Wheel of retailing is a concept which observes that a retail business will go through 4 phases of transformation starting from being a small player based on discount to a big well-known store. These 4 phases - Entry, Growth, Stabilization, Compete happen in a circular fashion for a retail player. Most of the retail businesses start on low cost, low price and low margins but as their sales start increasing they quickly shift to a high cost, high revenue model.
Another thing which is important is that, wheel of retailing is more of a business trend which happens usually but it is not a rule. It may not happen to many players but it is more of a concept which is observed in the market.
There are 4 phases in the lifecycle of a retail store as per the wheel of retailing concept. These are:
This is mainly the start phases of a retail business in which a new player enters a market. Unless a retail store has a strong backing and finance, normally it would start at a lower scale with products at a lower costs and high discounts to attract customers. The business earns less margin so that it can make sure that the customers revisit the store for better prices. This is the stage where a new store enters the market and tries to ensure that the business is started.
Once the business is established and customers know about it, ideally the store would have some standing in the market. At this stage in phase 2, the businesses start expanding and try to earn better margins and profit. In this stage, more products and/or customers are added to fuel the growth. This is a very important stage and leads to establishment of a player in the market.
One a retail business enters Phase 3, the focus is mainly on the stabilization of the business with constant improvement and focus on service quality and profits. Here the business tries to focus on brand, partnerships, alliances, innovations to keep the business running at good margins. Parallelly focus is kept on new opportunities and growth as well. This is a critical phases where the retail business needs to keep the focus intact.
In this stage as per the wheel of retailing concept, a competitor or a new challenge would come up for the retailer. In this stage, the retailer would mostly move to high price and high margin product and services to keep the business running.
But the new competitor might offer products at lower price and margin as it is in Phase 1 forcing the retailer to again counter the offers and prices and eventually enter phase 1 itself. Hence it is named wheel of retailing.
A restaurant started in a temporary location would be offering a limited number of items at low price. It looks to develop its client base but as soon as the construction is completed or final, it starts providing a lot more variety and introduces a number of new services (free home deliver y, boarding , and lodging ) it also starts increasing its prices on its earlier items. This is done to recover its fixed cost quickly and have an early breakeven so that it can start generating some profit since it is operating in a virgin market it will look to increase its market share.
However, with passage of time when a new restaurant comes up in its vicinity and starts offering the same items at a lower price in order to retain its customers it will bring down its prices back to where its earlier ones.
Hence, this concludes the definition of Wheel of Retailing Concept along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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