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 thehigh-tech ‘sunrise’
manufacturing industry and the service sector at the expense oftraditional ‘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 whenthey 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 operationof 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, andlarge retail groups often
operate a portfolio of retail formats in the guise of theirdifferent retail brands.
 The emphasis has moved to destination retailing, where the consumer iswilling 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, specialitycentres 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 asplanners acknowledged
that industrial sites could not attract manufacturing jobscompared 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
recurrentfeature 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 developershow that
a proposed new out-of-town development could not be located innearby 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.