New Retail Forms and Shortening Retail Life Cycles

New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter. Department stores took about 100 years to reach the mature stage of the life cycle; more recent forms, such as warehouse stores, reached maturity in about 10 years. In such an environment, seemingly solid retail positions can crumble quickly. Of the top 10 discount retailers in 1962 (the year that Wal-Mart began), not one still exists today.

Consider the Price Club, the original warehouse store chain. When Sol Price pioneered his first warehouse store outside San Diego, in the U.S. state of California, in 1976, he launched a retailing revolution. Selling everything from tires and office supplies to five-pound tubs of peanut butter at super low prices, his store chain was generating $2.6 billion a year in sales within 10 years. But as the industry quickly matured, Price ran headlong into wholesale clubs run by such retail giants as Wal-Mart. (In his autobiography, Sam Walton confesses: "I guess I've stolen—I actually prefer the word 'borrowed'—as many ideas from Sol Price as from anybody else in the business.") Only 17 years later, in a stunning reversal of fortune, a faltering Price sold out to competitor Costco. Price's rapid rise and fall shows that even the most successful retailers can't sit back with a winning formula. To remain successful, they must keep adapting.20

Many retailing innovations are partially explained by the wheel-of-retailing concept. According to this concept, many new types of retailing forms begin as low-margin, low-price, low-status operations. They challenge established retailers that have become "fat" by letting their costs and margins increase. The new retailers' success leads them to upgrade their facilities and offer more services. In turn, their costs increase, forcing them to increase their prices.

Eventually, the new retailers become like the conventional retailers they replaced. The cycle begins again when still newer types of retailers evolve with lower costs and prices. The wheel-of-retailing concept seems to explain the initial success and later troubles of department stores, supermarkets, and discount stores and the recent success of off-price retailers.

Continue reading here: Growth of Nonstore Retailing

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