• Retailing Trench

• Retailing Trench

A number of general trends affect the retailing industry worldwide. During the 1980s, retail sales in real terms grew in most European countries, the United States and Japan. Many retailers expanded their operations quickly, often using borrowed money. During the 1990s, a combination of sluggish consumer spending ­ as recession hit harder in these countries ­ rising interest rates and overcapacity led to manv casualties:

A host of American department stores, including Bloomiugdales and Bon Marche, filed for bankruptcy; the United States' most famous store, Sears Roebuck, had been reduced to offering everyday low prices; bankruptcy also hit the British speciality fashion retailer. Sock Shop International; Harvey Nicholls. a fashionable London department store, was sold by its owner, the Burton Group, to Dickson Concepts, the Hong Kong­based retailing and wholesaling group; Aquascutum and Daks­Simpson fashion groups were taken over by Japanese companies; banks came to the rescue of Germany's Co­op, having agreed to write off loans of gl billion; Germany's two largest store groups, Karstadt and liartie, merged; Benetton gave tip its financial services business and sought to refocus its efforts on its fashion business. In Japan, small shopkeepers were panicking as the Large­Scale Store Law which unfairly protected their trade was to be repealed.­ 10

Most exposed to the retailing difficulties were stores that grew too fast and/or borrowed too much during the 1980s. However, other retailers and retailing approaches ­ mail­order companies, discounters, warehouses, hypermarket chains and the large and out­of­town 'category killers' ­ have become more prominent. 31

Another trend that impacts on retailers is the increasing internationalization of the industry. For many domestic retailers, the opportunities for expansion in the home territory are drying up. Growth will have to come from winning share

from competitors in existing markets. Rut greater competition and new types of retailer make it harder to improve market shares. As a result, more big retailers are now looking overseas for earnings growth. They must develop an awareness of international retailing developments and develop the skills for international retailing. To remain competitive, retailers must adjust to a tougher trading climate in the late 1990s. They must do several things well:

• They must choose target segments carefully and position themselves strongly.

• Retailers have to find new ways to boost sales. To do this, they must stress good value for money, respond to demographic trends and strive to deliver products that consumers want. Good service will also be paramount for success. The latter means more than just smiling sales staff; it means efficient stock control, quality assurance, logical store layouts and

Channel Trends 937

convenient access, including good opening hours to encourage shoppers to spend more in the shops.

• Quickly rising costs will make more efficient operation and smarter buying essential to successful retailing. Controlling costs will be vital. As a result, retail technologies are growing in importance as competitive tools. As mentioned earlier, progressive retailers and producers alike are using computers to produce better forecasts, reduce and control inventory costs, order electronically from suppliers, communicate between stores, and even sell to consumers within stores. They are adopting checkout scanning systems, in­store television, online transaction processing and electronic t'unds transfer. The key to lasting success is efficient consumer response (ECR) ­ slicing time out of the entire supply process and working in partnership with their suppliers to deliver goods consumers want whenever and wherever they want them/ 12

Many retailing innovations are partially explained by the wheel of retailing concept. According to this concept, many new types of retailing forms begin as low­margin, low­price, low­status operations. They challenge established retailers

that have become 'fat' by letting their costs and margins increase. The new retailers' success leads them to upgrade their facilities, carry higher­quality merchandise and offer more services. In turn, their costs increase, forcing them to increase their prices. Eventually, the new retailers become like the conven­ tional retailers they replaced. The cycle begins again when still newer types of retailer evolve with lower costs and prices. The wheel of retailing concept seems to explain the initial success and later troubles of department stores, supermar­ kets and discount stores, and the recent success of off­price and no­frills

retailers. 33 Thus retailers can no longer sit back with a successful formula. To remain successful, they must keep adapting and reshaping their business accordingly.

While the wheel of retailing explains the evolution and development of new types of retail store, the concept of the retailing accordion can be used to explain the intermittent changes in the depth of retailers' merchandise or the breadth of

their operations. Typically, retailers begin by selling a wide assortment of prod­ ucts. They are followed by retailers offering a narrower or more specialized range of products, which in turn are eventually superseded by broad­line mass merchandisers. The theory suggests that retailers pass through a general­ specific­general cycle. It adequately tapped the evolution of the American retail scene, where the nineteenth­century general stores gave way to the twentieth­

century specialist retailers, which were then superseded by the postwar mass merchandisers. The accordion concept may be used to describe the more recent

specific ­general ­specific cycle of retailing observed in some sectors. For instance, some retailers begin by selling a narrow range or special

type of goods, as in a grocery store that carries mainly food, drinks and convenience items. As sales expand, the store manager tends to add new merchandise, such as household goods, stationery, cosmetics and non­ prescription drugs, to his or her portfolio. As it grows further, extra services and amenities ­ for example, delicatessen, fresh­fish­and­seafood counter, in­store bakery, credit card and cheque facilities ­ are added. This is the path reflected by large supermarkets in the United Kingdom, which started as narrow­line high­street grocery retailers, stretching out, over the 1980s, into broad­line superstores. More recently, as further growth in edge­of­town superstores is slowing down and out­of­town shopping centres are reaching saturation point, the United Kingdom's

Pharmaceutical

faces strong pressure to lower

Wholesalers: Global

prices. Wholesalers in this

Trends

industry are invariably affected by these conditions, and margins {at

Traditionally, pharmaceutical lower than 5 per cent) are already wholesalers are local operators,

being squeezed due to pressure with no single company operating

for cost containment by worldwide, in marked contrast to

governments, private healthcare the pharmaceutical company,

insurance programmes and which tends to be global.

increased competition in many Generally, drug wholesalers tend

markets.

to be fragmented, with few firms • Increased automation of serving an entire national terri­

logistics systems, as in the use tory. The majority are family­owned firms and

of electronic data processing, invoicing and most of the large ones grew from small oper­

inventory control, has helped wholesalers to ations. Globally, there arc no standard channel

streamline operations and reduce costs, with structures and systems differ from country to

most of the savings being passed to country. However, many arc affected by common

customers. They are placing more emphasis operational and regulator)' conditions. In coun­

on market information and intelligence. tries where the wholesalers plays a dominant role

Those, like the big US distrihutors, that have in supply, the traditional channel system bears

lots of timely data are able to service key the following features and trends:

customers more effectively than others. And they use this valuable asset to tie up

• Wholesalers tend to consolidate goods from manufacturers that supply them with the all manufacturers and deliver them to a

merchandise.

specific group of clients (primarily More consolidation is expected to occur in pharmacies, hospitals and other bulk buyers

the drug wholesaling industry, resulting in of medicines). In the principal developed

fewer, but financially stronger, companies. economies, the majority of pharmaceutical

An Economist Intelligence Unit (EIU) study products reach patients through the

reports that, with the exception of Italy, wholesaler­pharmacy route. On average,

Japan and Spain, the drug wholesalers sector about 80 per cent of pharmaceutical

in most countries is dominated by just two products flow to retailers through wholesalers;

operators (e.g. the top two wholesalers have however, the figures for individual countries

45 per cent share of the market in Germany, vary, as shown in Table 1.

55 per cent in France, 65 per cent in Manufacturers continue to use

Canada, 67 per cent in the I.'niled Kingdom, wholesalers because of the high 'value added'

41 per cent in the United States and 80 per they contribute to the manufacturer's

eent in the Netherlands). product, their provision of customer sen'ice,

Increasingly, wholesalers are trying to and their sophisticated level of operation

diversify and to expand into new geographic and potential efficiencies. The number of

markets. Recently, many national drug wholesalers varies from country to

wholesalers have attempted to 'Europeanize' country: for example, there is one, the state­

their operations through acquisitions or owned distributor, operating in Norway; two

alliances: (IERP Rouen (France) acquired SA in Sweden; three in Finland; between 5 and

Defraene (Belgium) and three other Spanish 280 in the other European countries; 180 in

wholesalers; ERP (France) and the Italian the United States; and over 7,000 in Japan.

Alleanza took stakes in the Portuguese SIF; • In most countries, the Pharmaceuticals

CERP Lorraine (France) bought Leige industry, as part of the healthcare industry,

Pharma and Promephar of Belgium, while

TABLE 1 PERCENTAGE OF DRUGS OOIKG THROUGH • Vertical integration is another trend. Some WHOLESALERS (1992)

wholesalers have started manufacturing or

PERCENTAGE retailing operations. For example, the Dutch OPG runs Pharmauhemie, which produces United States

COUNTRY

60 ethical drugs, SAN makes OTC (over­the­ Japan

80 counter) medicines and operates the retail United Kingdom

72 outlet Apoteck Extra. Unichem, in the Germany

80 United Kingdom, manufacturers own­label France

82 OTC medicines as well as running the Moss Belgium

90 retail outlets.

Netherlands

91 The pharmaceutical industry worldwide is Spain

85 affected by the general trend towards higher cost, Italy

79 increasing competition and the pressures of Scandinavia

internationalization. Wholesalers play a critical role in dictating the flow of products from pro­ ducer to end­user in this sector. To sustain their

the German Sehulz acquired France's Chafer channel position, they must adapt to the current and Broeaceph of the Netherlands, Tredimed

state of continuous flux that has created new was formed as a result of the alliance

competition and fresh challenges for all in the between OCR (France), AAH (UK) and

industry.

GEIIE (Germany); the PAG alliance includes Unichem (UK), OPG (Netherlands), Anzag and Egwa­Wiweda (both from Germany); FPN is formed by companies from 13 countries, while Alliance Sante was formed by Italy's Alleanza FCA and France's IFP and ERPI. By the turn of the century, drag wholesaling in Europe may well be dominated by five or six large European organizations.

largest supermarkets are contemplating moving back into the high streets. Sainsbury's and Tesco have recently rcintrodueed .small town­

centre formats, Metro and Central respectively, which they are able to trade more profitably now than they could ten years ago because they have already secured increased buying power and efficiency, 34