The Changing Face Of Retailing: Evolution Of Department Stores And Discount Stores In Australia

Retailing Concept

Through digital revolution, Grewal, Motyka, & Levy., (2018) suggest that the traditional retailing concept will undergo massive revolution in the way they operate. In this regard, research points out that the traditional departmental stores and discount stores will undergo certain changes in order to stay competitive (McArthur, Weaven, & Dant, 2016). This report will focus on the evolution of the retail industry, putting emphasis on the trends, driving force and other factors that affect retailing. In this regards, this report will analyse the departmental and discount stores of Australia.

A departmental store is a type of retail establishment, which offer wide range of products. The various product segments are segregated through departments (Bailey, 2017). This is modern form of retailing commenced during the middle nineteenth century. These store types sells, wide range of products starting from furniture, home appliances, cosmetics, electronics, stationeries, groceries, etc. The departments may have their own payment desk or, the whole department may have a single series of payment desks (Ikeler, 2016). In case of large national retail chains such as Myer, each of the department may have their own sales counter, while in the case of independent stores such they may have totally segregated sales counter. They target their customers based on their product categories. The cumulative service offering is their prime competitive advantage. Their merchandising technique and effective departmentalisation is critical for enhancing their store attractiveness and sales (Thangam and Karthikeyan, 2015).

Unlike departmental stores, discount stores are those stores that typically sell products lower than that of the market price (Reyhle and Prescott, 2014). A discount store can be a standalone local store or can be a mass marketer such as Aldi in Australia. A discount store can sell wide variety of products or can sell a single category of products. In the case of wide variety of products, a discount store is similar to departmental store, in which case, they are also called discount departmental stores such as Aldi (Richey and Skinner, 2015). Unlike departmental stores, the discount stores target those customers that strive to get high value from expensive brands. In this regards, the discounted offering provides cost competitive advantage against the existing retailers. The discounts are major driving force for their attractiveness.  

The retail store has four stages of development. The first stage is the ‘Introduction’ stage. At this stage, new retail store may be introduced with the existing product missed with innovative service or a new product offering. This stage is characterised with low profit market and low customer base. The primary activity is directed towards creating market awareness of the value offering and the brand (Bodie, 2015). The second stage is the Growth Stage. At this stage, the customers are aware and attracted to the new retail concept or the value offering. The unlike the introductory phase, the profit margin and the sales volume increase dramatically. If the concept fails, the entrepreneurs will downsize and initiate new value offering to ensure foothold of the market. The third stage is the maturity phase, where the retailer will typically incur consistent profits with limited scope for market expansion. At this stage, the industry also becomes more lucrative and market competition increases. However, this stage is also the start of customer churning and reduced customer loyalty due to increasing number of suppliers. Typically, at this stage, the retailer will engage in new value offering or expansion strategy to sustain their competitive advantage (Bodie, 2015). This aspect is critical for evolution of the retailing business. With the starting of reduced profit margins, and increase is new competitors with attractive value offering, the existing retail business will start to falter and start to incur loss. If the retailer is not able to innovate and increase their competitive advantage, the management will start downsizing of their attractive in order to prepare for exiting from the market. Downsizing means to reduce the resources and scale of operation.

Departmental Store

The wheel of retailing has four steps entailing the evolution of the retail industry. The steps start with market penetration and ends with entry of a market competitor. Each of the steps is explained as follows: –

• Step 1: The first step is market entry of a new type of retailer in a market for example, in the Australian retail market. This stage incorporates attractive margins and innovative procedure. For example, in Australia, David Jones through partnership with Appleton started the Appleton & Jones stores at Sydney in Australia in 1835 (McArthur et al. 2016). This stage is aimed at gaining a foothold and creating awareness among the customers. The attractive margins and unique value attracts prospective customers to these stores. At this stage, foreign retailers often engage into mergers and partnerships in order to capitalise on the customer base and experience of the local retailer. For example, David Jones merged with Appleton to create the retail brand Appleton & Jones.
• Step 2: The second step is to gain experience in the local market and expand to new market. The main aim is to increase the customer base and dramatically increase their market share. Initially their profits stay low due to mass discounts. However, through experience and market expansion, it is essential for Appleton & Jones to expand their market (McArthur et al. 2016). Hence, they expand their operation throughout Australia. Similarly, in the case of Aldi, the renowned discount departmental stores in Australia, started at a single location and then expand their operations across the nation (McArthur et al. 2016). It is essential to note that at this stage Aldi diversified their business to incorporate more product categories other than groceries. Diversification is the strategy to increase their competitive advantage and increase the customer base. Diversification includes adoption of new product segment with new features and value offerings.
• Step 3: By the end of the stage 3, the retail brand has already established themselves in the market and incurring high volume of sales. Hence, at this stage, the retailer will utilise their experience of the market and expand into new regions within the nation of globally in order to enhance their profitability. Further, the local competition may downsize due to the pressure of competition. At this stage, the retailer will also invest into optimising their cost of operation. Cost containment along with market expansion is the forte of this stage.
• Step 4: At this stage of the retailing business, new competition may enter the market, which will eventually bring down the market share of this retailer. In this regards, the cost of operation increases (McArthur et al. 2016). The new market entrant may bring in new offering, which reduces the value perception of the primary retailer for example, in the case of Appleton & Jones. The organisation will readily adopt the new strategy or start a new brand with refurbished offering in order to retail their customer base (McArthur et al. 2016).

Department Stores in Australia have begun as retail innovators and they have arisen within the environment of the changing consumer by distributing goods produced on mass scale (Birtchnell & Urry, 2016). Their operational scale and the vivacity of the product ranges have helped in establishing retail dominance. There are number of departmental stores in Australia like Target and Big W as well as Myer and David, which have been in the declining state. The 1 billion $ which have been proclaimed by David Jones as well as Wesfarmers owned Target along with 500 million $ of impairments at Myer shows that there is an absence of innovation and creativity in the departmental stores management. However, this does not signify that the Australian retail sector is not at all thriving. Retailing in Australia has experienced a positive performance inspite of the weak growth in wages, good housing market strengthened by low rates of interest and rise in household credits helped customers to make expenditure as the perceived value related to their assets have increased (Moore, McDonald, & Bartlett, 2017).

The grocery departmental stores have experienced a strong growth rather than the non-grocery retailers of the country (Fernie & Sparks, 2014). The growth can be well explained by the progress of discounters, which have been continuing to get relevance with the rapid growth of Aldi. Wesfarmers in the year 2017 have been leading all across the retail channels and the sales growth of the organisation was greatly influenced by their performance in different channels like home, stationers, garden specialist mass merchandisers and many more (Zulqarnain, Zafar & Shahzad, 2015). Renowned retailers like Woolworths have 900 retail stores and offers a 5 $ discount when a consumer pre purchased their gift cards on the virtual platform. There are number of driving forces that has helped the industry to boom in current time. An advanced marketing and promotional activities has been helpful for the departmental as well as discount stores. For an example when Woolworth provided discounts on their gift card, proper advertisement on the same has helped the organisation immensely. Moreover, the economy of Australia also plays a dominant role in this genre. The country is considered as second richest nations in terms of the wealth per person and hence the GDP act as a catalyst in the success of the departmental and discount stores as well. Another driving force in the growth of retail industry is the customers themselves. The customers are keen to buy their products from such stores and even appreciate the discount stores, which offer various discounts on products as well as on gift cards too.

Retail industry in Australia will be experiencing different disruptive forces like spending patterns of the consumers and even the arrival of many overseas organisations that can over a fresh approach to retail industry. In recent years, the retail industry has introduced the use of various multichannel platforms since the consumers have become technologically advanced and even busier and affluent than before (Balaji & Roy, 2017). The expectation of the consumers is evolving along with their behavioural changes due to technology. In the coming years department stores can flourish and achieve a rapid progression by strengthening their multichannel platforms. The next five years can be challenging, as the management has to take decisions to future proof their business in order to get the competitive edge. E-commerce has been slowly taking on the industry however, it has to strengthen and extend their wings in a much broader way (Diamond, Diamond, & Litt,. 2015). Aldi has been trying to expand their online presence by an optimisation of the search engine and promising to make a solid presence on virtual platform (Chaffey, 2015). Apart from multichannel selling, the departmental stores are investing a lot on automotive systems. With the help of Artificial intelligence, they are making their work easier and faster and even have been capable to broaden their customer base. However, in this context one thing can be concluded that automotive system along with the use of multichannel will disrupt the labour market and this in turn will affect the employment rate of the country.

Conclusion:

The report concludes that the departmental and discount stores of Australia are undergoing evolution in their way of doing business in order to ensure business sustainability. The decline of the existing retail business in relation to departmental and discount stores, it is found that the stores are at their maturity stage and require innovation and adoption of new technology in order to  evolve and enhance their competitive advantage with respect to new entrants to the market. In this regards, the wheel of retailing suggests that the existing stores has adopted new advancements in the retailing technology especially e-retailing and multichannel selling.

References:

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