Retail Marketing

Lecture 2 Retail Environment 1: Retail Formats

NBS-MC18

Retail Marketing & Management

Ratula Chakraborty Senior Lecturer in Business Management & Director MSc Programmes

[email protected]

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Lecture Outline

Economic Role of Retailers

Types of Retailers (by ownership and format)

Retail Institutional Change

Case Study I: Shop closures in the UK

Case Study II: Global trends in FMCG retailing

Purpose: to help understand the key drivers of change in the retail environment and the economic role and variety of retailers supported in the modern retail economy

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Retailer as Intermediary and Value Creator

Why do retailers exist? What is the retailer’s economic role?

 Allows consumer to make transaction conveniently

 Collects together different items that the consumer can purchase in one location and in one transaction

 Helps bridge the geographical gap between producers and consumers

 Bulk-breaker (e.g. buying in big lots, selling in small lots)

 Information source to manufacturers (demand info) and consumers (e.g. joint producer-retailer advertising)

 Enhance demand and add value by the selling service and in-store environment provided to encourage purchases and generate sales

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Types of Retail Ownership

Multitude of different forms of ownership:

Independent retailer (e.g. independent corner shop or boutique)

Multiple (chain) retailer (e.g. IKEA, Tesco, Boots, Next, M&S)

Voluntary (symbol) retail group (e.g. Spar, Londis, Costcutter)

Retail conglomerate (e.g. Dixons Carphone, Metro)

Franchising (e.g. Bodyshop, Benetton, McDonalds)

Co-operative (e.g. Co-op Food)

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Different Dimensions of Retail Formats

1. Single store v. multiple store

2. In town v. out of town

3. Proximity v. destination

4. Small v. large

5. Mature v. innovative

6. Mainly food v. non-food

7. Specialised v. generalised

8. Niche v. commodity

9. High value added v. discounter

10.Experiential v. functional

11.Store based v. home based

 Many ways to categorise retail formats

 Choice of retail format covers a number of different dimensions

 Select according to serving consumer needs better than rivals

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Example: Store based v. home based

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Main Types of Retail Formats

 Store-based retail formats (e.g. “bricks and mortar” retailers)

 Non-store based retail formats (mail order; direct selling)

 Technology-based retailing (vending; telesales; TV; Internet)

 Generalist and Specialist Retailers (broad vs narrow range)

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A. Department Stores

 Examples: Harrods, John Lewis, Jarrolds

 Oldest form of large store

 Multi-level, multi-section stores

 Width and depth in product ranges

 Tourist attractions

 Revival of the department stores during the 1990s continuing through to present day

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B: Variety stores

 Examples: TK Maxx, Home Bargains, Wilko

 Wide range of goods under one roof

 Blurred boundaries

 Low price orientation – e.g. single price: £1 or 99p

 Low service level

 Orienting towards discount store format

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C: Specialist stores

 Examples: Carphone Warehouse (telecoms), Blacks (leisure activities), Evans (large size clothing)

 Smaller retailers with focused product range

 Defined target market

 Specialist service retailers

 Complementary products and services (e.g. Boots in well-being)

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D: Category killers

 Examples: IKEA (homeware), B&Q (DIY), Staples (stationery), PC World (computers), Pets At Home (pet care), Toys’R’Us (toys)

 “Big Box”, edge of town retailers

 Economies of scale with a focus on one particular product category or consumer need

 Value driven price offer: “biggest range, lowest prices” to kill off competition

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E: Convenience stores

 Examples: corner shops, petrol forecourts, Co-op

 Typically 100 – 1,000 sq m selling area

 Caters for impulse, emergency purchases and top-up shopping

 Reoriented towards convenience and accessibility (e.g. CTNs turning into convenience stores)

 Located in neighbourhood areas, business districts and road sides

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F: Grocery Multiples

 Supermarkets

 1,000-2,500 sq m, broad range of groceries (e.g. Co-op, Aldi, Lidl)

 Superstores

 2,500-5,000 sq m, extensive range of groceries (e.g. Morrisons, Sainsbury’s)

 Hypermarkets

 2,500-10,000 sq m, extensive range of both food and non-food products (e.g. Tesco Extra, Asda, WalMart)

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G: ...and others

 Warehouse clubs (e.g. Costco, Sam’s Club)

 Catalogue shops (e.g. Argos)

 Discount stores (e.g. Poundland, Poundstretcher)

 Factory outlets (e.g. Jaeger)

 Charity shops (e.g. Oxfam)

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Non-store formats

 Mail order (e.g. Littlewoods catalogue, Next catalogue)

 Direct selling (e.g. producers directly contacting the public through mail shots)

 Personal retailing (e.g. Avon beauty products, Ann Summers party plans)

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Technology based retailing

 Vending (e.g. cigarettes, confectionery, soft drinks)

 Telesales (direct cold calling)

 TV Shopping (e.g. QVC)

 Internet retailing (e.g. asos.com, amazon.com, ebay.com)

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Generalist and specialist retailers

Retailers distinguished by breadth and depth of their product ranges:

 Generalist – wide ranging product bases with multiple product categories, e.g. supermarkets, variety stores, and department stores

 Specialist – category specialisation and deep choice, e.g. Game shop (computer games), Watersons (books), Halfords (car parts), HobbyCraft (hobbies)

 Hyper-Specialist – very narrow focus, e.g. Disney Store, Gadget Shop, Whittards (tea shop)

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Retail Institutional Change

Why do retailers change over time?

The Wheel of Retailing (trading up over time and becoming vulnerable to new entry, e.g. Woolworths)

Retail Life Cycles (from introduction, growth, maturity, to eventual decline, e.g. Virgin Records)

The Retail Accordion Theory (the general-specific-general process explaining the rise, fall and rise again of department stores)

Evolution: adaptation to market forces (adapting to changing business environment and consumer preferences, e.g. Tesco)

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Wheel of Retailing

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Retailer enters with low-cost approach, trades up over time, adding extra services and setting higher prices and eventually becomes vulnerable to new low-cost entry

Retail life cycles

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Introduction phase – omni-channel retailing

Growth phase – online retailing, lifestyle retailers, pop-up stores

Mature phase – supermarkets, department stores, category specialists

Decline phase – independent specialists, personnel selling

Retail Accordion Theory

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 Alternating success of generalist and specialist retailing driven by changes in consumers’ shopping preferences

 Not clear what are driving factors or whether the pattern will persist into the future

Retail Evolution and Adaptation

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Example: Food retailing has adapted to consumer needs for more choice and more convenience to the point where modern hypermarkets sell over 30,000 products under one roof. But is this too much choice?

Socio-Cultural Changes Driving Retail Change

Changes in consumers’ profile, nature, behaviour and attitudes encouraging retailers to adapt and change:

Demographic changes (age profiles, working patterns, income and expenditure)

Lifestyle changes (time poverty, car dependency, cellular families, leisure focus)

Internet shopping (24/7 availability)

Ethical and green consumers (environment-friendly products, organic foods, ethically sourced goods)

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Questions for Discussion #1

Why are there no big national or regional chains of florists, butchers, or delicatessens in the UK?

Why are discounters out-performing traditional stores in both food and non-food retailing?

Why are many large format (big box) category killers struggling to survive?

What product categories do not lend themselves to internet retailing? What limitations/restrictions would need to be overcome to allow for success?

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Case Study I: Are there too many stores in the UK?

After years of growth by multiple retailers has the tide now turned and are they set to shrink

and close stores?

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Store closures

More than two decades of sustained growth in retail space across the UK led by multiple retailers

Big chains have announced store closures and restructuring including M&S and Tesco

Different retailers exiting entirely: BHS (variety), Staples (stationery), Netto (food), My Local (food), Austin Reed (clothing), Brantano (shoes)

Follows previous departures over last few years e.g. Woolworths (variety), Comet (electricals), Phones 4U, Blockbuster (dvd rental), JJB Sports, Jessops (cameras), Tie Rack, Barratts (shoes), Past Times (gifts), TJ Hughes (discounter)

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Examples of store closures

BHS  In trouble (March 2016) – BBC News (2mins)

http://www.bbc.co.uk/news/business-35884091

 Last stores close down (Aug 2016) – BBC News (2mins) http://www.bbc.co.uk/news/uk-37208093

Phones 4U  Stores closing down (Nov 2014) - BBC News (2mins)

http://www.bbc.co.uk/news/business-29202179

Comet  Enters administration (Nov 2012) - BBC News (2mins)

http://www.bbc.co.uk/news/business-20174201

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Store openings vs. closures (2010-16)

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More store closures than openings in the past five years by multiple retailers (operating with 5 or more stores) in the UK

Reasons for store closures

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Three main factors putting pressure on retailers:

1. Competition: shift in spending from physical shops to online

2. Reduced demand: squeeze on household income and economic uncertainty (inc. Brexit)

3. Higher costs: increases in business rates and national living wage and falling Pound raising supply costs (especially for imported goods)

…but not all sectors seem to be affected!

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% Change 2010-2017 in

Numbers of Outlets

Grocery 20.4%

Electricals &

Office -30.1%

Foodservice 25.7%

Clothing &

Footwear -4.6%

Leisure &

Entertainment -15.0%

Health & Beauty -12.4%

Home, Garden,

Auto 2.9%

Other 19.7%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 2011 2012 2013 2014 2015 2016 2017

Number of Retail Outlets in UK: 2010-2017f

Grocery Electricals & Office

Foodservice Clothing & Footwear

Leisure & Entertainment Health & Beauty

Home, Garden, Auto Other

…and retail sales growing at different rates

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% Change 2010-2017 in

Retail Sales

Grocery 17.1%

Electricals &

Office -3.5%

Foodservice 25.0%

Clothing &

Footwear 27.5%

Leisure &

Entertainment 76.0%

Health & Beauty 13.8%

Home, Garden,

Auto -3.2%

Other 4.7%

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017

Retail Sales (£bn): 2010-2017f

Grocery Electricals & Office

Foodservice Clothing & Footwear

Leisure & Entertainment Health & Beauty

Home, Garden, Auto Other

Questions for Discussion #2

Which types of retailers are most likely to suffer and decline in the coming years? Why?

Which types of retailers are most likely to prosper and grow in the coming years? Why?

How does the UK experience compare to other countries? Is there a common global pattern?

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Case Study II: Global trends in FMCG retailing

What is happening globally in FMCG retailing?

Which retail formats are likely to grow quickest?

How well placed are the world’s leading retailers to position themselves for future growth?

Note: Fast Moving Consumer Goods (FMCGs) include groceries, pharmacy products and everyday household goods

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5-year projected growth in FMCG channels

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Large-format retailing in decline

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Differences across global regions

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Expanding and retrenching retail channels

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Channel growth for Top 10 global retailers

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Top 10 hypermarket operators

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Top 10 discount store operators

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Top 10 convenience store operators

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Top 10 pharmacy store operators

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Key strategic priorities for each channel

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Questions for Discussion #3

Why is large-format FMCG retailing in decline?

Why is convenience store retailing set to grow?

Why are discount retailers growing so rapidly?

Out of the top 10 retailers, which ones seem to be best placed to grow and which ones look set to decline? Why?

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References

Varley and Rafiq (2014) – Chapter 2 (retail organisations and formats)

Planet Retail – Global Channel Trends 2016 (see Blackboard)

Planet Retail – Top 10 Regional Rankings 2016 (see Blackboard)

Centre for Retail Research – Who’s gone bust in retailing 2010-2016?- http://www.retailresearch.org/whosegonebust.php

Telegraph, “All the major high street brands that have collapsed since the recession,” 24/11/2016 http://www.telegraph.co.uk/business/2016/04/25/all-the- major-high-street-brands-that-have-collapsed-since-the-r/tj-hughes-sign-outside-a-liverpool-store/

Guardian, “Britain's high streets under strain as 15 shops close every day,” 25/10/2016 https://www.theguardian.com/business/2016/oct/25/britains-high-streets- under-strain-as-15-shops-close-every-day

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Thank You!

...see you next time for Lecture 3 – Retail Environment 2: Legal and Ethical Issues

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