Retail Life Cycle of the Department Store Industry

Lai-ngun SUN
Institute of Textiles and Clothing, The Hong Kong Polytechnic University,
Hunghom, Kowloon, Hong Kong
tcsunv@polyu.edu.hk
ABSTRACT
This paper reviews the theoretical literature on retail institutional transformation, evaluates the
available theoretical models, and examines their application to the study of the department store.
The models may be classified around three major groups of theories: Environment Theory,
Cyclical Theory, and Conflict Theory. This paper focuses on a powerful model within Cyclical
Theory: the Retail Life Cycle. The Retail Life Cycle concept is developed from the well-known
concept of product life cycle in marketing studies. It explains the rise and fall trend of retail
institutions in four stages: innovation, accelerated development, maturity and decline. The Retail
Life Cycle model has been widely employed to study retail formats in EU countries and in the
US. The majority of such studies focuses on the evolution of life cycle of each type of retail
formats. Studies suggest that the department store industry in EU countries is at the maturity
stage, and that in the U.S. has taken approximately 80 years to mature. An understanding of the
evolutionary process of department stores allows us to predict or explain their institutional
changes in different national contexts. The model will be invaluable for investigating the
department store industry in Hong Kong, for example.
Keywords: department store, retail life cycle

I.

Theoretical models of retail institutional change

In this section, I summarize theories of retail institutional change in the current literature.
Although retailing is vast field of study, we can identify three groups of basic theories out of the
numerous schools of thoughts in the study of retail institutional change Environmental Theory,
Cyclical Theory, and Conflict Theory of retail institutional change (Brown 1987).
Environmental Theory contends that a retail institutions operational milieu give rise to
institutional changes. An environmental view of institutional evolution portrays the structure of
the retail system as the sum total effect of the economic, demographic, social, cultural, legal and
technological conditions of the marketplace (Shaffer 1973; Bartels 1981). Retail institutions
emerge, develop, mature and decline in direct response to these numerous environmental
circumstances (Hall, Knapp et al. 1961). During the beginning of the 1970s, it was widely
believed that environmental models would enable marketers to predict retail trends in different

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nations (Cundiff 1965; Wadinambiaratchi 1972). It is now generally acknowledged that a

universal model of retail development is not obtainable (Brown 1987). The wide disparity of
social, political, cultural, legal and historical forces at work among individual countries entail
institutional diversity rather than uniformity in retail institutional evolution (Dawson 1979). It is
also pointed out by critics that the environment does not really determine what will occur, but
creates possibilities that each individual organization accepts or rejects as it sees fit (Brown 1987).
Cyclical Theory maintains that retail institutional change arises in a cyclical trend. Four
alternative conceptual models are proposed in the literature: the Retail Accordion, the Wheel of
Retailing, the Retail Life Cycle and the Polarization Principle (Brown 1987). The Retail
Accordion describes the evolution of modern retail system in terms of the general-specificgeneral cycle that is typically found in product lines (Hollander 1966; Gist 1968). Hower (1943)
was the first to notice this cyclical pattern in merchandising assortments. Hollander then extended
the general-specific-general cycle principle to individual institutions to describe their widening
and narrowing of inventories over time (Hollander 1966). Malcolm P. McNair (McNair and
May 1976; McNair and May 1978) was the first proponent of the Wheel of Retailing model. It
describes how retail formats begin by selling at low prices and then evolve into high cost modes
of distribution. It was subsequently adopted to explain many institutional types, including
department stores, mail order houses, discount houses, supermarkets, and shopping centers
(Hollander 1960; Oxenfeldt 1960; Brand 1967; Lord 1984). Most commentators point out that
the entry and trading up phase of the Wheel model may not be universally applicable. The Retail
Life Cycle model derives from the concept of product life cycle in marketing discipline (Bennett
and Cooper 1984). The model portrays the evolution of institutions through four stages: birth,
growth, maturity and decline, and argues that this evolution process is unavoidable. Sales volume,
profitability and market share determine a retail institutions stage in the cycle. The Polarization
Principle describes the polarization process of the retail system (Brown 1987). The multipolarisation model explains institutional change but says nothing about the retail performance of
the institutions.
Conflict Theory argues that inter-institutional conflict exists among different retail formats.
When retailers are threatened by other powers in the retail system, they counteract against the
competitive pressure. A synthesis process is resulted, when existing retail techniques are altered
to meet the competition. Occasionally, this process may end up generating completely new forms
of retail technique (Brown 1987). This model is not as widely recognized as the models of
Cyclical Theory.
II

Conceptual framework of the Retail Life Cycle model

After outlining the basic theories of retail institutional change, I turn in this section to an
assessment of them. I am especially interested in identifying a powerful model for explaining
retail institutional evolution, and I am going to argue that the Retail Life Cycle model stands out
among them as the most practically useful perspective.

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The environmental approach focuses on trends in the retail environment (Hensel 1973; Board
1980; Liversey and Hall 1981), an industrys responses to opportunities and threats (May and
McNair 1977), and visions of future retail format (McNair and May 1978). Both the birth and
development of retailing change are explained in terms of environmental conditions. While we
may grant that environmental factors determine retail institutional changes, these factors do not
adequately explain the sequential evolution processes of retail institutions. The conflict
perspective is proficient at explaining how inter-institutional conflicts give rise to institutional
changes, but neither does it explain the sequential evolution of retail institutions.
The cyclical approach is most appropriate for investigating the macro, long-run, and diachronic
dimensions of retail institutions. The Wheel of Retailing and the Retail Life Cycle are both
powerful in this regard. Both describe the introduction, development, maturation and demise of
retail institutions (Dawson 1979; Davidson and Smallwood 1980; Davidson, Sweeny et al. 1983;
Brown 1987). The Wheel of Retailing is a well-known and widely cited theory, and it continues
to stimulate lively scholarly debate in the field. While the model provides a detailed
understanding of evolution patterns, its shortcoming is that it tells us nothing about profitability
and market share. The Wheel theory is not really equipped to explain the rise and fall of
particular retail formats (Davidson, Bates et al. 1979).
The Retail Life Cycle model is the most powerful tool for understanding the rise and fall of retail
institutions. The life cycle concept provides a useful perspective to predict the business
performance of retail institutions because it specifies the series of stages that every major retail
format has to go through. Similar to products (Davidson, Doody et al. 1975; Davidson, Sweeny et
al. 1983) retail institutions must pass through the cycle of innovation, accelerated development,
maturity and decline. During the innovation stage, customer acceptance causes sales to rise.
Profit suffers at the start-up period. Profit grows as the initial operating problems are overcome.
Toward the end of this stage, sales volume increases even more sharply. In the second stage of
retail evolution (accelerated development) sales volume and profit experience rapid growth, and
market share also increases steadily. Market share and profitability tend to reach their maximum
level near the end of the development stage. At the third evolution stage (maturity stage), market
share first levels off and then drops approaching the end of the stage. Sales volume reaches its
maximum and profitability begins to decrease. At the fourth stage (decline stage), sales volume
reduces, profit drops sharply, and market share decreases.
The institutional life cycle concept suggests that the four-stage evolutionary process is inevitable
and current empirical studies of market phenomenon seem to support this observation. Although
it is difficult to pinpoint the exact year in which a particular retail institutional format reaches
maturity, the Retail Life Cycle model provides valuable help in setting up development plans and
business strategies for retailers (Davidson, Bates et al. 1976).

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III

Application of the Retail Life Cycle model to the department store industry

The department store is an major retail format with a long history, and an understanding of its
institutional possibilities is important (Rachman 1975). The explanatory power of the Retail Life
Cycle theory is vividly demonstrated in its application to the department store because the whole
evolutionary process can be examined with historical data.
Retail formats are clearly defined and classified in the discipline of retailing (Diamond and Pintel
1996). The prevalent formats include department stores, supermarkets, specialty stores, and
discount stores. A department store is a departmentalized retail institution that offers a variety of
soft and hard goods. According to the Standard Industrial Classification Manual of the United
States, department stores are defined as
Retail stores carrying a general line of apparel, such as suits, coats, dresses, accessories; home
furnishings, such as table and kitchen appliances, dishes and utensils. These and other
merchandise lines are normally arranged in separate sections or departments with the accounting
on a departmentalized basis. The stores departments and functions are integrated under a single
management. The stores usually provide their own charge accounts, deliver merchandise and
maintain open stocks.
Bluestone, Hanna, Kuhn, and Moore (1981), sponsored by the Economic Development
Administration of the U.S. Department of Commerce, studied the department store industry
because of its ability to generate employment as well as its overall role in economic development.
They believe that the department store industry has played a crucial role in the emergence of
modern retailing. The evolution of the department store informs us about the developmental
dynamics of the economy.
How does the Retail Life Cycle theory help us understand the department store industry? It lets
us trace the evolutionary process of department store format. And on the basis of dating the rise
and fall trend of the department store, we will be able to predict large scale transformations in the
retail structure and devise retail institutional development plans accordingly.
The department store industry has expanded widely in the past decades and become an important
retail institution globally. The very first department store is Bon Marche in Paris. A lively culture
of retailing emerged with the proliferation of department stores in Paris including Louvre,
Printemps, and Galeries Lafayette (Miller 1981). In England, department store first appeared in
the cities of Northern Britain in the late 1830s. The origins of the British department store are
rooted in the twin processes of industrialization and urbanization (Lancaster 1995). Diamond and
Pintel (1996, p.4) provide a brief history of department store in America. The American
department store was nurtured in the New England region in the United States, which is wellknown as the birthplace of numerous innovations in the retail industry (Bluestone, Hanna et al.
1981). Department stores began its quantitative growth in the second half of the nineteenth
century and by the turn of the twentieth century, the department store format became widely
accepted and established.
`

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In the European Union, the life cycles of six types of retail formats have been studied. They
include food retailing in supermarkets, hypermarkets and discounters, and non-food retailing in
department stores, mail order retailers and large-area specialists. The four main stages of the life
cycle are found in these six type types of retailers (Eurostat 1993). Mcgoldrick (1999), employing
the same data used in these EU studies, concludes that the department store industry is in the
maturity stage in EU countries. In the United States, Davidson et al. (1976) claim that the
downtown department store, variety store, supermarket, discount department store and home
improvement center display different speeds in reaching their maturity stage. They estimate that
the department store in America has taken approximately 80 years to mature (Davidson, Bates et
al. 1976).
While department stores of the EU and the US have been studied with the Retail Life Cycle
model, no comparable work has yet been done on the department store industry in Hong Kong.
Research of department stores in Hong Kong will be a very worthwhile undertaking. It is not
often noticed that the department store witnessed a long history in Hong Kong. The first
department store, Lane Crawford, was established in 1850, and others retailers such as Sincere
and Wing On founded their first store in 1900 and 1907 respectively (Sun, 2001). The department
store industry played a significant role in shaping the history of the retail industry in Hong Kong.
IV

Conclusion

The current literature provides us with three basic theories of retail institutional change:
Environment Theory, Cyclical Theory, and Conflict Theory. The Retail Life Cycle model
explains retail institutional change through specifying four stages of evolution that every retail
format will experience. I argue that this model is the most powerful model for explaining and
predicting institutional evolution because of its practical business strategic implications. The
Retail Life Cycle model is especially successful in its application to examine the evolution of the
department store industry. For instance, it reveals that the department store industry in EU
countries is reaching the maturity stage and that in the U.S. has taken approximately 80 years to
mature. I suggest that we may adopt a similar approach to investigate the department store
industry in Hong Kong.
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