RetailScape in India : Cyclic and Non-Cyclic Theories

Retailing is all about selling smaller amounts of finished products and is often aimed at individual consumption. Over time, various theories have been developed to understand the patterns and trends in retail. These can be broadly divided into two categories: cyclic and non-cyclic theories.

Let's break them down and see how they shape the retail landscape, with some Indian examples for context.

Cyclic Theories

Cyclic theories suggest that the retail environment and competitive practices follow a repeating pattern with identifiable stages.

1. Wheel of Retailing Theory

One of the most popular cyclic theories is the Wheel of Retailing. First proposed by McNair in 1958, this theory suggests that retailers enter the market with low-cost strategies, offering minimal services and limited product ranges. This phase is known as the entry phase.

As retailers gain customers and profits, they enter the trading-up phase, where they invest in better facilities, enhance service levels, and expand product ranges. Finally, they reach the vulnerability phase, where high overhead costs and declining returns challenge them to renew their strategies or risk losing customers to new, cost-effective competitors.

Think of Marks and Spencer in the UK, which evolved from a market stall to a high street giant, facing significant overhead challenges in the 1990s. In India, a similar journey can be seen with Shoppers Stop, which started as a single store in Mumbai and expanded into a large retail chain, eventually facing intense competition and high operational costs.

2. Retail Accordion Theory

The Retail Accordion Theory focuses on the range of products retailers offer. Initially, stores carry a wide range of products to attract a diverse customer base. As competition grows, they may specialize. However, to stay competitive, they often revert to a more generalized product offering.

This pattern can be seen in the retail sector, where small general stores evolved into specialized shops, only for large supermarkets to later dominate by offering a wide variety of products under one roof.

3. Retail Lifecycle Theory

The Retail Lifecycle Theory parallels the product lifecycle, suggesting that retail stores go through stages: development, growth, maturity, and decline. Some may experience renewal through innovative strategies or new formats. This theory helps explain the rise and fall of different retail formats over time.

Consider how department stores were a disruptive innovation in the 19th century, much like e-commerce in the 20th century. In India, this can be seen with the rise of e-commerce giants like Flipkart and Amazon, which disrupted traditional retail. Traditional stores like Croma have adapted by incorporating online sales and improving their digital presence to stay relevant.

Non-Cyclic Theories

Non-cyclic theories argue that the retail environment evolves due to various forces without a repeating pattern.

1. Conflict Theory

Rooted in Marx’s Theory of Evolution, Conflict Theory posits that progress in retail comes from conflict and competition. New ideas challenge old ones, leading to the creation of hybrid models. For example, supermarkets adopting online shopping & deliveries to compete with e-commerce giants like Amazon.

In India, this can be seen with traditional retailers introducing online shopping and home delivery services to compete with the growing popularity of online shopping platforms such as Flipkart and Amazon.

While this model explains the adoption and spread of new ideas, it doesn’t account for why some traditional retailers resist change.

2. Environmental Evolution Theory

Environmental Evolution Theory suggests that retail firms evolve in response to changes in their environment. Firms that adapt well to changes in economic conditions, consumer preferences, and technological advancements are more likely to thrive.

A great example is the rise of discount supermarkets like Aldi and Lidl during economic recessions, leveraging their low prices to attract more customers. In India, the retail success of brands like Patanjali, which adapted to the increasing demand for natural and Ayurvedic products, showcases this theory. They leveraged the growing trend towards health-conscious consumerism to expand rapidly.

However, this theory doesn’t explain why some retailers proactively innovate rather than just reacting to external changes.

In real life, retailers resist change due to risk aversion, high switching costs, organizational inertia, lack of vision, and cultural resistance. Conversely, some retailers innovate to stay competitive, fulfill customer demand, leverage technological advancements and market opportunities.

Balancing the risks and benefits of innovation versus the dangers of stagnation is crucial for long-term success.

Retailers that manage this balance effectively are better positioned to thrive in an ever-evolving market.