Module 1: the Retail Environment

Module 1: The Retail Environment

Introduction

·  Retail change has been driven in the past by the interaction of consumer, retailer and government: in the 1990s the role of technology is increasingly important as an agent of change (especially on logistics, Internet retailing, and virtual HR.).

·  It is important to glean a knowledge of the interrelationships between the factors illustrated in Figure 1.1

The Changing Consumer

1.  Demographic Trends

·  The structure of a country’s population and its rate of increase over time will impact upon the growth of the economy and the nature of a consumer’s savings.

·  For example, the structure of the population in most European countries will experience dramatic changes in the next half century. Lower fertility rates and increased life expectancy will result in a ‘greying population’. In 1997, around 23 per cent of the population in each member state was less than 20 years old and the proportion of older people, those 60 and over, was 21 per cent and increasing. It is envisaged that, by 2030, the latter figure will increase to around 30 per cent for most countries.
=> The increasing number of old people is changing the nature of household composition.

·  Divorce rates are at record levels which have led to a breakdown of the traditional

·  Family household.

2.  Socio-economic trends

·  Clearly there is a strong relationship between demographic trends and the labor market. There were great fears that the changing structure of the population would lead to a demographic ‘time bomb’ producing labor shortages as numbers of 15- to 29- year-olds entering the labor market began to decline

·  The nature of the labor market changed in line with the growth of the high-tech ‘sunrise’ manufacturing industry and the service sector at the expense of traditional ‘sunset’ industries.

·  The female participation in workforce that has affected the economy sectors

·  Cyclical changes in the economy have a major impact on discretionary purchases in that consumers tend to spend more on nonessential purchases or those which can be deferred if uncertainty exists about employment opportunities or interest rates.

·  The figures in the UK indicate that UK consumer is spending much more on ‘services’, rather than traditional retailing goods. The consumer is ‘trading up’, owning their own home, plus one or two cars, and is taking more overseas vacations.

·  People seek better-quality environments in which to live and work

3.  Lifestyle Trends

·  The combination of demographic and socio-economic trends has resulted in a complex set of values associated with consumer behavior.

·  A range of paradoxes exists. UK is a more affluent society than ever before, yet there is a growing underclass of poor people who are long-term unemployed and cannot be regarded as conventional consumers.

·  Although it is becoming increasingly difficult to segment consumers into discrete categories, this does not stop market researchers from producing segmentation models to categorize them.

·  Christopher Field in 1998 identified some characteristics of new consumers:

–  They no longer conform to traditional stereotypes – they are demanding, fickle, disloyal, footloose, individual and easily bored.

–  Better informed and more sophisticated, and are prepared to complain when they get poor service.

–  They have less time for shopping.

–  They feel greater uncertainty about future personal prospects.

–  They express a growing concern for the environment.

–  They have lost faith in traditional institutions such as the police, church and state

The Retail Response

· The retail response to these changes in consumer behavior has made the retail sector one of the most dynamic in modern economies. Innovations in format development and operating practices have enabled retailers to compete or even survive in a changing retail environment. Three main responses:

1.  Retail Innovation

·  The hypermarket, developed in France in the 1960s, was the forerunner of ‘big box’ retailing, which is beginning to dominate the global retail scene today.

·  Other innovative formats which have strong country-of-origin effects are ‘hard’ discounting and mail order in Germany (This format, developed initially by Aldi).

·  These formats are a response to the needs of specific country markets.

·  The operation of retail formats also differs, however, because of different regulations and industry structures in such markets.

·  Retailers in North America can trade successfully on much lower sales per square meter ratios than their European or Japanese counterparts.

·  This also explains the evolution of logistical support networks to stores in these markets of Europe and Japan (embraced just-in-time operational techniques).

1.  Concentration

·  Consumers have become more mobile and their behavior has changed, as shown in the earlier section. Retail entrepreneurs have risen to this challenge and transformed markets at home and abroad.

·  Wal-Mart and Tesco working in almost everything and grew from a small size family business to its current size while IKEA has taken a niche market and grew its businesses.

·  There are many diverse retail formats operated by retailers, and large retail groups often operate a portfolio of retail formats in the guise of their different retail brands.

·  The emphasis has moved to destination retailing, where the consumer is willing to travel further to get the best choice at lower prices

·  Organic growth and acquisitions to spread fixed costs over larger sales volumes have led to consolidation in most developed economies.

·  Big retailers are increasing their market share since the 1990’s in many countries.

2.  Locational Shift

·  The concept of the modern shopping mall has affected the retail business and considered as an important turn point the retail industry.

·  The development of the enclosed shopping mall with air conditioning and a constant temperature of 20°C changed all of that.

·  Between 1970s and 1980s, Geo-marketing emerged: sophisticated geographical information systems (GIS), mapping of areas of population growth and interstate intersections offered the best sites for development

·  Spatial interaction models to determine the success of one mall in relation to another.

·  By the 1990s the out-of-town shopping mall had become a mature retail format in the US and Canada.

·  By the 1970s, speciality centres based on restaurants and leisure attractions began to develop (In several instances failed shopping malls were redeveloped for these new formats.)

·  Dual location strategy: whereby it would invest in out-of-town developments in addition to traditional high street areas

Waves of Retail Decentralisation:

–  THE FIRST WAVE OF RETAILING: Superstore (By Asda by 1960’s), the fight for market share between late 1980’s and early 1990’s let to ‘store wars’ as retailers scrambled for available sites

–  THE SECOND WAVE OF RETAILING: Hypermarket (By Carefoure by 1970’s)

–  THE THIRD WAVE OF RETAILING: out-of-town shopping centers ()

·  Retail parks mushroomed on the ring roads of most towns as planners acknowledged that industrial sites could not attract manufacturing jobs compared with those retail opportunities.

·  warehouse clubs and factory outlet centres

·  factory outlet centres (FOC): were one of the fastest-growing formats in US retailing in the 1980s. They were developed initially as a profitable means of disposing of excess stock by manufacturers.

The Role of Government

· While most retailers have had to conform to national legislation with regard to ‘operational’ legislation, such as health and safety at work, hours of opening and employment laws, the internationalization of retailing and the advent of the Internet have led to the establishment of legal frameworks across national boundaries.

1.  Competition Policy:

·  anti-trust legislation

·  Regardless of the political dimension, most of the ensuing legislation tended to favor the small trader at the expense of the corporate giants.

·  In Europe, competition policy is normally dictated at national government level unless an acquisition across national boundaries leads to the predator achieving a market share which would be deemed uncompetitive.

·  Laws to avoid having monopoly in the market by not allowing retailers (especially grocery retailers) to exceed a specific market share.

·  The growing power of retailers, especially the grocery multiples, has been a recurrent feature of competition policy during the last three decades.

2.  Retail Planning Policies

·  Dealing with monopolists in the retail business:

–  UK: predator divest of stores in areas where local monopolies can occur as a result of an acquisition

–  US: to receive planning approval for new store development.

·  Most planning legislation has been geared to protect traditional town centers and small-scale retailers from excessive out-of-town shopping developments.

·  The international growth of multinational retailers such as Carrefour, Ahold and Delhaize can be attributed to restrictive planning regulations in their home market

·  The main thrust of the new policy was the sequential test whereby a developer show that a proposed new out-of-town development could not be located in nearby town centers or district centers.

·  When it was difficult to secure planning permission in retailers’ preferred out-oftown sites, those seeking new opportunities for growth began to explore the possibility of developing in-town sites in ‘Brownfield’ areas.