Future in the European Retail Business

Table of Contents

List of abbreviation

List of illustrations and appendices

1. Introduction

2. Propositions for the project of the thesis

3. Aim of the thesis

4. Research approach, areas covered and basic definitions
4.1. Definitions and differentiations of the retail market
4.2. Segmentation and typification in the retail business

5. Methods used

6. Hypotheses
6.1. The seven propositions about the future of the retail business:
6.2. The seven central success factors for the retail business
6.3. The things that will never change

7. Status of research
7.1. Description of the situation of the current market and the contextual factors
7.2. Current status of research and available findings on the development
7.3. First basic general scientific insights
7.4. First consequences for practical life
7.5. Further research stages and expected subgoals

8. Limits of the work and recommendations for further research

9. Conclusion and outlook

10. List of the author’s publications

11. List of literature and sources the author expects to use for the thesis
11.1. Literature already used
11.2. Literature planned to be used

12. Appendix (overview of appendices)

List of abbreviations

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List of illustrations and appendices

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1. Introduction “Threats reach a pinnacle in the static retail business”

The first considerations of this thesis developed in 2006 during my second degree course for the MBA degree at the HDU Deggendorf (Germany) and the University of Limerick (Ireland). At the time of this course there was a great discussion at the business schools of the universities that were part of the MBA programme about the influences of the internet commerce on the market potentials in retail. So-called disruptive strategies by companies such as Amazon (for books) and Unister (for tourism) created massive upheavals in the respective trade segments. The upheaval hit small retailers as much as industry giants. The question for me was if the threats would reach a new pinnacle in the static retail business.

Already during my first degree course as a university business graduate (MA equivalent) during the years 1993-1998 (time of the “new economy” hype) there were enormous market redistributions, then mainly in the financial services sector, but in the early stages already also in the book trade, which often could not be fended off by established companies.

The questions that I have been wondering about since are: “What will the retail market look like in the next few years?”, “How will companies have to act strategically under these aspects?” and “Are there things that endure and never change (so-to-speak anchor points on the market)?”

In my research work over the last few years I have tried to find answers to these questions and looked for potentials for a successful retail business.

2. Propositions for the project of the thesis

Prior to the project the following propositions presented themselves to the observer.

Proposition 1: “All companies in the retail business have to cater for the consumer and his needs (demand).”

This proposition is based on the assumption that even in tight markets, in oligopolies such as the petroleum industry, consumers’ price sensitivities cannot be ignored. It is also based on the fact that nowadays consumers operate on markets of almost all sectors, which offer a supply surplus.

After almost six years of observation this proposition seems to have been more than confirmed. Particularly the discussions about economic crises – in 2008 and also today – show in their facets that, in addition, consumers can operate on the markets in a completely irrational manner.

Proposition 2: “The retail business has at least one common basic factor for success.”

The fact that retail business requires inevitably consumer action indicates that there must be at least one basic factor. There are, however, further factors such as the speed of information or the growing market transparency which occur in all segments of the retail business.

Proposition 3: “There are some more or less clear key principles which will determine success lastingly in the next 5, 10 or even 30 years.”

The author holds the opinion that tendencies and movements indicate directions. Insofar as directions can be identified, it must be possible to find keys to increase the operational confidence of retail companies. Their validity in the sense of a time limit for the expiry of this information or these keys should be ascertainable via the substance of the identified features. That way, e.g. the feature “delivery speed” in the sense “faster is better” should still be as valid for the consumer in more than thirty years. Another feature such as “the colour light green” is more than time-dependent with respect to its expiry and will probably be completely insignificant in a year’s time.

Proposition 4: “There are things which will never change in commerce with end consumers”

So there are things that will never change. The longer affirmations are valid for the more important they are for strategic decisions. Therefore, there are things which are practically always valid and will never change. Which are they?

Proposition 5: “There are success factors which will make the future more secure for retailers.”

Apart from the knowledge about things that never change it is also important for retail companies to keep an eye on their own competition and new competitors. Which success factors are therefore necessary in combination in order to generate companies that will exist for a long time for consumers, employees and the state?

3. Aim of the Thesis

The aim of the thesis is to show how companies in the retail business can – today and tomorrow – secure growth, stability and growing returns.

At the end of the thesis you will find a recommended strategy that contains propositions for the future, propositions about necessary success factors and pillars of strategy (things that will never change).

The probable solutions from a present-day perspective for the propositions about the future and the necessary success factors will be presented in the shape of 6 hypotheses. Nothing can be said yet about the pillars of strategy for the things that will never change.

The first sub-goal was the conduct of the first Delphi round and the evaluation of the articles from the Financial Times Germany (FTG). For the determination of the success factors the author of this study used on the one hand the analysis of the 42 “Destroyers of the German economy” presented in the FTG and, on the other hand, a Delphi survey among 140 experts from Germany, England, Italy, France, Slovakia, Slovenia, Spain, the Czech Republic, Poland and Hungary. In this first paper of the thesis the first step of the Delphi survey is analysed and brought in connection with the 42 “Destroyers of the German economy”. Within the supplement and as a comparison of the “western” member states of Europe with the countries of Slovakia, the Czech Republic, Hungary and Poland, surveys were once again conducted more recently with experts from these countries. However, the participation was too low for a significant statement, and this sub-step has to be discarded.

In the main body of the thesis one or two new Delphi stages will be integrated. The author’s publication with the title “Success factors and strategy approaches in the European retail business” (either in the German or in the English version) will hereby be sent to the participants as an information basis from the first Delphi study.

The results from the Delphi study are validated by means of an online consumer survey of 500 participants and its evaluation by use of the IBN software “SPSS”. If required, the author is planning to support the strategy recommendations with further proof with the help of different experiments. Another sub-goal is also the presentation of the nature and the structure of today’s retail business. In addition, the contextual factors according to Pestel and Porter as well as the theoretical foundations of the strategy process will be considered from the point of view of the European retail business.

The scheme of the thesis will have the following structure:

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(ill. 1: structure of the study, own version)

4. Research approach, areas covered and basic definitions

The research refers to the whole area of the retail business. It is therefore about all companies that sell directly to the end consumer. And it doesn’t matter if they sell goods, services or a combination of the two. Banking and insurance services are part of the study as well as the provision of travel arrangements (tourism).

The research approach consists in a survey for experts, as a rule managerial staff of large businesses from the respective market sectors (industries) of the retail business and in a later step also the consumers directly.

In order to make the subsequent sections more concrete, the terms used and the participants studied are being defined and differentiated in the following:

4.1. Definitions and differentiations of the retail market

The terms “retail” or “retail business” can be defined as individual or detail trade (German: Einzelhandel or Detailhandel). The term “retail business” is meant more as the definition of the sector.^[1] Within this study the term retail business will therefore be used exclusively.

Gabler’s lexicon of economy defines the term “retail” in an institutional interpretation as “sales of goods to ultimate consumers” and in a functional interpretation as “sales of goods and other services to ultimate consumers” and covers with this also business relationships of manufacturers, wholesalers and retailers with consumers.^[2] The first interpretation covers the entire purpose of commerce, i.e. the resolution of “tensions between the processes of production and consumption” with “regard to space, time, quality and quantity”^[3]. The functional definition of commerce can also be identified as synonymous with the term distribution.^[4]

In the subsequent study the terms retail business, individual trade and trade are being used as synonyms. Only businesses which are part of the direct distribution chain to the end-customer (consumer) will be considered. Businesses which provide operating supplies, investment goods, primary products or even raw materials will not be considered within the framework of this study.

4.2. Segmentation and typification in the retail business

4.2.1. Segmentation according to conventional criteria

The sector of retail business can be defined according to very different criteria. When searching literature for pertinent systematisations one encounters a very patchy picture^[5].

In the following an overview of the most important criteria such as trade channel, sector, type and size of business, location, price level – without any claim to be exhaustive – will be given as examples. This will provide a comprehensive overview of the prevalent segmentation attempts. (cf. ill.2).

Criterion trade channel^[6]:

Here we can distinguish e.g. between manufacturer, retailer, wholesaler (direct sales) or catalogue sales (traditional mail order business), internet shop (electronic retailing), static commerce (retail shops) or itinerant commerce (street trading).

Criterion sector or industry or class/kind of goods resp., also known as range of goods^[7]:

Segmentation according to sectors could be e.g. a breakdown into the sale of groceries, electronics, clothing, shoes, glasses and hearing aids, jewellery, sports articles and spirituous beverages.

Criterion product range width and market cultivation systems (see also form of business)^[8]:

The product range width determines the diversity, the product range depth the variety of versions. Market cultivation systems define the form of service, i.e. service by a shop assistant, partial self-service or complete self-service. Segmentation will lead here to a breakdown into e.g. specialist shops, discount stores, stores with large surfaces (department stores) or small department stores etc.

Criterion business form^[9]:

The well-known business forms in the static commerce are: one-line shops, specialist shops, boutiques, general stores, department stores, small department stores, supermarkets, hypermarkets, self-service warehouses, discount stores, vending machines, kiosks, convenience stores, speciality markets, off-price stores and factory outlets. In the non-static commerce we can distinguish between the traditional mail order business and electronic retail.

Criterion turnover method/market management system:^[10]

A differentiation is made here according to the criteria of service: by a shop assistant, partial self-service (preselection), total self-service, vending machine service, catalogue service, service via electronic media or the so-called multi-channel-commerce. In this case several alternative sales channels are combined.

Criterion size:

A breakdown according to size distinguishes sole traders, small subsidiary retail business, subsidiary retail business and franchise systems.

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(ill. 2: Segmentation of companies by way of example, own table)

Criterion marketing policy:^[11]

The attributes of a general discount policy (cash discounts, incentives …) as a volume discount or quality discount (higher reduction for purchase of a higher class) could be used for a differentiation according to marketing policy.

Criterion location:^[12]

When segmenting according to the location we generally distinguish between city location, shopping centre, town – secondary location and external location. We could also distinguish between opening shops area-wide or only at particular locations, e.g. cities with x-thousand inhabitants.

The criterion location has to be considered in the context of the topic “multi-channel retailing”. Direct trade, the location in the context of an “internet concept” adopts more and more solutions in different shapes and forms. In this context, it is worth examining the recent 2012 market initiative by Media-Markt^[13] or Mr.-Spex^[14].

4.2.2. Definition of different types of business in trade

In the specialist literature the terms of business type and business form are occasionally

considered as synonymous^[15] or the business form is distinguished from the type^[16] (cf ill.3).

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(ill. 3: Systematisation of retail business, source: adapted from Barth/Hartmann/Schröder 2007^[17].)

When looking at it more in detail, the term business type appears often dependent on a chosen systematisation characteristic^[18]. Accordingly, the above-mentioned segmentation attempts could be understood as lists of possible business types. If we follow the more philosophical point of view that the term type is like an “archetype”^[19] in systematisation, then we have ask ourselves which criterion is the right one.

We are not going to go any further into this discussion in the present study. The author of this study understands business form as the underlying form of organisation in the sense of the number of shops, surface, product range policy and customer service concept.

In the following the most important business forms are being defined in this sense. A one-line shop is a business that has a narrow product range with a great product range depth and generally a high service and advice standard, e.g. for electrical appliances or household goods. In a so-called specialist shops this relationship of the above-mentioned components becomes even more extreme, i.e. an even narrower and deeper product range and even better advice. Examples for specialist shops are opticians, hearing aid audiologists, sports shops and pet shops. In the fashion area both business forms are also called boutique, i.e. the furrier’s boutique “Pelz & Design Leonhard Hofstetter R.T. in Rötz.

A form that has almost died out is the general store (in the German vernacular also called “Aunt Emma’s shop”). Here you will find a product width that matches the local conditions and mostly the everyday necessities. Such shops are – as a rule – only local shops. Nowadays you will find these shops still often on camp sites.

Department stores are businesses with a sales area of at least 3 000 m². They have an high product range width and mostly a deep product range. The principle to unite “everything under one roof” is pursued. The advice is mostly simpler, but as a rule still specialised. The so-called small department store is a little smaller. The surface is between 1 500 and 3 000 m², as a result of which the product range depth has to be narrower. One example for this is Galeria Kaufhof.

Supermarkets have a wide but flat product range; they concentrate on the grocery retail and the self-service organisation. A surface of at least 400 m² can be considered as useful. To the group of the supermarkets belong Kaufland, Real or Edeka Center.

A special form of supermarket is the discount store. The aim is the discount principle which is clearly recognisable for the consumer, i.e. most prices are below the usual price level. The product range is limited in width and depth, the service is, if it exists at all, laid out for mass service via service centres for phone calls and e-mails. Well-known examples of this form are Netto Markendiscount, Lidl or Aldi.

The equivalent, but more large-scale in form than the grocery retail shops with a wider and deeper product range, attractive prices and numerous offers, brought about via self-service on surfaces of more than 3 000 m² are identified by the technical term Self-service warehouse. The Globus markets are an example of this category.

In between, there are the hypermarkets. On a sales surface of 1 000 – 3 000 m², groceries with a relatively wide and deep range and self-service are on offer. Themed markets such as DIY superstores are known for special product lines. They are then called speciality markets. The customer receives here expert advice on demand, but predominantly he has to find his own information and serve himself. The price strategy is, as a rule, aggressive, even though the service level is to remain high, e.g. Bauhaus, Obi or Praktiker.

So-called one-penny markets offer non-food items at aggressive prices, with self-service and, as a rule, without service. They sell mostly branded surplus, discontinued goods and seconds. The technical term for this is Off-Price Store. The store chain Kik , e.g., could be classed under this form.

Somewhat less aggressive but generally very low-price are the so-called factory outlets. Ingolstadt or Wertheim Village are well-known examples for factory outlet centres.

One of the business types is also the vending machine sale . The sale takes place at specifically selected points of sale (POS), e.g. at stations, canteens, schools etc. via a purely mechanic process. Generally a variety of vending machines is operated by one company. Coca Cola with its subsidiaries or the cigarette company Ostermeier from Munich are examples for this.

The probably smallest business form is the kiosk. It is characterised through its minimal sales area and a very narrow and flat range of goods. The service is often given by the owner himself. Kiosks can still be found even today e. g. at stations, in out-door swimming pools, etc.

The forms mentioned so far are all part of the group of static commerce companies. Part of the “non-static” commerce is the traditional form of the catalogue mail order commerce. The order can be placed in writing, orally (call centre) or via electronic media. A distinction between one-line, specialist, product range and universal commerce can be made. The special features are the mostly very wide range of goods and the conducting of the business by mail as well as the delivery service. Well-known names are here e.g. Quelle, Heine Versand, Tchibo Versand^[20] or Neckermann.

As a special form we nowadays have to point out the electronic commerce, the Electronic Retailing^[21]. As has already been mentioned above, this area shows in some cases growth rates of over 100 per cent. The presentation and conducting happens exclusively via electronic media. Amongst other things this is known as tele-shopping, interactive television or internet shopping. The probably best-known example here is Amazon.de.

If a company combines several ones of the characteristics mentioned here, in the sense of sales channels, it is called a Multi-Channel System^[22]. This is often also called Multi-Channel Strategy^[23]. As an example, traditionally static retail companies such as the fashion chain C&A or the discount store Lidl have, as of late, been running a strongly growing internet commerce as well as the static subsidiary business. A decision about which business form or combination of sales channels in the sense of the multi-channel retailing, is the most promising, presupposes the knowledge of the contextual factors.

4.2.3. Sectors of the retail business

There is currently no scientific subdivision of the retail business into specific sectors.

5. Methods used

The author has planned to use the following methods for the demonstration of the research within this thesis paper:

- the Delphi expert survey
- the “Picture of the Future”
- the consumer survey
- the treatment of the subject in the light of literary studies
- as required: special experiments

The Delphi enquiry is a system developed in the 40s by RAND Corporation to analyse and bring together expert opinions. The process has several rounds. After a first survey and information of the participants (1^st round) the participants are questioned about the possible solutions with probabilities. In time a convergence and narrowing down of the scope of solutions is expected to happen. This is based on the assumption that experts know the future better than others and the opinion that several experts will not make any worse forecasts than a single one on his/her own. Or, put differently, that the group would come to a more probable result. A problem could arise if some less confident participants just follow the opinion of the group and make the result converge in direction of a general opinion. For this reason the Delphi steps should not be repeated too often.^[24] The Delphi survey gives us the rough corner marks of the propositions and success factors.

The “Picture of the Future” is a creativity technique. It is a piece of fiction that is meant to capture the impressions and the picture, which will then serve as a basis for further discussions. Siemens, for instance, uses this technique for strategy conferences. The “Picture of the Future” makes it possible for the Delphi participants to familiarize themselves with the situation from the first round and will later be available for the reader for the same purpose.

The consumer survey will be used for this thesis as a means to evaluate the results from the Delphi survey on the market. For this purpose approximately 500 participants will fill in an online questionnaire and the results will be evaluated by means of SPSS (IBM software for statistic evaluations).

For the preparation of the basis for the first Delphi round and for the foundation of the results a comprehensive study of the relevant literature is carried out. From 2008 to 2012 the German newspapers “Handelsblatt” and “Financial Times” have been scoured for articles on the subjects of trade and retail business and the contents have been analysed. The special supplement of the Financial Times Germany about the so-called 42 “creative destroyers of the German economy” was used in addition for a separate analysis. It is interesting to note in this context that the factor that the author of the article presented as of minor importance and his recommendation to be more mindful of the “green or blue technology” has already gained a lot of significance in the meantime.

As far as possible, some experiments are planned. At the time of writing, one of the author’s clients is testing an alternative solution which will probably be presented anonymously in the thesis.

6. Hypotheses

The propositions (hypotheses) identified after the first steps can be described as follows:

6.1. The seven propositions about the future of the retail business:

Proposition 1: “The appreciation of the consumer is getting more and more difficult!”

The data from public opinion polls show clear changes in the next few years. The consumer will become even more heterogeneous than he is today. The share of the single households will rise unabatedly. The group of the “old people” will rise to almost half the population. The number of “low earners” will rise.

The internet and mobile shopping turnover will grow strongly and the professional handling of media technology will be normal in all age groups. The sensitive expectations of the consumers are rising increasingly. The characteristics of the buyer’s market will be more and more clearly and massively noticeable in all sectors.

Proposition 2: The attitude, here called “mind set”, is intensifying noticeably!”

Customers are more critical and more easily ready to change. They act in more and more areas as hybrid consumers (cheap & brand at the same time). This makes them feel good and they don’t have a “bad conscience” for using the service that is included as “added value” mostly for free.

Proposition 3: “The price consciousness is rising further!”

It is not only crises that will make the consumer even more critical about prices. The oversupply that prevails for nearly all products and the growing transparency of the markets increases the consumer’s power. This makes also the struggle between the competitors for the customers’ favours intensify. Low prices are being more and more taken for granted by the consumer and gain even more importance.

Proposition 4: “Scandals will make the consumer look for more trust!”

Food scandals, bank collapses, exploitation of employees, toxic substances in materials for children’s toys and clothes … the list of uncertainties among consumers is long. High cost pressure and weak ethical principles easily cause new scandals to emerge, especially in the framework of globalisation.

This experience makes the consumer look for more and more proof to justify his purchase and to gain trust in the seller.

Proposition 5: The competition will become stronger through new powerful business models and merchant concentration!”

New sales systems will create new “opportunities and risks”. Home shopping will increase further and the internet will continue gaining significance. The “big” market players will become even bigger; the “small” ones will come under increasingly greater pressure. Franchise systems and chains of stores will expand into all sectors, i.e. the number of the companies operating on the market will sink further.

Proposition 6: “The attraction of the sectors will change!”

The prices achieved are sinking and the competitive pressure is intensifying. A shrinking of the margins can only be prevented by optimising the cost or by taking advantage of niches.

[...]

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^[1] Pons 1990, p. 551, see also http://dict.leo.org.

^[2] Gabler 1988, p. 1460.

^[3] Barth, Hartmann, Schröder 2007, p.1

^[4] Barth, Hartmann, Schröder 2007, p.1; also in Schobesberger,2007, p. 11

^[5] Barth, Hartmann, Schröder 2007, p. 88

^[6] Madl 2004, p. 42

^[7] Barth, Hartmann, Schröder 2007, p.44

^[8] Barth, Hartmann, Schröder 2007, p.47

^[9] Schobesberger 2007, p.19

^[10] Barth, Hartmann, Schröder, p. 1 et seq.

^[11] Barth/Hartman/ Schröder, p. 42 et seq.

^[12] Meyer 1960, p.68 et seq.; see also Lubbe 2002, p.4

^[13] www.mediamarkt.de

^[14] www.misterspex.de

^[15] Glöckner-Holme 1988, p.20

^[16] Barth/Hartman/ Schröder, p. 44

^[17] Barth/Hartmann/Schröder, p. 89

^[18] Barth/Hartmann/Schröder, p. 88

^[19] Type (greek) – philos. archetype (German: Urbild, see Duden 1996)

^[20] Tchibo is at the same time a good example or the multi-channel distribution

^[21] Schramm 2003, p. 10 et seq.

^[22] Schröder 2005, p. 1 et seq.

^[23] Riekhof 2008, p. 204

^[24] Gabler Wirtschaftslexikon, 12^th edition, publisher: Verlag Dr. Th. Gabler, Wiesbaden 1988, p. 1174