Wheel of Retailing

Wheel of Retailing The Wheel of Retailing is a theory that suggests that companies convert their strategies from low-end to medium to high-end in order to capture a greater share of the market and to increase brand value. When a company first enters the market, they have a low-end strategy which usually includes low pricing, reaching price-sensitive customers, and where products, services and facilities may be limited. According to Barry Berman and Joel Evans’ textbook Retail Management , retailers typically enter the market at the bottom, or Stage 1, with “low  prices, profits and prestige” and over time, progress up to Stage 3, “to increased prices, profits and prestige.” This change usually happens over time, and includes aspects like improving or adding services (credit, delivery, layaway, gift-wrapping, etc.) A retail store may begin offering these improved services over time, or they may change up the store displays, upgrade the location of the stores, change the look and feel of the store interior, change promotions, boost prices, and alter other aspects of their strategy. Stage 4 begins begins when another new low-price competitor enters the market, forcing the original company to rethink its strategy, starting the whole cycle all over again. To further explain the Wheel of Retailing, it can be applied to the retail format of one of America’s largest retail companies: Walmart. Before Walmart came into the market in the late 1940s, the traditional department stores had grown to become too pricy for many customers. The result was Walmart, who entered the market with low prices. Their strategy was low-end and geared towards price-sensitive people; and they had many techniques that helped them save money. These cost-cutting methods involved locating stores in low-rent locations, having a small sales force, and accepting only cash or check for payments. The founder of Walmart, Sam Walton, was reportedly always looking to get deals and bargains from suppliers and wholesalers. Walmart was in Stage 1, and had just begun to penetrate the market. In Stage 2, Walmart had started to develop into a higher-end department store. While they were not quite there yet, they had started to improve and move their facilities, upgrade store fixtures, and increase their sales force. Before they knew it, price-conscious shoppers were fleeing to Walmart stores in large numbers. Walmart’s founder Sam Walton began a new program where store employees could put a certain percentage of their paycheck towards purchasing subsidized Walmart stock. By the 1970s, Walmart had really begun to utilize technology. They also began accepting credit and other payment methods. They were moving up the wheel. By Stage 3 Walmart was on top. They were ahead of competitors technologically, and were using gathered data to really improve the store on a nationwide scale. These institutional changes such as improved facilities, new locations, and larger sales forces led to higher costs which in turn led to prices being somewhat higher. By this stage Walmart had well established itself as a company, Even today, everyone in America knows Walmart. As the Wheel of Retailing theory goes, companies will eventually enter another stage, Stage 4, where competitors come into the market with lower costs and the company must deal with strategy changes to combat these. Even a retail giant like Walmart must deal with this stage. Walmart has already reached this stage before, facing competition from other discount stores, flea markets, and factory outlets. Today however, it is arguable that Walmart’s biggest new competitor is the internet. Companies like Amazon are threats to Walmart as they boast low prices and better services, like free shipping and Amazon Prime memberships. These new web retailers can offer better deals and lower prices, as they do not have to deal with running “Brick and Mortar” facilities like Walmart. Organizations like Amazon do not need to have a physical store or include cashiers, maintenance workers and other store workers in their sales force. With Walmart, it is clear that they have reached Stage 4 yet again. In time, they will be forced to re-evaluate their strategy in order to fight against these large online retailers that threaten to take away their customers and take a large share of the market. Likewise, these web retail companies like Amazon will eventually move up the stages of the Wheel of Retailing, and will eventually have new competitors of their own that they will have to deal with. In theory, the wheel is ever-turning and will always be a constant cycle.