These organizations sell the consumer goods and services through different distribution channel and earn a profit. In the retail industry, the demand is identified and then the retailer efforts to satisfy the demand through supply chain. In the traditional retail distribution model, the companies buy their products from wholesaler and sell it to the customers. Due to the immense profits in the retail industry, several multinational organizations have emerged. At present, retail has become a diverse and complex field. Today, the retail organizations are selling all types of products from automobiles to health care, books, grocery and repair services.  The retailing is accomplished in two stages, namely, wholesaler and the retailer (Varley, 2014). The wholesaler works as a middle man between the retailers and the product manufacturers. They buy the goods in large quantity from the producers and stock these goods in warehouses, take orders from the retailer and organize for the product delivery.  In this essence, in this paper, the history of the retailing is discussed along with the historical development of departmental stores and their evolutionary forces and retailing future.

In the retail industry, the departmental stores refer to the retail outlets where a range of products from different categories are available at a single place. In the 19^th century, the departmental stores made their appearance with the increase in the disposable income of the people and the changes in the shopping habits. At the beginning of the 19^th century, due to the industrial revolution, several changes were realized in the consumer behavior of the society. As a result of the industrial revolution, the middle-class grew in its size and wealth which developed consumerism culture and consumption fashion. The retail industry developed due to the prosperity of the middle class and increase in transportable mediums. During this time, there was also an increase in the number of women shoppers due to changes in the society structure which boosted the retail business (Trentmann, 2012). Later, various shops emerged in the 18^th century to cater to the needs of the idle rich. During this time, the departmental stores were focused on the affluent shoppers who desire to get high quality merchandize from different continents. These departmental stores were very different from their modern counterparts and distinguished from other retail outlets due to the proposition of merchandize from different departments. These retail outlets were focused on exploiting the high disposable income of the middle class and the increase in the living standards of the people due to the industrial revolution. The departmental store owners tried to provide an altogether different shopping experience to the retailers and satisfy all the demands of the consumers (Howard, 2015). The departmental store remained prominent till the 1960s after which the advent shopping malls and discount departmental store diminished its glory. The discount departmental stores focused on providing a different shopping experience to the price sensitive customers. These stores reduced the number of services provided and the ambience of the stores to lower the price of the products. With the advent of the discount retailers, the cost containment and the price competition among the retail organizations increased. Moreover, it developed the retail market and the market segments became refined and narrower. The discount retailers sell the products at a lower price than the typical stores. These stores focus on providing products at reduced prices rather than quality of service and presentation. They offer products at a wide price range and low-profit margins. They are focused on tapping the price sensitive customers  (Benson & Ugolini, 2006).

Wheel of Retailing and the Retail Life Cycle

The Wheel of Retailing theory tries to explain the changes in the marketplace when the innovators such as large businesses try to enter the retail area. The Wheel of retailing theory discusses how the retailers capture the market share and create brand value of the organization. The retailers instigate their operations at the bottom of wheel with low prices and profitability. However, with time expand their operations and associated price, profits and image (Fernie, Fernie & Moore, 2015).

According to the wheel of retailing, the price-sensitive customers do not remain loyal to the retail organizations. They remain attracted towards the organizations that offer low-cost products. The new retail stores can reduce their operational costs by saving on rent prices and reducing the furnishing expenses. However, with time when these institutions develop overtime, they increase the services offered to the merchandize and offer products at different price range. The existing retailers expand their customer base; however, lose the initial price sensitive customers. The wheel of retailing is used to explain the evolution of the retail business (Zentes, Morschett & Schramm-Klein, 2002).

Retail life cycle concepts states that the retail organizations are identical to the products and services they sell and pass through different life stages, namely, introduction, growth, maturity and decline. This theory gives information regarding the direction and the speed of the change. In the first stage of the retail life cycle, a firm creates some strong changes in the strategy mix of the retail institutions. Therefore, it is also known as the innovation stage. The profits and the sales of the company spikes exponentially. In this phase, the company changes its existing strategies and introduce a new element in it. The retail company identifies advantage or convenience which is significantly different from their retailers. As it is an early stage in the retail life cycle, the number of competitors is low. The management develops the introduction strategy through a series of experiements. However, the risk in this phase is maximum if the new strategy introduced by the company is not well-recepted by the customers.  In this case, the firm may suffer from heavy financial losses. The second stage in the retail life cycle is the stage of the development (Dunne & Lusch, 2007). In this stage, few competitors and counterfeit organizations emerge. Since the retail company has operated in the market for a substantial amount of time, it can achieve the position of market leader. In this stage, the profit levels of the company increases along with the investment requirements. The secong phase of the retail cycle appears for five to eights years. The end of this phase is characterized by cost containment pressures. In the maturity phase, the retail organizations make progress; however, the growth rate began to slow. The companies also start realizing the competitive pressures upon them. The direct competition among the companies increases and the retail organizations try to introduce some new element in their strategy to develop its competitive environment.  The last stage in the retail life cycle is that of decline wherein the firm observes decline in its sales and profitability. The company looses its competitive advantage and has to identify a new strategy to continue profitability in its operations. The overhead expenditure of the company is high and profits are minimal. The customer perceive the business as old and boring. The companies find it difficult to lure the customers. In the retail industry, the companies survive by adopting new strategies and new element before the customers abandon them (Dunne, Lusch & Carver, 2013).

Future Trends in the Retail Industry

At the present, the retail is in the phase of rapid transition. The profitability in the retail industry has become challenging due to the increase in the apathy of customers and the increased competition. The consumers have become more aware and restrained in their shopping habits. Along with it, the customers also have options of internet shopping. Today, the consumers search different options on the internet before making a purchase. Therefore, it is important to always remain competitive  (Loeb, 2014). The retail organizations which are trying to expand their operations are adopting several strategies to evolve according to the changing market forces. Due to the increase in the competition and consumer attraction towards low-priced products, the retailers are forced to implement cost control and cost containment measures. The companies are reducing the unprofitable items and staff strength to increase the profit margins. Merger and diversification is an effective strategy to maintain the sales of the organization in a highly competitive or mature environment. In the merger strategy, differently owned firms come together and unite (Thain & Bradley, 2014). The mergers can take place between different kinds of retailers, for instance the discount retailers and the departmental stores or the retail stores of the same kind. With the merger strategy, the companies strengthen their resources and increase their productivity and enhance their customer base. The companies also try to overcome each other’s weaknesses by the resources of their counterparts. With this strategy, the larger retail firms grow more quickly and the smaller firms can ensure their long term survival. The retail organizations perform mergers to sustain the highly volatile environment of the retail industry. Recently, the eyewear firm Luxottica and Esilor, a large eyewear firm announced to merge in a 49 billion US dollar deal. The net market of both the firms is about 121 billion US dollars and they have planned a share all deal (Retail Touchpoints, 2016). In the retail business, the mergers and acquisition are immensely popular. It is due to the fact that the mergers are considered as a source of innovation in the retail business. In the consumer goods retail industry, the most significant asset is brand. The small organizations get the desired brand recognition, whereas the big companies get the innovative products and strategies which have been difficult to build from scratch (Caldbeck, 2014).

Diversification is another strategy wherein the retail firms become active in different businesses to increase the profitability and reduce the dependence of one business and associated risks. Several retail stores have expanded their size through mergers and acquisition. The retailing industry has implemented diversification so to expand their business in diversified fields. For instance, Tesco and Sainsbury have invested in restaurant chains and insurance business (Denton, 2016).

Scrambled merchandizing is a part of diversification strategy wherein the company increases the company’s sales by introducing products which are entirely different from the firm’s previous products. It also increases the inter-competition between different drug stores. The scrambled merchandizing has several limitations such as lack of expertise in that field, the increase in cost associated by merchandizing different products, the risk associated with selling low quality products and damage to the potential image of the store. The scrambled merchandizing is an expansion strategy wherein the company tries to achieve a broad customer base and increase in the retail trade area. In the scrambled merchandizing policy adoption, the direct and indirect competitors and their policies are also influential (Michman & Mazze, 2001).

Although the retail chains are expanding through mergers and diversification policy, several firms have not been successful in these approaches. In the downsizing policies, the companies are becoming unprofitable and to gain economy of scale are selling off or closing the unprofitable stores. The downsizing is an appropriate strategy wherein the retailers overextend themselves and does not have appropriate resources or talent to manage the new outlets. Several times, the companies in their quest to extend their operations, choose poor locations which fail in the long run.

The cost-containment approach is the approach wherein the retail companies try to reduce their initial investment and the operational costs. A number of firms adopt this strategy to reduce their expenditure and increase their profitability. Recently, a large number of retail organizations have used this strategy to combat the competition given by the discounters. Cost containment is also an effective strategy to control the construction and land cost, minimize the impact of economic volatility and increase productivity of the organization. In order to control costs, the retail companies standardize their operations, use economic locations and inexpensive construction material and architectural design. The retail companies pursue cost containment to provide good value to the customers.  Here, the value refers to the price, quality, service or the combination of all the three elements. In the retail business, the pricing strategy of the company plays a critical role in the choice of the customers (Berman, 2010). The pricing policy of the discount retailers have motivated the customers to buy products at bargain prices. The customers have realized that they can buy qualitative products at lower prices and the price no longer reflect the quality of the products.

In the future, the retailing business is going to become highly competitive and it will become more and more difficult for the companies to survive with the maturity of the market. At present, the companies are striving to obtain the maximum market share by reducing the prices and sustaining at minimal profits. In the upcoming years, the retail organizations will try to find competitive advantages in services and the product quality. Moreover, they will engage in robust marketing strategies to attract the customers (Hammond & Berman, 2013).

Conclusion

Retail business is the act of procuring products from different manufacturers and selling them at a single place. The retail business emerged in the Europe and the USA as a result o the industrial revolution and the growing income of the middle class. The departmental stores were the first form of the rental business and they focused on tapping the rich idle class. On the other hand, the discount retailers emerged in the 1960s and tapped the price sensitive customers. These stores forced the retail outlets to reduce the prices of the products. Analogous to the products offered by the  retail companies, the companies themselves have a retail life cycle. The major phases in this life cycle are:introduction, development, maturity and decline. The retail companies expand their busness either through merger or diversification. If he retail outlets are not successful, the companies also conduct downsizing to shut the unsuccessful stores. At present, there is immense competition among the business organiations; therefore, the companies implement cost containment and value offering stratrgies to increase their productivity and reduce the operational costs. It can be concluded that the future of the retailing will be very competitive and the companies will search to create competitive advantage in the product quality and the service provided to increase their market share.

References

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