Wednesday, December 19, 2012

The Wheel of Retailing Turns Again

More than 50 years ago, Professor Malcolm McNair proposed the "wheel of retailing" theory. He sought to explain the way a retail business evolves, starting at the no-frills, low-price end with minimal services--as a way of breaking into the store business--and then progressing ever higher on the wheel to offer expanded goods and services in better store surroundings and with higher price points (and margins).

At the time, discounting was a new retail phenomenon and a threat to established department and specialty stores. What would McNair have made of the incredible rise of online retailing? Would he have included Jeff Bezos, for example, on his list of the greatest merchants in history?

Here are the names that McNair gave Fortune in 1962 as the six greatest merchants:
  • John Wanamaker (whose Philadelphia department store featured fixed pricing--no more haggling!)
  • Frank Woolworth (whose five-and-dime variety stores were once a fixture in so many cities and towns)
  • General Robert Wood (who took Sears from a mainly mail-order business to the heights of bricks-and-mortar retailing)
  • Michael Cullen (who founded King Kullen supermarkets because he saw a real need for affordably-priced foods in a business model of high-volume, low-margin retailing)
  • J.C. Penney (his middle name was Cash and he had a policy of cash-only sales)
  • Eugene Ferkauf (founder of E.J. Korvette, a New York-based discount chain that predated the self-service model of Walmart and other mass merchants)

Whether or not the wheel of retailing applies to today's business environment, it correctly suggests that the retail industry is always changing. In a "back to the future" move, some online-only retailers like Bonobos are opening brick-and-mortar stores. A store chain in Brazil hangs fashions on hangers that display the real-time number of "likes" each item has attracted on the retailer's Facebook pages, bringing social media onto the selling floor in a new way. Piperlime, owned by the Gap, was once online-only but now has a store in New York City's SoHo district (see photo).

What's next for the wheel of retailing?

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