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Theory of Retailing; Definitions, Features & Importance

Retail is defined as the set of activities or procedures used by consumers to sell products or services for personal or family use. Responsible for matching consumer individual requirements with all manufacturer supplies.

Retail has become an integral part of our daily lives and is often taken for granted. Countries with the greatest economic and social progress were those with strong retail sectors.

What are the reasons for rise of retailing? The answer lies in the advantages offered by the dynamic retail sector. Easy access to a wide range of products, freedom of choice, and a high level of customer service are the main reasons for rise of retailing.

The general concept is that retail only includes the sale of products in stores. However, it also includes the sale of services provided by restaurants, salons, car rental companies, etc. Sales do not necessarily have to be made through a store. Retail includes sales through any channel that can be used to attract consumers, such as mail, internet, and home visits.

Over the past decade, retail in general has fundamentally changed. For example, what used to be an entirely “made-to-order” clothing market is now primarily a “ready-to-wear” market. It was common to wait for it to be sewn and shipped.

What is Retailing
What is Retailing

A significant recent development is the emergence of various retail formats that have begun to operate across most product categories. For example, you have a large department store that offers a wide variety of goods and services. There are discount stores that offer a wide range of goods and compete primarily on price. For example, Big Bazaar and Reliance Mart. There are also high-end retailers targeting extreme niche segments with top brands such as Levis, Allen Solly, etc.

Table of Contents

Definition of Retailing

Retailing is the set of activities that sell goods and services directly to the final customer. Goods and services sold to customers are for personal use and not for resale or business. Retail is the final activity performed in the product distribution chain to the customers.

Retail is basically the business activity of selling goods and services to a large number of consumers spread over a large area. A retailer or store is the same as a business that derives its revenue primarily from retail. Retail takes many forms. Many of the forms occur at the convenience of buyers and retailers.

In big cities, retail is organized and done mostly through stores and vending machines. In rural areas, however, retailing of goods and services follow a traditional pattern, with goods displayed in mobile vans, carts, and sidewalks. To understand the types of retailers and their functions, retail networks can be broadly divided into two categories (link of #16 to be provided here): (i) store retail and (ii) non-store retail. Similar to the growth cycle of a business, retail activity goes through stages of early development, growth, maturity, and decline. Retailers observe accelerated growth phases, reach maturity phases and start shrinking. It was observed that older fashion retailers took more than 50 years to reach maturity in terms of sales volume, consumer reach, and retail chain expansion. However, in modern times, with organized retail management, the retail type of store (link of #16 to be provided here) is maturing very quickly.

Cundiff and Still quoted that, “Retail consists of activities related to direct sales to the final consumer.”

Retail trade, therefore, includes all activities related to the direct sale of goods or services to final consumers for personal, non-commercial purposes. A retail store is a commercial establishment that derives most of its revenue from retail.

Characteristics of Retailing & Retailers

1. Retail brings goods and services closer to consumers

2. Retailers are the last link in the distribution channel

3. Retailers buy in bulk, but sell individually

4. More retailers than manufacturers and wholesalers

5. Retail stores may be organized (branded chains) or unorganized (these are regular stores in your neighborhood).

6. Retailers have direct contact with customers

7. Retailers have the ability to monitor the pulse of their customers

8. Can also be sold at online stores

9. Various products it offers in one place.

Features of Retail Marketing

1. Selling to End Users – The most important function of retailing is selling products or services to end users.

2. VARIOUS CHANNELS – In retail, goods, and services can be sold either in person, by mail, by telephone, by vending machines, or over the internet.

3. Small Order Sizes – Order sizes handled by retailers are much smaller compared to wholesalers.

4. Large Orders – Retailers are processing large numbers of orders.

5. Wide range of customers – This retailer serves a wide range of customers.

6. Retailers carry a wide variety of products.

Theories of Retailing

The four theories of institutional change in retail originated in North America, but are equally applicable to other parts of the world. The theories of retailing are:

Theory of Natural Selection

The theory of natural selection in retail is based on Charles Darwin’s famous theory of natural selection in On the Origin of Species. This can be expressed as “the retail type (or unit) that best adapts to the environment is most likely to survive”. In this theory, environmental factors play an important role in the survival of the retail industry.

Department stores are often cited as an example of a retail type that cannot adapt quickly to changing external conditions such as suburban growth or inner-city congestion. However, these exact factors have contributed to the growth of out-of-town stores.

Theory of Wheel

This theory, first put forward by McNair professor at Harvard University, posits that efficient and innovative forms of retail (such as discounts) have emerged and are attracting the public to their new appeal. Growth and maturity occur as market share increases, but trade-ups continue, ultimately making the company an expensive retailer and vulnerable to the next innovator.

Accordion Theory

This represents a tendency for retail to be (or) dominated by generalists, then specialists, then generalists again.

The change from the Altmarkt grocery store to a specialty store was made for the following reasons.

(a) the old-fashioned general store could not accommodate a greater variety of customer items;

(b) Urban growth meant consumer markets enabled profitable segmentation

(c) gave shoppers the social content they needed as society became more complex and impersonal.

The Retail Life Cycle Theory

Retail lifecycle theory is based on product lifecycle theory. The retail life cycle theory suggests that the retail industry, like the product life cycle theory, has a life cycle that can be divided into four phases: innovation, growth, maturity, and decline.

In the innovation phase, new retailers have few competitors, and see rapid sales growth, but are less profitable due to initial costs and other factors.

In the growth phase, sales growth is still fast and profitability is high due to economies of scale. However, competitors recognize this and begin to penetrate this market.

In maturity, there are many competitors, slowing revenue growth and declining profitability.

In the final phase of decline, sales and profits decline and new, more innovative retailers develop and grow. It was also suggested that the life cycle of retail institutions is getting shorter and shorter.

Why retailing is important?

1. Most of our personal income is spent on retail goods.

2. It is an important source of employment.

3. In a distribution system, retail is the link to the final consumer.

4. Retail sales indicate the purchasing power of consumers and serve as a measure of the nation’s economic situation.

5. Add value to your product because it creates time, place, and ownership advantages.

6. It accounts for the majority of marketing expenses.

7. Taxes from retailers increase the income of the treasury.

Factors Influencing Retailing

R Hasty and J Reardon (1997), in their book Retail Management, argue that retail is the segment of business that people come into most contact with and that retail must operate in a very complex external environment.

Retailers are affected by the environment in which they operate. It affects how and why they do business. This complex external environment can be divided into two types of environments. Newman and Cullen (2002) classified these factors into macroenvironmental and microenvironmental influences.


(a) political and legal – consumer protection, equality, occupational safety, working hours, and minimum wage;

(b) Economy – Disposable Income, Gross Domestic Product, Unemployment Rate, Interest Rates, and Inflation.

(c) sociocultural – social classes, affinity groups, cultures, and subcultures;

(d) technology – products, processes, information handling, and management;

(e) demographics – age, gender, marital status, household size, education, and geographic location;

(f) Physical – availability of products, air, and water quality, noise pollution;

These factors influence the entire industry and people’s shopping behavior. Another set of factors is, Effects of the microenvironment. This includes factors that originate outside the retail enterprise but that the retailer can influence through its management processes.


(a) Market segments – size, behaviors, trends, locations, and level of service demand.

(b) Suppliers & intermediaries – supply channels, availability of goods, number of alternatives, locations, geographic concentration, and volume concentration.

(c) Competitors – strategies, number, rivalry, and potential new entrants.

Factors that drive customer demand


Probably the most important factor affecting demand. Products react differently to price changes. Retailers are trying to counteract this factor by offering unique shopping experiences such as customer service.

Personal Income:

Daily necessities such as bread and milk are generally not greatly affected by changes in personal income, but demand for daily necessities such as clothing increases as income increases. Lower incomes reduce the ability of individuals to purchase goods and services, which leads to lower demand for most commodities.

Customer Preference:

Customer preferences for luxury watches and apparel lead to increased demand for certain products. Companies use persuasive advertising to bring change to consumers or to develop product preferences and tastes. When products become obsolete, demand can collapse rapidly.

Competition in the Market:

Manufacturers compete with each other for a larger market share. Their strategies can be competitive or complementary. They can compete by lowering prices or introducing newer or better versions of their products.

As a complementary strategy, retailers are looking to expand the pie and attract more customers to help all market players. For example, after years of competition in urban India, Pepsi and Coca-Cola decided to enter the rural market. This has expanded the customer base of both companies.

Further Reading: Relevant Articles

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