Principles of Retailing

John Fernie, Suzanne Fernie, Christopher Moore

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317648284
• Edition: 2
• Topic: Negocios y empresa
• Subtopic: Sector minorista

Retailing is one of the biggest and most important sectors in today's economy. Graduates who are seeking a career in the sector will therefore require a solid knowledge of its core principles. The Principles of Retailing Second Edition is a topical, engaging and authoritative update of a hugely successful textbook by three leading experts in retail management designed to be a digestible introduction to retailing for management and marketing students.

The previous edition was praised for the quality of its coverage, the clarity of its style and the strength of its sections on operation and supply chain issues such as buying and logistics, which are often neglected by other texts. This new edition has been comprehensively reworked in response to the rapid changes to the industry, including the growth of online retail and the subsequent decline of physical retail space and new technologies that improve customer experience and help track consumer behaviour. It also builds upon the authors' research over the last decade with new chapters on offshore sourcing and CSR and product management in addition to considerable revisions to existing chapters to highlight changes in online retailing and e-tail logistics, retail branding, retail security, internationalisation and the fashion supply chain.

This edition will also be supported by a collection of online teaching materials to help tutors spend less time preparing and more time teaching.

1 The retail environment

DOI: 10.4324/9781315762432-1

Learning objectives

After studying this chapter, you should be able to:

• Identify major demographic, socio-economic and lifestyle trends, and discuss their influence on consumption of retail goods and services.
• Evaluate how retailers have responded to the changing consumer in terms of:
  • retail innovation;
  • concentration of retail ownership; and
  • locational shift.
• Comment upon the waves of retail decentralization.
• Understand how government influence can shape retail development through:
  • legislation;
  • competition policy; and
  • planning policy.

1.1 Introduction

In essence, retail change has been driven in the past by the interaction of consumer, retailer and government: in the 1990s and 2000s the role of technology became increasingly important as an agent of change.

(after Fernie, 1997, p.384)

To understand the retail environment it is important to understand the interrelationships between the factors illustrated in Figure 1.1. In this chapter, we shall consider how changes in the consumer environment – demographic, socio-economic and lifestyle trends – have impacted upon retail change. At the same time, government has been a major agent of change. Retailers are regulated by an array of laws and ordinances which impinge on their operations. This can be on licences to operate, which goods to sell, hours of operation, health and safety matters through to planning ordinances on where to locate the business. The types of merchandise on sale and the formats developed are a response to such interactions. However, retailers do influence consumers and government on product choice and format development. For example, the UK slowdown of the introduction of genetically modified foods was driven by retailers’ refusal to stock these products. Also high-profile retail entrepreneurs (Archie Norman for Asda, Lord Sainsbury for Sainsbury's, Philip Green for Arcadia) have lobbied and advised successive UK governments. Political decisions such as refusal to join the European Monetary System and introduction of the minimum wage have had economic repercussions that influence retailers. UK tax credits have supported low-paid retail workers; government funding supports staff training in the skills academies of high-profile retailers.

Figure 1.1 Factors influencing change

The role of technology is not discussed at length here as it embraces most chapters of the book, especially those on logistics, marketing and online retailing. It should be acknowledged here, however, that technology should be seen in its widest sense. For the consumer, technology has freed up time as capital goods replace labour in the home. Communications in both a physical and information sense have given access to wider geographical markets. Retailers rapidly embraced the IT revolution through sharing data with their suppliers and communicating with their customers, especially those with loyalty card schemes. New technologies have been applied throughout the supply chain to ensure that products can be designed/tested, manufactured and distributed quicker and at a lower cost than ever before. Markets and companies have grown due to the links between innovation and technology. The example of the evolution of chilled foods in the UK was used in the previous edition of this book. In response to the demand for ready meals, two businesses, Northern Foods and BOC Transhield, grew to supply Marks & Spencer and other supermarket chains with these product lines.

The most significant change over the last decade, however, has been the growth of online technology. In the early 2000s online sales were barely 1 per cent of overall retail sales in the UK; a decade later this had risen to 10 per cent, with prospects of strong growth for the foreseeable future. The UK is a market leader in online uptake by consumers but it is the nature of online communications that is changing the face of retailing. Advances in smartphone technology have heralded an anytime, anywhere consumer culture that poses significant challenges for retailers. Deloitte (2013) claim that the future of retail has arrived and the winners in this new environment will be the companies that can deliver a seamless customer experience across all channels. As Deloitte claims we are in the midst of a consumer revolution, it is necessary to track the evolution of consumer trends.

1.2 The changing consumer

In order to discuss the changing consumer in more depth, we shall look at:

• demographic trends;
• socio-economic trends; and
• lifestyle trends.

1.2.1 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. Europe had been viewed as the battleground for retail competition because of the launch of the euro and the enlargement of the European Union (EU) to 28 members and a population of 505 million by 2013. Despite the size of this market, 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 (in Ireland it was 33 per cent) 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 in Europe. For example, in 2008, 32 per cent of the EU population lived alone compared with 8 per cent in 1981. This is reflected in the increased number of single households across Europe and the number of people in a household declining in every one of the early EU members since the early 1980s. Indeed, the figures for one-person households would be higher if the more recent EU members were excluded from the data (see Iacovou and Skew, 2011). The classic image of a nuclear family of two adults plus 2.4 children in a household is the exception, not the rule. Also, divorce rates are at record levels, which has led to a breakdown of the traditional family household. On average, there were 2.4 people per household in the EU in 2008. In the UK there was a major decline from the 3.45 of 1951 to the EU average in 2008. Table 1.1 also gives a more detailed breakdown of housing types in the UK. Although one-family couples are the largest category, there is a reduction in the proportions of households in this type from 58.7 per cent to 56 per cent, whilst other types have increased, most notably one-person and lone-parent households with 11 per cent and 29 per cent, respectively, of total households.

Table 1.1 Changing household types in the UK, 1996–2012 (millions)

	1996	2012
One-family household couple	13.9	14.8
One-family household: lone parent	2.3	2.8
Two or more unrelated adults	0.7	0.8
Multi-family households	0.2	0.3
One person	6.6	7.6
All households	23.7	26.4
Source: Office for National Statistics, 2012.

1.2.2 Socio-economic trends

Clearly there is a strong relationship between demographic trends and the labour market. Over two decades ago there were great fears that the changing structure of the population would lead to a demographic ‘time bomb’ producing labour shortages as numbers of 15–29-year-olds entering the labour market began to decline (historically, unemployment rates were highest within this age group).

In reality, the nature of the labour market changed in line with the growth of high-tech ‘sunrise’ manufacturing industry and the service sector at the expense of traditional ‘sunset’ industries. This saw the rise in female participation in the workforce, more part-time/ casual working and the rise in self-employment, often as a result of early retirement or redundancy. In Europe, there has been a marked increase in the number of women in the labour force, and there is no longer a significant fall in the rate after the age of 30, implying that women are not stopping work after having children. In the UK, women comprise a higher proportion of the labour force than men; they are flexible (often by necessity), are often better educated, and have a wider range of skills for the service economy, of which retailing is a part. By contrast, men have seen their role in society change considerably, especially in areas of high unemployment, where ‘light’ industries and service jobs have replaced traditional male-dominated manufacturing work. The househusband is now common, and the male head of household as the sole breadwinner is rapidly disappearing.

These trends in the labour market occurred during a period of strong growth in most ‘developed’ economies in the 1990s and early 2000s that witnessed a period of low inflation and low unemployment levels. Cyclical changes in the economy have a major impact on discretionary purchases, in that in an upturn in the economy, consumers tend to spend more on non-essential purchases or those that can be deferred if uncertainty exists about employment opportunities or interest rates. In the UK, ‘real’ disposable incomes grew throughout the 1990s and early 2000s, although it is important to note that many of the factors that fuelled consumer expenditure were unique to the UK. The main distinguishing features pertain more to the housing market and the size and structure of personal debt than households in other European countries. Much of this debt was mortgage debt, which tends to be short term and variable rated, exposing households to changes in short-term interest rates. The reason for the size of mortgage debt is that the rate of owner-occupancy in the UK is much greater (around 70 per cent) than in other countries: for example, the comparative figures for France and Germany are 55 and 50 per cent, respectively. This also means that changes in house prices would impact on personal sector wealth and thus consumer demand to a much greater extent in the UK than elsewhere.

The combination of these factors in the housing market meant that British homeowners were much more sensitive to changes in interest rates or tax relief on mortgages than their continental neighbours in the 1980s to the mid-2000s. In the late 1990s Oxford Economic Forecasting (1998) estimated that a 1 per cent drop in short-term interest rates would lead to consumer expenditure growth of 0.5 per cent. Although UK interest rates were already at historic low levels in the late 1990s, the government cut them even further to encourage spending in an attempt to ward off recession towards the end of the first decade of the 2000s.

Many of the trends discussed above are borne out by official UK government statistics. For example, retail sales from the 1980s have accounted for a decreasing percentage of total consumer expenditure. At the turn of the millennium UK households spent 16 per cent of their weekly expenditure on housing, 15 per cent on motoring and 12 per cent on leisure services. The categories for statistical analysis of household spending vary over time, but by 2011 expenditure on non-essentials such as culture and recreation, hotels, meals and communication accounted for a quarter of household expenditure – about the same proportion as spent on essentials for living such as housing, fuel, power and food (Office for National Statistics, 2011). The UK consumer spends much more on ‘services’, rather than traditional retailing goods. The consumer has ‘traded up’ to own their own home, plus one, two or three cars, and is taking more overseas vacations. Most UK households have access to a car and are willing to be much more mobile in search of employment, retail and leisure opportunities. People seek better-quality environments in which to live and work, and this is reflected in the general shift away from metropolitan to smaller-sized communities. Of course, this trend is evident in many developed economies, especially in North America, where suburbanization, urban sprawl and an automobile-orientated society alerted European planners to curb the excesses of this type of development, despite increasing pressure from housing and business development companies.

The most significant economic series of events to impact upon consumers and the retail sector were the global financial crisis of 2007/08 and subsequent recession in the main Western economies, which continues to lead to sluggish growth at best in some markets and major economic problems in the eurozone, especially in Greece, Spain and Portugal. In May 2013 EU unemployment stood at 11 per cent, but in Spain and Greece the level was 27 per cent. Youth unemployment (under 25) was worse, with rates of 56 and 63 per cent in Spain and Greece, respectively. The collapse of the sub-prime mortgage market in the USA had a ripple effect through the global financial market, with the demise of Lehman Brothers in 2008 and the subsequent UK government bail-out of many of the British banks. This led to much tighter restrictions on consumer borrowing and a stalled housing market. It is interesting to note that the Forum for the Future had pointed to this potential scenario occurring in their report in 2007. They had painted this rosy picture of UK gross domestic product (GDP) growing by 45 per cent from 1991 to 2006, with household disposable income growing even faster; however, they noted that ‘personal debt is increasing: the average adult owed over £28,000 in 2006, up by more than 10% in a year … and leading many to spend ever higher proportions of their income on mortgage payments. A decline or crash could leave many thousands facing negative equity’ (Forum for the Future, 2007, p. 15).

1.2.3 Lifestyle trends

The combination of demographic and socio-economic trends has resulted in a complex set of values associated with consumer behaviour. A range of paradoxes exists. We are a more affluent society, yet there is a growing underclass of poor people in the UK who are long-term unemployed and cannot be regarded as conventional consumers. After the recession in the first decade of the 2000s, the proportion of young people out of work grew in particular, while high debt levels and graduate unemployment also soared. Clearly the situation is much more acute in other parts of Europe, as indicated above. The ‘grey’ consumer, however, is not the austere customer of 30 years ago, but is likely to be relatively wealthy and ‘young’ in attitude to health, sport and fashion. There is now a blurring of social activities so that people no longer perceive aspects of life in discrete compartments. Sport, fashion and music overlap so that while the clothing market stagnates, the sports market grows, mainly by selling clothes.

Christopher Field in 1998 identified some characteristics of ‘new consumers’ that are still evident today:

• they no longer conform to traditional stereotypes – they are demanding, fickle, disloyal, footloose, individual and easily bored;
• they are better informed and more sophisticated, and are prepared to complain when they get poor service;
• they have less time for shopping.;
• they feel ...