The Retail Context: Overview

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The Retail Context: Overview

World’s Largest Companies [Wikipedia website] 2009.

Billion $Employees

1 / Wal-Mart / Retail / 408 / 2 150 000
2 / Exxon Mobil / Oil/Gas / 301 / 90 800
3 / Royal Dutch Shell / Oil/Gas / 278 / 112 000
4 / BP / OIL/Gas / 246 / 97 600
6 / Toyota / Automobile / 203 / 316 121
22 / Carrefour / Retail / 126 / 475 976
49 / Metro AG / Retail / 94 / 263 794
57 / Tesco / Retail / 88 / 310 411
130 / Shoprite Holdings / Retail
143 / Pic’Pay / Supermarket
166 / Massmart Holdings
169 / Spar Group

Retailing is a distinct and dynamic sector of most economies. It has a ubiquitous presence and an organisational structure of many outlets with large numbers of small, local independent shops. Today retailing is much more visible and central to the concerns of consumers and governments alike. It reflects culture as the primary conduit for production and consumption linkages in economies. Retailing has complex and distinctive features which make it an exciting and challenging sector to work in. There is diversity within and amongst countries.

Retailing is a huge part of many economies:

• 25% of all enterprises in the EU [2003] are in retail.
• Engages 12% of total working population
• Over 3.5million shops in the EU. Many are single-shop businesses; some are among the largest companies in Europe.

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Loulou Brown: Careers in Retailing. 6th. Ed. 1997. Kogan Page.

Retailers sell goods- food, clothing, and furnishings. It also includes back-up services related to the selling of products e.g. repairs, credit services, telling customers how a product works, mail order through catalogues, magazines, TV and direct sales e.g. by calling at home. Retailing is therefore about buying/selling of goods/services and dealing with people.

Chain of Production / Producers of Raw Materials
Manufacturers
Chain of Distribution / Wholesaler –sells in bulk
Retailer
Consumers

The Chain of Production and Distribution

The activities of a retailer include:

• Employment of people [thousands in a large organisation]
• Selling to customers at a reasonable price and obtaining an acceptable profit.
• Determining location of outlets
• Carrying out promotion activities so that the customer knows of the outlet, its products and services e.g. by adverts, displays etc.
• Retailing is about the 3Ps- people, prices, and products. All three must interact successfully.

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There are large and small fixed shops, mobile shops and even virtual shops. Retailing is a local affair with local demands involving a growing number of global brands. Retail sales are rising but the number of shops is falling. Though characterised by low pay at the lower levels, managerial pay is generally above average.

Retailing is traditionally defined as the sale of articles, individually or in small numbers directly to consumers.

[Collins Dictionary:consumer- a person who acquires goods and services for his own personal needs. Consumer goods – goods that satisfy personal needs rather than those required for the production of other goods or services].

Key Components of the Practice of Retail.

1)Culture & Retail Consumers. Retailing happens within a country or local environment. Thus it has very specific relationships with culture and consumers. It must respond to these. Internationally however there is diversity in regulatory and shopping environments, service standards, store formats and layout e.g.Japan and Saudi Arabia or US have different national situations and norms which derive from societal and economic circumstances. While retailing is an economic transaction it is also fundamentally a social interaction. Norms of economic and social behaviour permeate, inform and even constrain retail operations e.g. restrictive shop opening hours in Germany have long standing roots or restrictions on the sale of alcohol to government owned shops in Sweden and Canada. Fresh produce markets in Mediterranean Europe reflect traditional patterns of food preparation and consumption. There are limits on what can be sold or advertised in Islamic countries or what brochures or catalogues can contain in accordance with cultural and religious norms. However even within one country there is no uniform national culture because culture is complex, multi-dimensional concept arising from a range of personal and group values and attitudes. There are also local as well as international aspects of culture. Culture is also a social phenomenon which can be learned and passed from one generation to another. It is also adaptive.

Some aspects of culture can become deep rooted and thus hard to change. In some countries, the presence of immigrant communities produces distinctive patterns of consumer behaviour in many large cities across the world. But retailers can also shape cultural norms. Retail operations and environments are not neutral entities. They can condition and structure consumer moods and behaviours. The manufactured environments of many stores can lead people to rethink their beliefs and attitudes.

Examples: TerenceConran’s Habitat stores from the 1960s in the UK; until recently the importance of Marks & Spencerto British clothing manufacturing and retail; the campaigning and ethical sensibilities used by AnitaRoddick of Body Shop. All three retailers changed aspects of British society and culture. IKEA, McDonald or Starbucks are doing the same perhaps on a global scale.

Retailers thus need to be embedded in the culture of the economy in which they operate; being part of that economy and understanding it. Embeddedness derives from local operations, companies or managers; knowledge of what drives local consumers; what they need and want [products/services]. In retail, issues of consumer knowledge intrude into business; retailing is dependent on people because it employs people and because understanding of people’s behaviours, attitudes and psychology are important business concerns.

2)Demographic Structure of the Market. This is a basic constraint. Its features include the number, age structure and location of individuals and households. They influence the size and location of target markets. Population growth continues in most countries but the rates have been changing due to lower birth rates, child mortality, fertility levels as well as socio-economic changes such as the participation of women in the economy. Life expectancy, levels in medical care, levels of affluence of the different age groups. There have also been changes in the age composition of many populations.

Both households [their number and composition] and individuals matter. This is related tosocio-economic and lifestyle changes e.g. age of marriage, divorce rates. In many countries the number of households has increased and each with fewer people even one person. This can create market growth e.g. for furniture or be reflected in product sizes and ranges. People have also changed how they live their lives dramatically. There are more opportunities; more choices; more affluence to satisfy needs. Even those needs have changed. The gender balance of the work force has changed. There are more women in paid employment and they have greater economic power and discretion. Consumers are more educated and informed than ever before. [Watching TV in huge numbers; football only on Saturdays; telephone calls made from home or a phone box where people queued; now families eat together less often; choice of programmes on TV; football occurs anytime, any day and is live; phones ring on trains even lecture rooms; people are increasingly mobile but connected].

Consumers change and their behaviour and desires change too; nothing is inviolate or immutable. Needs and the means to satisfy those needs have altered giving rise to retailing concepts like organic superstores, lifestyle shopping, convenience stores, fast foods[food that requires little preparation before being served]. We are increasingly a 24/7 economy. There are changes at the product level e.g. with vegetarianism, meat consumption, microwave meals, ready meals and prepared foods. Retailing has been extended into banking, insurance, health care and services such as mobile phones and top up phone cards. Many of these reflect a shift in consumption towards services. Consumers can also choose which wants to satisfy, how, when and where. This accounts for the increasing demand for convenience in terms of time and location [24 hour trading, petrol and service station convenience, home and workplace delivery; supermarket retailing at railway stations and airports].

Shopping behaviour also changes during the shopping activity itself. Retailers have to pay more attention to shop design, ambience and smell; balance between price, service and quality. For some, shopping has turned into a leisure activity. Shoppers expect to be in controland to be entertained e.g. cafes in bookshops. Sometimes shopping trips are highly functional e.g. for replenishments.

Types of Shopping Trips.

Purpose / Reason / Product example / Retailer & Format example
Essential / Replenishment-primary shopping trip / Food/household / Food superstore
Purposive / Clear purpose-major purchase item / Electrical items / RetailPark, shopping centre with department store
Leisure or fun / Social activity, occasionally ancillary to visit / General purchases, gifts / Town centre, shopping centre or mall
Convenience / Time constrained top-up trip, everyday purchases / Ready meals, milk, newspapers / Convenience store, petrol station store
Experimental / Unusual product or innovative method / Tickets, home delivery of large items, local produce / Argos, farm shop.

3)Retail Locations & Outlets. The retail industry, more than any other, shows a diverse and dispersed type of outlet network.

7-Eleven Convenience Stores / 23 300 world wide / 9 200 inJapan alone
Body Shop / 1 800 in 49 countries / Trades in 25 languages
Ahold / 9 000 in 28 countries on 4 continents

“Location, location, location” is the main characteristic of the retail trade. Retail spaces must match the needs of consumers in terms of region, city or country [macro-location] as well as the micro-location. Retailing has a distinctive locational dimension but also has diversity of location. These locations are dynamic but some shop locations may appear fixed in some visible ways e.g.Harrods in London, or Bloomingdales in New York. Others are more transient e.g. car-boot sales, farmers markets. Some street locations have a premium for retail activity e.g.Ginza in Tokyo, Oxford Street in London or Fifth Avenue in New York. Town/city centres have the main concentrations of retailing. The same is true for neighbourhood stores and corner shops at local level. In the US, which is a car-borne and so a decentralise retail economy, the central area [downtown - called high street n UK] is often a desolate, retail free zone. Retail activity then occurs in suburban malls and strip centres along important highways or road intersections. Location has thus changed fundamentally over time resulting in large hypermarkets, power centres, strip malls and covered shopping centres with huge car parks. There is internalisation and privatisation of retail spaces.

In the UK, retailing was a town/city centre activity for a long time but even here it has become more decentralised to off-centre superstores, retail warehouse parks, regional shopping centres etc. Such movements from central locations have been encouraged by:

• An affluent and mobile population in suburban areas vs. a declining, less affluentless mobile town/city centre population.
• Development of strong corporate chains with fewer ties to a locality more willing to move to areas of demand and opportunity
• Changes in methods of selling which have led to larger store and associated parking. Town centre lack the space and property prices are higher.

Unfortunately decentralisation uses up Greenfield land; it has an adverse aesthetic impact and creates reliance on private transport. Some areas have witnessed huge reductions in retail outlets and so limiting choice and accessibility for consumers who are not mobile.

Retail locations can also be described as managed or unmanaged shopping locations. Individual shops are obviously managed. However a shopping street is a loose, unmanaged collection of individual store and thus is a generalised node for shopping. Town centre often consist of several such streets. Arcades or town markets are managed shopping environments of long standing. Regional shopping centres are major retail destinations in themselves. They are designed, planned and managed as distinct retail locations sometimes marketed as a brand in their own right.

Types of Shopping Centre Development.

Type / Provision
Major city centre renewal schemes. / Wide range of shopping facilities.
Small in-town schemes. / Specialist shopping facilities.
Non-central-city centres [district & neighbourhood centres]. / Several store, sometimes also a superstore or hypermarket targeted for everyday consumption needs.
Edge of town & out of town centres [retail parks, factory outlet centres. / Based around one or two large superstore & containing retailers in a variety of product areas.
Large out of town regional shopping centres. / Equivalent of a new city centre outside the city.
Centre associated with transport nodes. / Built at railway stations [within the urban area], airports [outside the urban area].

In Western countries the twin processes of decentralisation and managed environments have transformed the retail landscape. Much retail may emphasise micro-locational factors in location selection [locating one shop in the best possible market]. Some retailers and locations have an international reputation and attract visitors in different ways e.g.Mall of America,the largest shopping centre in the US. Mail order retailing is to some extent location free. Similarly Internet retailing has the potential to release retailing from various locational strait jackets and so expand the market place globally. Location here matters less.

Some retailers are clear destinations in their own right and are capable of transforming the local landscape wherever they appear and consumers will travel to them regardless of the distance e.g. Wal-Mart, IKEA. The store becomes a destination; constructing and deconstructing landscapes thus illustrating the volatility of retail demand and supply; manipulating demand and consumer decision making. In the UK towns used to fight hard to get a Marks & Spencer store due to the spin-off benefits in terms of consumer visits and prestige. M&S could get favourable rentals while other stores then paid higher rentals to be next to Marks & Spencer.

4)Shopkeepers & Retail Managers. In almost all countries retail is dominated by independent retailers who are the owner/managers of a single store and retail almost anything e.g. from generalist corner storeto specialist selling 2nd hand items. This is typical of retail operation throughout history because retail has low entry and exit barriers. Independents are the mainstay in numerical terms.

Type / Example
Independent retailing / Single local shop
Govt shops / LCBO [Liquor Control Board of Ontario Stores. Royal Mail
Corporate retailers / Marks & Spencer
Consumer Cooperatives
Contractual chains / Body Shop [franchise]
Spar [affiliated group]
NISA [Buying group]

In some countries the government has been a major retailer controlling and operating many stores [communist Poland] or for particular product lines e.g.Ontario, Canada.

Corporate/multiple retailers dominate retail in many countries. They operate in many countries and can be enormous businesses e.g.Wal-Mart, Carrefour, Ahold or IKEA. Consumer cooperatives have been strong in some countries e.g.Finland, Denmark, Switzerland and Japan. Cooperatives are owned by members for their mutual benefit not for shareholder profit. In the UK, the Cooperative Group dominates. Some independent retailers have given up some degree of independence to be part of a contractual chain or franchise – independent businesses which are supplied or are legally linked to a larger umbrella organisation [e.g.7-Eleven Japan, Spar, The Body Shop]. They seek to maximise buying, marketing or other activities in the belief that working together combined with independent shop ownership with its local knowledge enhances competitive position - benefits of a large corporate chain alongside the flexibility and entrepreneurial flair of the independent trader. In general, centrally controlled, large organisations have gained power and market share from independent and cooperative retailers through advantages of efficiency which gives them economies of scale and scope.

Local retailers have local knowledge and ability to satisfy local needs and wants. But they often have succession problems.

As retail organisations have grown bigger they now have a need for professional well trained management – these skills are different from the shop keeper of old. They work in a highly competitive environment. A large food superstore could rake in over £100 million in annual sales, be open for 24 hours a day, seven days a week; employing over 600 employees at one site on a shift pattern. Technology is highly advanced; be part of a business worth £20 billion with over 150 000 employees. Its marketing, buying and logistical operations are all professional and dynamic environments. Thus retailing has some of the most exacting and exciting and well paid jobs and it relies increasingly on professional graduate level staff.

5)Product sourcing & Distribution. Unlike manufacturing companies, retailers have to build and manage multi-plant operations with a lot of variety and variability in concept and transactions. Retail is open to demand vicissitudes and so the role of technology [data capture and transmission] are important for increased sustainability. Retail involves selection and assembly of goods for sales – product sourcing and distribution. This is dominated by variety of type of goods, sourcing strategy and product mix. Retailers sell a wide variety of items.