Chapter 11: Retailing and Etailing
Retailing is the final stop on the distribution path, the process by which
goods and services are sold to consumers for their personal use.
‘The Wheel of Retailing’ is a hypothesis that states that new types of retailers
find it easiest to enter the market by offering goods at lower prices than
competitors; after they gain a foothold they gradually improve their facilities,
products by increasing quality and this causes greater investment and
operating costs so then the prices of their products eventually rise and now it
makes it vulnerable for new entrants to charge lower prices and this is
essentially the “wheel of retailing”. It helps explain the development of some
but not all forms of retailing.
Retail Life Cycle theory categorizes retail stores in terms of the conditions
they face at different points in the cycle.
o Introduction Stage (new retailer, aggressive entrepreneur with an
unique approach to doing business, profits are low in this stage due to
high development costs)
o Growth Stage (more customers, profits rise, open more stores)
o Maturity Stage (competitors start to copy the idea, industry over
expanded, intense competition, profits decline)
o Decline Stage (new ways of doing business emerge and retail business
There are three important factors that motivate innovative merchants to
reinvent the way they do business
o Demographics- keeping up with changes in population characteristics,
some major demographic factors are: Convenience for working
women, specific age segments, and ethnic diversity.
o Technology- examples include point-of-sale (POS) systems, personal
preference cards, in-store video channels etc.
o Globalization- retailers are busy expanding to other countries and
bringing with them innovations and management philosophies that
change the way local firms do business.
Retailers are classified by their merchandise mix (variety and selection of
products it sells), it is classified by merchandise breadth (different type of
products, for ex. Groceries, toys and grills) and merchandise depth (varieties
of each product, for ex. 10 diff type of grills). Retailers are also classified by
high/low margins and high/low inventory turnover rates. Some major forms retailers take are:
o Convenience Stores (7/11)- limited number of frequently purchased
items, premium pricing
o Supermarkets (Loblaws)- food stores that carry wide selection of
edible and non-edible products
o Specialty Stores (Running Room)- narrow and deep inventories
o General merchandise discount stores (Walmart)- broad assortment of
items at low prices with minimal service
o Warehouse clubs (Costco)- new version of disco