A number of theories surrounding retail change each attempt to explain how retail businesses grow and develop throughout the retail life cycle. Although each one adopts a different perspective, all stress the importance of long-term strategic planning. Since no single theory applies to every market and every situation, knowing something about each one may help you better understand and respond to change.
Although there is general agreement that retail growth comes from understanding and responding to market signals, theories differ regarding the factors that influence these signals. As a result, theories of retail development tend to fall in one of three categories. Theories in the first category say that changes in the retail industry result from changes in the environment in which retail businesses operate. Theories in the second category say that change occurs in definite cycles and phases. The third category includes theories that say direct competition is the impetus for change.
Researchers often use the environmental theory to explain how retail business evolved from the specialized stores common in the 1800s into department, discount, chain and mail order, and online stores that exist today. Environmental influences such the development of mass transportation systems, the introduction of cars and refrigerators and the willingness of consumers to accept fixed prices led to emergence of the department store. Later, discount stores sprung up in response to a sluggish economy and strong competition. Chain stores emerged in response to a trend toward suburban living, highway development and increased automobile ownership. The growth of the railway system and postal service, along with greater numbers of working women, changed some retailers into mail order businesses. In the same way, developing technology and its increasing accessibility laid the foundation for online stores.
Cyclical Retail Development
The wheel of retailing theory is one of most common cyclical development theories. The wheel theory includes three cycles: the entry, trade-up and vulnerable phases. In the entry phase, retailers enter the market with low prices and affordable service to increase market penetration. As the marketing mix improves and market share increases, retailers provide more variety, better facilities and better service, while typically increasing prices. In the vulnerable phase, competition from new, more innovative businesses causes retailers to lose both market share and profitability.
Competition Drives Change
Competition, also known as the conflict theory, says that retailers change in response to competition. Phases include problem recognition, implementation of solutions and the emergence of a new retail business. In the first phase, retailers may ignore new competitors and fight to maintain the status quo. When this fails, the business attempts to imitate or differentiate itself by improving products or services. Those moving into the third phase create an entirely new business. This explains, for example, how some department stores transitioned into discount stores.