24 Sep, 2022.
For the unaccustomed, retailing means selling goods to the end customers rather than selling to businesses. Although the concept sounds simple, many have researched retailing, and several papers on the subject are available in the literature. Scholars have put forward many hypotheses to explain the evolution of retail business. To understand the new phenomenon, we need to have some theoretical background. So, keeping in mind the scope of this paper, we will skim over some of the theories.
The retailing theories can be classified broadly into two types. They are – Cyclic Theories and Non-Cyclic Theories. In the cyclic type of theories, it is assumed that the retailing business follows a pattern that more or less repeats itself with clearly distinguishable phases.
1. Wheel of Retailing Theory
One of the oldest theories in retailing is the Wheel of Retailing, developed by McNair in 1958. According to this theory, a retailer starts his business and cyclically progresses through different stages. McNair hypothesised that initially, a retailer starts in a low-cost mode bidding his survival and acceptance. He attracts customers by offering products making low-profit margins. This, McNair called it as entry phase.
As the business grows, the retailer increases its breadth and depth of the merchandise. At this juncture, the retailer may also add more facilities and increase service levels. This activity would, however, increase his costs and therefore, the prices of the products sold also rises. The phase is identified as the trading-up phase.
By entering the trading-up phase, the retailer leaves a gap in the business for a new player to step in. This phase is the vulnerability phase. He is now vulnerable to the new small retail businesses.
As the retailer becomes mature, his overhead costs are high, and ROI may start to fall. The retailer may be pushed back to the initial phase at this stage. The firm may start offering considerable discounts to retain and attract new customers. The firm may do this by cutting overhead costs.
The above phenomenon has been noticed in many countries. This theory has many weaknesses and drawbacks. This blog is not the appropriate forum to discuss; hence, they are skipped.
2. Retail Accordion Theory
The hypothesis is that a new retailer initially starts with a wide range of merchandise to attract different categories of customers. Then the firm moves to attract consumers by offering specialist products. The retailers have been observed to shift back to generalisation as the customers seek the convenience of buying varied products in a single store, and the cycle repeats itself. This pattern was observed in UK retail sector. This theory also has its weaknesses.
3. Retail Lifecycle Theory
This theory was developed in light of the weaknesses in the earlier theories. This theory also draws its idea from the product lifecycle theory. It is believed that the retail business will also go through a lifecycle like any living being or a product. It will traverse phases like introduction, then growth, maturity and decline. In the last stage, i.e. at the decline stage, the retailer may go out of business or start again with a new lease of life.
Non Cyclic Theories
It has also been observed that, because of different market forces and dynamic environments, the retailers are constantly in the adaptation mode that presents a non-repetitive pattern.
1. Conflict Theory
This theory has its roots in the Dialectic theory, whose basic idea is that all aspects in this universe contain the seeds of opposites – creativity and destruction. Accordingly, if one makes progress, it must be at the cost of something else.
In the retail business context, a new business or a format will emerge competing with the extant business. If the new format is effective, it will survive, and other businesses will follow the order. It is believed that the good things of the earlier model will be continued and added to the new ideas to create new models. This explains how new treads evolve and are adopted and grow. A weakness in this theory is that it does not explain why traditional retail stores continue to remain as they were earlier.
2. Environmental Evolution Theory
The basis of this theory is that businesses evolve with the environment. In simple words, this theory states that retail businesses change to adapt to the changing environment to survive. They employ tools such as PESTLE analysis or Porter’s Five Forces analysis to keep themselves abreast with the environment. This theory is used to explain the emergence of discount supermarkets. While firms respond to the changes in the external environment, some take a proactive approach and become pioneers in taking the first-mover advantages.
Seemingly by passing the above theories, it was observed that, during the COVID pandemic, many retailers entered the industry. The new retailers mainly focused on vegetables, and few included fruits too. This study was conducted in the city of Hyderabad since retailers’ mushrooming was prominent there. Most of them started in a big and grandeur manner, and their business ended with the decline of COVID.
During COVID, the people were restrained in their movement, and simultaneously many lost their jobs. Particularly the middle working class perceived this as an opportunity to start a business on their own. The entry barriers being low for retail businesses, many jumped into the wagon. Giving prominence to the store looks and quality of the products, they started the shops with little or no idea about the retail business. Without going into the details of procurement, labour handling and disposal of the unsold goods (logistics), they realised their inability to continue their business. At the time of writing this blog, as many as fifty people had existed business in part of Hyderabad. Seventeen had been interviewed. More will be contacted, and about 200 customers who once patronised these retailers will be contacted and surveyed to understand the phenomenon.
The above phenomenon does not seem to fit into any of the theoretical frameworks known to the scholars presently. Obviously, the phenomenon is not cyclic; of course, one has to wait and watch to know what happens if COVID repeats itself. Even in that unlikely scenario, it is unlikely that the people would commit the same mistake again. The phenomenon does not fall into any of the non-cyclic theories. One can find it closest to Environmental Evolution Theory, but the catch is that the idea did not sustain. The liquidation of many shops demonstrates that neither a proper PESTLE analysis was done for the external environment nor a SWOT analysis was done to understand the entrepreneur. After all, people must be trained in business before venturing into it. Exceptions do not make a rule.