The wheel of retailing

Headnote

What makes skilled managers succumb to the prosper mature, and decay' pattern?

The "Wheel of Retailing" is the name professor Malcolm P. McNair has suggested for a major hypothesis concerning patterns of retail development. This hypothesis holds that new types of retailers usually enter the market as low-status, low-margin, low-price operators. Gradually, they acquire more elaborate establishments and facilities, with both increased investments and higher operating costs. Finally, they mature as high-cost, high-price merchants, vulnerable to newer types who, in turn, go through the same pattern.

Department store merchants, who originally appeared as vigorous competitors to the smaller retailers and who have now become vulnerable to discount house and supermarket competition, are often cited as prime examples of the wheel pattern.

Many examples of conformity to this pattern can be found. Nevertheless, we may ask: (1) Is this hypothesis valid for all retailing under all conditions? (2) How accurately does it describe total American retail development? (3) What factors cause wheel-pattern changes in retail institutions?

The following discussion assembles some of the slender empirical evidence available that might shed some light on these three questions. In attempting to answer the third question, a number of hypotheses should be considered that marketing students have advanced concerning the forces that have shaped retail development.

Tentative Explanations

Retail Personalities

New types of retail institutions are often established by highly aggressive, cost-conscious entrepreneurs who make every penny count and who have no interest in unprofitable frills. But, as P.D. Converse has suggested, these men may relax their vigilance and control over costs as they acquire age and wealth.

Their successors may be less competent. Either the innovators or their successors may be unwilling, or unable, to adjust to changing conditions. Consequently, according to this view, deterioration in management causes movement along the wheel.

Misguidance

Hermann Levy has advanced the ingenious, if implausible, explanations that retail trade journals, seduced by profitable advertising from the store equipment and supply industry, coax merchants into superfluous "modernization" and into the installation of overly elaborate facilities.

Imperfect Competition

Although retail trade is often cited as the one type of business that approaches the Adam Smith concept of perfect competition, some economists have argued that retailing actually is a good example of imperfect competition.