Wheel of Retailing: A hypothesis regarding retail development patterns.
Retailers start as low-margin, low-status, low-price operators.
Over time, they move up-market by acquiring elaborate premises and increasing prices.
Key Concepts
Stages of Retail Development:
Entry Stage: New retailers enter as discount stores with low prices and margins.
Growth Stage: As retailers establish their brand, they begin to offer more products/services and increase prices.
Maturity Stage: Retailers become high-cost, high-price merchants. They are now vulnerable to new entrants who replicate their initial low-cost model.
Origin
Coined by Professor Malcolm P. McNair, who taught at Harvard Business School for 43 years.
Nature of the Hypothesis
Not a rule: The wheel of retailing is not an economic or retailing rule but a hypothesis.
Applicability: It may not apply to every retail situation, but it explains retail trends in many economies.
Example Case Study: Fred Bloggs
Initial Setup: Fred opens "Bloggs Meals" at a temporary location, offering limited items at low prices.
Growth and Expansion: After establishing, he increases variety, introduces new services (e.g., free home delivery), and raises prices to recover fixed costs.
Market Challenge: After two years, a new restaurant enters the market with low prices, forcing Fred to revert to his original pricing model.
Conclusion: Fred experiences the cycle of the wheel of retailing, illustrating the concept in action.
Summary
The wheel of retailing illustrates the cyclical nature of retail development, showcasing how retailers evolve and respond to market changes.