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Theory
The retail cycle is an economic theory that explains the sequence and changes that retail institutions and their respective strategies pass through, as they mature. The four phases through which retail institutions pass include: innovation, accelerated development, maturity and decline. The breakdown of stages enables businesses to predict future performance. The size of a retail business will often determine its focus and its position in the retail cycle. Big businesses often focus on long-term customers rather than shoppers; medium-sized businesses consider customers more deeply and small retailers typically thrive off their brands, depending heavily on timing and viral growth. The retail life cycle assists managers and business-owners alike to make informed, pragmatic decisions about the direction a business should take and the scale of future processes.

Retail Cycle Phases
The retail life cycle has four distinct stages; each of which, a retail institution might experience for a longer or shorter period of time when considered against the timeline of another’s lifecycle.

The first phase of the cycle is innovation, which describes the establishment of a new retail institution. Typically, newly established businesses offer a new idea/product/method of delivering an existing product/service and as a result, enjoy significant benefits. A tightly controlled cost structure resulting in a favourable price position might facilitate these advantages, however this is not always the case. Other factors that influence a business’ success in the innovation phase include: a unique feature offering, distinctive product variety, geographical advantages, ease of access to products or various promotional approaches. A retailer that can successfully deliver a new product/service offering will garner high customer interest and correspondingly, experience a sharp rise in sales in the innovation phase. Despite this, the institution still might struggle with operational problems associated with new projects, causing profits to lag. A company’s inability to produce substantial economies of scale, due to its initial size or high start-up costs that may not be capitalised, will also hinder profits. Sales volumes and profits begin to increase more rapidly toward the end of the innovation phase of the retail cycle, as the initial operating issues are repressed.

The second phase of the retail life cycle is accelerated development. During this period, profits and sales volume increase rapidly and typically, established businesses engage in locational expansion. Companies that did not enter their fields as innovators often infiltrate the market. One mature company that revised its strategy was Woolworths, who made large financial commitments to investing in their own discount operations after discount department stores were introduced as a new method of retailing. Conventional outlets struggle for market share while innovating stores prosper, as the concept of the retail life cycle gains greater interest. Businesses that once ignored innovation establish retaliatory programs, however these often prove to be ineffective.

Typically, profits are favourably impacted during the accelerated development period. This can be attributed to greater sales volumes that drive fixed expenses down and form sufficient economies of scale. Despite this, pressure for more staff, complex internal systems, controls on management and other necessities for the operation of a large institution tend to offset the favourable factors, toward the end of the accelerated development period. As such, market share and company profits often reach their peak during this period.

The third stage of the retail life cycle is maturity. During this vital stage, retailers often witness the depletion of their former strength. As market share stabilizes, operating problems arise due to various factors. As organisations grow in size and equally, complexity, managers often struggle to maintain control. Despite management’s ability to maintain the intensity of operations during the first two stages of the retail cycle, they often struggle to direct large businesses in stable markets. Subsequently, operations become inefficient and lack in quality. Retailers are also faced with the challenge of too much capacity in the maturity phase. This occurs when retailers expand their physical locations far beyond the size and demand of the market, resulting in losses. Over-expansion often persists until retailers face a major overhaul of operations, which discount department stores bore the brunt of in the late 1970s.

The final stage of the retail cycle is the decline phase. Senior decision-makers in retail institutions often avoid or postpone this stage by rearranging a business’ marketing mechanisms, to subsequently prolong the maturity phase. Although this method does not always work, retailers will aim to achieve this as the consequences of the decline phase are catastrophic. Businesses lose market share, make minimal profits, if any, and investor confidence diminishes.

The retail life cycle can be leveraged to forecast retail developments and to respond to those projections at strategic points in time. There are four techniques typically required for successful management of retail developments and each can be used by decision-makers at different stages of the retail life cycle. They include: flexibility, analysis of risks and profits, efforts to prolong the maturity stage and thorough research.

Flexibility
A matter for concern at all stages of the retail life cycle – decision-makers must remain flexible in a competitive retail environment. The cost of adopting new management styles and adapting to new trends is a challenge that retail executives are met with in a shortening life cycle. Retailers must observe different management styles or groups during the retail life cycle, to manage the continual change that they are faced with. It follows that the complexity of management in large organisations with various types of stores, at different stages of development, are likely to increase substantially. A company equally cannot limit themselves to one specific philosophy or method of management.

American retail chain Federated Department Stores is a prime example of a company that has incorporated various management styles throughout the different stages of retail development. A separate management task force, which was entirely autonomous from the existing management group, was established when the company launched its ‘Gold Circle’ discount division. The management team experimented with different management techniques and operating styles which ultimately, supported an innovative management style for the discount department and more traditionalist style for its established department store function. Suppliers are likely to be more receptive to new retail opportunities as they try to avoid being limited to a single type of retail outlet for particular products. The risk of potentially jeopardising existing client relationships has typically discouraged wholesalers from selling to new types of retailers, however, in contemporary times, manufacturers welcome smaller suppliers. The market share that once belonged to larger companies can shift toward smaller, innovative companies as a result.

Analysis of Risk and Profits
The second technique for retailers to adopt involves analysis of risk and profits. An increased emphasis on innovation and analytics is necessary for retailers who seek to reduce the potential risks posed by new ventures. Various techniques may be utilised to increase sales and profits as well as decrease investment requirements, ultimately reducing risks to retailers. One method utilised by retailers seeking to establish new retail ventures involves sourcing of secondary space, such as abandoned supermarkets. Retailers may also prioritise the use of more effective merchandising schemes.

New retail concepts often present a challenge for suppliers to deal with. This is because strong financial support in the form of physical inventory and loans, for example, are necessary to retailers that endeavour to respond to new methods of distribution that have a strong customer appeal. Very few suppliers encapsulate the ability to assess the benefits or gains from innovation with great accuracy. Hence, in the future, greater knowledge of retailing processes and an involvement in the innovation phase of retail businesses will be necessary among suppliers, to facilitate success during a business’ life cycle.

Research to prolong the maturity phase of the retail life cycle
A further technique available to retailers is to attempt to extend the maturity phase of the retail life cycle. The duration of the various stages of the cycle are variable which retailers must consider according to their offering(s) and position within their industry. Retailers are likely to dedicate more of their attention, time and resources to attracting new customers and market segments as well as retaining as many existing customers as possible as the retail life cycle takes its course. This involves capturing loyal customers amidst fierce competition in retail markets. The department store industry in particular, has displayed some action that can be taken by alert retailers in the maturity-stage. Department stores were originally recognised as suppliers of an extensive range of basic merchandise at discounted prices. Department stores have evolved into suppliers of a vast range of apparel, homewares and universal goods, to be sold to a middle-class customer group. In contemporary times, the focus of department stores has shifted to an emphasis on tailored service offerings and luxury goods including fashion apparel, accessories and homewares. Department stores’ main market is now seen as the wealthier segment of the middle class. Most stores that have embraced changes in the retail environment have maintained satisfactory levels of sales and profitability. As the retail concepts offered by retailers evolve over time, supplier marketing campaigns must reflect this.

Eventually, suppliers will have to engage with vendors, buying committees, analysis courses and undertake supplementary efforts to establish the most favourable supplier connections. Moreover, the rise in innovative competitors and their offerings ensure that suppliers must deliver the product differentiation desired by retailers, so that they can retain their conventional customers. Suppliers must simultaneously offer retail outlets who are new to the market less stringent operational procedures. Ultimately, suppliers will create facilities that satisfy the needs of a diverse range of retailers, with varying requirements. The complexity of supplier operations is likely to evolve as a result of these developments.

Prioritise research
Retailers must also place an emphasis on research during the retail life cycle. Often, smaller, more innovative businesses will experiment with new tactics as there are multiple risks associated with trailing new retail models. If larger retailers realise that a particular innovation has been significantly successful, they are likely to copy it. Retailers must deploy a more extensive commitment to monitoring experimentation and advancements in the retail sphere, with the goal of expanding this area in the future. Equally, suppliers must establish innovative trials to attract new customers and examine their influence on various markets.

Strategy
A retail business will choose its strategies based on a variety of factors including its size and position in the retail life cycle. Some mass retailers have developed over the decades and remained highly successful whilst other retail businesses, such as subsidiaries of larger chains, have entered the market. These businesses typically achieve success, but have a short retail life cycle. Although risky, trying new concepts can often be beneficial to businesses in the retail sphere. One strategy development expert compared the Home Depot Expo business to Sears Great Indoors to examine the different strategies used in the retail life cycle. Sears Great Indoors, for example, was once considered a trendy place to shop for brass water taps. However, the question of how the business would expand and successfully navigate the retail lifecycle was never fully addressed so as to mitigate any related risk.

Mitigating risk through technology
In an extremely competitive marketplace, no retailer can succeed without world-class systems that overcome the challenges brought about by the retail life cycle. There are several tools available to retailers to mitigate these risks that involve technology. One business has even been designed to provide a suite of technological business solutions that manage the life cycle of a retail business. It explores every phase of the retail cycle, from planning through to analysis, as well as offers solutions to optimise business’ relationships with their suppliers, customers and employees.

Another tool used to mitigate risk is an integrated planning solution which combines all aspects of merchandise planning into one coherent space. This function produces accurate and relevant plans for retail businesses and their staff to use as benchmarks for success. The technology generates forecasts that can be compared to point of sale, inventory and merchant data, which can be used to mitigate risks associated with profit margins, costs and customer correspondence. Ultimately, businesses are benefited by a low-cost product that can provide significant financial gains.