Retail trends in Scotland: a review.
Throughout the 1980s the retail industry in Scotland underwent substantial structural change. The change was very largely, but not exclusively, a response to the changes in consumer demand and consumer behaviour. In order to understand the changes in retailing during the 1980s and early 1990s, and to explore the probable changes to retailing through the 1990s it is important first to consider the processes of change in consumer demand [1,2]. In general, the retailers who have been able to respond to the changes in consumer demand are the retailers who have been successful commercially and who have been instrumental in instigating the new patterns of retail provision.
Much, although not all, of the changes in retail provision are driven by retailers' perceptions of consumer demand and behaviour. The sympathetic response of retailers to consumer changes is generally believed to have become of increasing importance as a factor in corporate retailer success. In the 1960s and 1970s it was sufficient for retailers to provide a range of products and a simple selling proposition to potential consumers, characterized by approaches such as "pile it high, sell it cheap". During the 1980s, however, it became apparent that it was necessary for retailers to take a more proactive position, establishing the needs of consumers and then actively designing a total retail offer, not just products, for these specific needs. This view, that retail success is dependent on targeting the particular needs of the consumer, is likely to remain the main strategic paradigm for retailers through the 1990s.
Some of the changes in retail provision result from a variety of other factors, not least being changes in attitudes in society across a range of issues. Thus, for example, the increase in society's awareness of and responsiveness to broadly defined environmental issues, results in gradual shifts in the pattern and content of retail provision. The consumer, therefore, not only influences retail provision at an individual level by allocating spending power among different types and forms of retailing, but also has influence at the broader social level via changes in society-wide attitudes. The steady increase in awareness of environmental issues and the gradual expansion of governmental policy and legislation in this area illustrates the broad scale shift although the downturn in the economy and changed governmental priorities may result in a slower rate of change, in this particular attitude shift, in the mid 1990s. Reviews such as that by ILDM indicate the already far-reaching effect of legislation for the retailers and their support industries of transport and logistics. A second such broad shift is in ethical values held by society. For retailers this is seen in such diverse aspects of provision as the changing needs of store security, store design, changing relationships with suppliers and the changing popularity of the large corporation. While these broad social trends affect retailers' long-term strategies the primary paradigm of generating profit from satisfying the target consumer group is what governs many of the decisions which retailers make on retail provision.
In assessing the ways that consumers have changed since the mid-1980s it is useful to differentiate between cyclical factors and structural factors within consumer demand. The cyclical sequence of economic expansion and recession is particularly notable since the early 1980s. Figure 1 indicates, for the UK, the long-run development of retail sales including a trend-line, and illustrates the magnitude of the consumer boom in the late 1980s and the severity of the subsequent recession. The trend line is extrapolated until the end of the decade.
The growth in retail spending in the 1980s was unprecedented and comprised both cyclical and structural elements. The long-term structural factor was a steady increase in retail spending and, although the rate has changed, this long-term trend is likely to continue. Although retail spending represented a declining proportion of total consumer expenditure during the 1980s, the increase in total consumer expenditure offset this decline to generate a real increase in retail spending (Table I). With the onset of the recession the percentage of consumer expenditure accounted for by retail sales increased as consumer expenditure ceased to grow in real terms and was redistributed to focus on basic commodities. The cyclical factors underpin spending and retail sales particularly strongly and there are suggestions that, in the post-war period with each succeeding economic cycle the amplitude of crest and trough of retail sales has been greater.
[TABULAR DATA I OMITTED]
During the 1980s cyclical factors and long-term structural shifts were reinforced by exceptional growth in consumer credit leveraged by growth in the value of housing. Home ownership in Scotland, being lower than that in many other parts of the UK, produced a lesser leverage factor and the growth in consumer credit (and in housing equity), although substantial, appears to have been below the UK average. Nonetheless growth in incomes (Table D, high levels of consumer confidence and easy access to consumer credit resulted in major increases in consumer spending between 1984 and 1989.
The downturn in the cycle associated with the rise in real interest rates, the collapse of the property market, consumer concern about high indebtedness and the loss of consumer confidence had a major impact on retail spending (Figure 1). Partly because the peak had been lower in Scotland so the decline after the downturn has been less but still very evident. (Unfortunately, a retail sales index does not exist for Scotland.) The increase in actual and anticipated unemployment, in a comparable way to 1981 and 1982,has slowed the re-establishment of consumer confidence since 1990. The return of a sustained increase in retail spending is expected by many commentators but seems unlikely before well into the second half of the decade.
The relative importance of cyclical and structural effects is important because some of the structural changes in consumption have continued throughout the whole cycle and can be expected to continue through the next cycle. Continued changes in consumer expenditure in Scotland through to the late 1990s are likely to be:
* an overall increase in consumer expenditure but within a cyclical pattern;
* a steady decrease in the proportion of consumer expenditure being spent on food (between 1980 and 1990 the percentage of household expenditure accounted for by food fell from 23.0 per cent to 19.4 per cent);
* an increase, but subject to a strong cyclical effect, in expenditure on household and specialist goods;
* retail spending, measured in a strict sense, accounting for a decreasing proportion of total consumers' expenditure.
The importance of the cyclical factors in these trends of macro-structure is twofold. First, it affects the total amount of expenditure by consumers and thus influences the operation of mass market and mainstream retailers. Second, it results in the expansion and contraction of specialist segments of consumer demand changing previously sub-marginal aspects of demand into viable market niches which can be addressed by retailers. Similarly, recession removes these niche markets from being commercially viable. The next upturn in the cycle through the late 1990s will result in currently non-viable market niches becoming commercially viable. The extent to which consumer markets are fragmented, thus is related partially to cyclical factors within overall consumer expenditure.
The structural and cyclical trends at a macro-scale have to be considered alongside meso-scale factors affecting household and consumer expenditure. The major changes through the 1990s extend many of the trends of the 1980s. The trends are similar to those elsewhere in the UK although, in some cases, they have developed to a lesser degree so far. Major changes are:
* A slight fall in total population but notable increases in the proportion of the population in the over-30s age groups (55.0 per cent in 1980 to 60.3 per cent in 1991 to 62.4 per cent in 2001) (see Table II).
[TABULAR DATA II OMITTED]
* An increase of over 95,000 in the number of households between 1991 and the year 2000 despite a decrease in population so that the number of small households increases. The percentage of households containing one person in 1987 was 25.1 per cent, in 1991 26.7 per cent and is forecast at 28.5 per cent by 1996 (this is below the proportion in many other parts of the UK but the direction of the change is the same).
* A shift in location of population with increases, mainly due to migration, in the medium sized and smaller communities. Reasons behind this redistribution are the search for better environments in which to live and increased personal mobility through car ownership. (The inherent environmental contradictions in these trends is interesting.)
Implications for expenditure of these demographic changes are the gradual shift to consumer expenditure on items for which the household is the consuming unit and, equally importantly, the increase in spending on products which satisfy the needs of older consumers.
Cyclical and structural factors are again important in considering the changes in consumer expectations. As the cycle of activity progresses, from recession through boom, so consumers raise their expectations of what they expect from the providers of retail services. Variety, service and higher quality are factors which increase in importance within consumer expectations. With economic growth, so consumers reduce their level of purchase postponement and increase the frequency of replacement of personal and household items. With recession the opposite effect occurs and there is also a move towards consumers being more responsive to price as a factor in the choice of product.
These cyclical aspects reinforce or lessen the effects of structural changes. The main structural changes presently under way in respect of consumer expectations, and expected to continue through the 1990s, can be listed as:
* An increased requirement for higher quality products in respect not only of inherent quality of components but also in terms of design, and fitness for purpose; there is an expectation that products will be available when required and in consequence a lowering in the willingness of consumers to wait to obtain the product. Related to this is the increased expectation that products will be safe and of merchantable quality, so that consumers can place trust in retailers.
* An increased expectation that purchasing experiences will be pleasant and at least for some products will be a leisure activity.
* An increased expectation that retailers will provide a wide variety of goods from which to choose.
* An expectation that products and types of retailing will be available which reflect the lifestyle of the consumer. An increased expectation that products and retail offers will be developed to minimize any adverse impact on the environment.
A third area of change for consumers is in consumer behaviour. Again there are cyclical and structural considerations. Cyclical trends include the amount of price responsive behaviour (greater in recessionary periods) including search and price comparisons and the extent to which expenditure on leisure overlaps retail spending. Cyclical patterns of unemployment also affect consumer behaviour by changing the size of the consumer segment which is forced to buy in small quantities, on a frequent basis and at lowest possible prices.
The main structural changes in consumer behaviour are related to:
* increased car ownership which generates higher levels of actual personal mobility and which allows new consumer shopping behaviour patterns to be realized;
* higher levels of household durable ownership, for example microwave cookers (currently 40 per cent of households), freezers (58 per cent), which encourage new behaviour patterns;
* a broadening of horizons due to more travel and exposure to international media (particularly TV) which extends consumer awareness of product variety and encourages "experimental" consumer behaviour;
* increased female participation in the formal workforce which affects consumption of convenience food products, purchase behaviour of clothing, and changes broad behaviour patterns to place a premium on convenient shopping opportunities[7,8];
* a steady increase in numbers of low income consumers, both the unemployed and older people, whose behaviours are strongly motivated by price factors.
The combination of structural and cyclical tendencies results in an increasing variety of patterns of consumer behaviour. For some groups behavioural patterns are dominated by cost minimization decisions of using the nearest shops and seeking low prices ; for others behaviour is predicted on minimizing time spent in shopping; for yet others there are different behaviour patterns for different types of goods, for example, perhaps time minimization for essential purchases but social value maximization for discretionary purchases.
There are five main sets of values associated with consumer behaviour and a consumer will seek to combine the various benefits through a particular behaviour pattern.
These five values are:
(1) functional values -- usually provided by utilitarian or physical attributes such as reliability, durability, price, etc.;
(2) social values -- usually provided by what is communicated to peer groups by visible features, such as being seen in the "right" shop or wearing the "right" clothes;
(3) emotional values -- usually associated with emotional responses (comfort, love, etc.) to products or aesthetic and ethical alternatives (strong beliefs such as environmentalism);
(4) epismetic values -- usually provided through the search for novelty, new experiences, curiosity or simply the relief of boredom;
(5) conditional values -- usually provided as a result of situational circumstances, such as seasonal shopping behaviour at Christmas, emergency shopping when products are required unexpectedly, etc.
The values are independent but generally are combined by the consumer through a willingness to accept less of one set of values to obtain more of another. Shopping on different occasions is undertaken with different resulting sets of combined values. Retail provision is required in different types of location in order to meet these different consumer needs [11,12]. Thus, in food shopping a visit to a city centre Marks & Spencer foodhall to buy a meal for the same evening, a visit to a Safeway suburban supermarket to purchase a large variety of fresh, chilled, frozen and packaged goods, a visit to Kwik Save to purchase basic packaged goods and a visit to the BP forecourt shop to buy extra milk, all by the same person at different times are not incompatible because each visit provides different values. Such variety in consumer behaviour is becoming more common and is likely to be the norm during the late 1990s.
Retailer responses to consumer changes
Responses to cyclical changes
Retailers have responded to both cyclical and structural changes in consumer demand. By its nature much of retailing is short-term in outlook and responds quickly to new market opportunities which relate to cyclical changes in consumer expenditure. Entry and exit barriers are relatively low, particularly for small market segments. Therefore it is possible to respond to cyclical changes by creating a new shop as a market niche appears and similarly to exit easily as market niches become non-viable. Such an approach requires of the retailer close monitoring of the market and profit of both formats and business. While in many small retail firms their entrepreneurs are aware of changes in market opportunities not all are equally aware of their operating costs with the result that many small retailers operate at very low profit levels. While numbers of new entrants are high the number of existing firms is also very high.
Retailing is characterized by having a large number of small shops and a large number of small firms. Across the UK the general structural tendency has been for a reduction in the number of small shops and small firms but this overall pattern is not seen in all types of retailing. The decreases have been in shops of a general character while there have been increases in numbers of small specialist shops, both in food and non-food. The ability of small firms to respond rapidly to the appearance of niche markets has allowed this cyclical response to offset the general structural tendency to reduced shop numbers and, in the late 1980s, a small increase in shop numbers occurred. The growth of specialist small shops reflects the new market niches which have emerged and also results from attempts by small firms to avoid direct competition with the large firms. The data for Scotland (Table III) show small variations in the number of shops with a slight increase in the late 1980s. It seems likely that through the 1990s the cyclical factors will reinforce the structural reduction in shop numbers and numbers of shops will fall. This was starting to be evident by 1992. Reductions are likely in the number both of general and of specialist stores, particularly small ones through the mid-1990s.
[TABULAR DATA III OMITTED]
A major response to cyclical change is short-term adjustment of marketing and operational variables. The main short-term marketing adjustments are in promotional activity, for example the changes made by electrical retailers such as Dixons, and in pricing, for example in the DIY sector with B&Q and Texas. It is also possible to adjust product ranges, a notable approach by the off-licenses (also this can affect stock costs) and to change retail brand offers.
Costs in the short-term can be adjusted in two main ways. First, it is possible to change the balance between full-time and part-time staff and also to reduce staff input so reducing staff costs. Second, it is possible to negotiate more strongly with suppliers so transferring costs away from the retailer. In the longer term it is possible to restructure the supply chain to reduce total inventory. Some of these changes in costs which are introduced as a response to economic recession will stay in place when the economy grows again.
Responses to structural change
The overall long-term pattern of structural change in retailing is of:
* an increase in retail sales volumes;
* a decrease in numbers of retail firms and shops;
* a decrease in total labour input;
* a polarization of shop size in which investment is occurring in developing both large and small stores;
* an increase in retail floorspace;
* an increased dichotomy of activity and shift in the relative balance, between town/city centre (decrease) and out/edge-of-town retailing (increase).
Groups of store formats
Although firms attempt to create individual store formats as a method of competitive differentiation, groups of similar formats emerge because similar segments of consumers are targeted by several firms. It is also usual for the larger firms to be operating more than one format in order to target several consumer segments.
In essence these formats can be categorized into those belonging to proximity or destination retailing[ 13]. The distinction between the two can be useful in general terms but it is not precise and requires explanation. There are parallels with the division between convenience and comparison shopping but there are important differences between the concepts.
The essence of destination retailing is that:
* The store has in stock a large range of products in a category which convinces the customer, before they visit, that if the product exists the store will have it and there is no need to go elsewhere. Examples are Tesco, Toys `R' Us, Waterstones, Virgin, etc.
* The value-price position is clearly established, so the consumer has no need to shop around for better value, for example Marks & Spencer, IKEA, B&Q, etc.
* In-store systems which reduce the customer "hassle" factors despite the search for and potential purchase of a large quantity of merchandise (for example, IKEA) but relatively few companies in the UK have achieved this feature of destination retailing.
* Consumers exhibit a willingness to travel a substantial distance to the destination shop and also exhibit high levels of loyalty to the shop.
Proximity retailing is characterized by:
* having a shop at the place where there is a concentration of consumers, for example, petrol filling station, railway station, a High Street, etc.;
* having products which either provide for an immediate need, for example Marks & Spencer foodhall, Woolworths, Boots, Superdrug, etc., or which change frequently, for example Next, Our Price, Top Man, etc.;
* locational convenience which enables consumers to visit easily and frequently and which generates customer loyalty.
The concept of destination and proximity retailing therefore complements the traditional differences of comparison and convenience goods shopping. The definition of proximity and destination retailing is not based on product but on consumer response to the total store format. Consumer perceptions and expectations are different in the two cases and consumer behaviour is different in each case although the same consumer may be involved in both types of shopping.
It is suggested that retailers are attempting to move more retailing provision to become destination oriented because there is a belief that destination retailing has a higher financial return and its growth opportunities are greater. Clear evidence to support such a view is not easily obtained and profits from both types of retailing can be high when the store format is successful in meeting the specific needs of the target consumer group. Contrary to this view for example is Tesco's move from destination formats to proximity formats with Tesco Metro and Tesco Express; the latter has yet to be seen in Scotland but no doubt will arrive before the end of the decade.
Nonetheless, the trend appears to be towards development of formats for destination retailing. Changes in the 1980s by the supermarket retailers, for example, result in more food shopping moving from proximity retailing to destination retailing. The development of larger supermarkets has increased their category authority across all foods, grocery ranges have expanded, specialist food sections have been introduced into what began as general grocery supermarkets, pharmacy sections have been added, toiletries and HBA ranges have been expanded, and food-related services have been provided. In effect the new supermarkets are grouping together product categories which previously were retailed separately. At the same time new formats for proximity food retailing are being developed, for example with the Tesco Metro stores and Iceland stores within Littlewoods, and located in city centres.
A comparable shift towards destination retailing is occurring in other sectors. In car accessories retailing there is a change in balance in Halfords between high street (proximity) stores and superstores (destination). One major reason for the change is the difference in total occupancy costs, including rent, heating, insurance, UBR, etc., between the two locations (in early 1993 average costs of 30/sq.ft/yr[pounds] for high street stores in secondary sites and 18/sq. ft/yr[pounds] for superstores). Such cost differentials are only meaningful, however, if the superstore format meets consumer needs better than the high street store and so becomes a destination store. Existing retailers are changing current proximity retailing to become more destination oriented.
New destination formats are being created in sectors where previously there was variety of small scale proximity type retailing. One example is in the sports and leisure retail sector where proximity retailing in High Streets and at sport and leisure facilities is the current norm. New formats are large scale wide ranging sport superstores and also some sports specialist stores, such as golf product superstores. Clothing is another product category where comparable developments are starting. These new formats may be discount oriented or have higher price-value positions but they represent destination retailing in a sector which was previously dominated by proximity retailing.
Shopping centres and retail parks[14,15] are another way that proximity retailing is turned into destination retailing. In this case the total development becomes the destination rather than the specific retail format and proximity retailing within the development takes on some of the character of destination retailing. Such shopping centres may be within city centres or in edge-of-town locations. With warehouse parks usually several of the retailers are destination retailers in their own right but by combining they reinforce, even further, the destination shopping concept.
The growing distinction between destination and proximity retailing has several implications. An important one relates to location. The shift to the two types of retailing emphasizes locations which are highly accessible, usually by car for destination retailing, and locations which have a high customer potential, usually the key locations in city and town centres or transport nodes and interchanges, for proximity retailing. There is, therefore, a polarization of optimal locations with each of the two types having their own optima and the various individual formats having preferred locations within this dual pattern.
Not all successful retailing fits this bipartite view. But, it is a view of retailing to which a number of retailers and commentators subscribe. It takes the format view of retailing and adds to it a basic distinction of consumer behaviour. In each case of format development a particular customer segment is targeted and a total offer is designed to meet the needs and values of that customer.
New and increasing formats in the 1990s
New formats will appear in the 1990s in Scotland. New formats will be responses by retailers to the appearance of new viable consumer segments. There will also be development of existing formats as markets develop.
The pattern of growth of grocery superstores is shown in Figure 2. In 1990 11 new stores opened, equivalent to the total of openings in the previous four years; these openings took the cumulative total of gross floorspace in this format to over 2 million sq. ft. Considering stores already opened and those close to completion of construction some 200,000sq. ft of additional floorspace will be added in 1993 taking the total number of stores in operation to 65. As of 1993 there are a further 17 stores with planning permission (either detailed or outline) and these total over 650,000sq. ft. There is a further 500,000sq. ft in schemes for which applications have been submitted but which have yet to be decided. This level of expansion together with the already high level presence of large supermarkets will create considerable difficulty in achieving real increases in sales per sq. ft from large food stores, even with the expansion of the product and service ranges in these stores. The firms operating food superstores will have to explore radical adjustments to cost structures if sales per sq. ft cannot be increased.
Food discount formats
The Kwik Save acquisition of Shoprite in November 1994 gave the company quick entry to a market which it had neglected until relatively recently. Nevertheless, this acquisition means chat there is no substantial representation of a "hard" discounter in Scotland. The five Food Giant stores, repositioned Gateway units, are discount superstores and the foreign entrants, Aldi, Netto and Lidl, which trade under limited line formats have been subject to considerable trade speculation but, as yet, few developments. Scotland's demographics and patterns of consumer behaviour will be attractive to discounters. It is conceivable that at least 400 discount stores in the general food sector will be operating in Scotland by the late 1990s, amounting in total to around 3 million sq. ft.
An additional aspect to discount activity in the food sector is the growth of discount freezer centres, for example with the rapid expansion of Farm Foods with over 70 stores in Scotland to compete with the more established Capital Foods chain. There is also the appearance of discount food and drink specialists. As yet only a small number of firms are developing formats, for example Bin-Ends, which offers low price clearance drink claims plans to operate in Scotland after it has established itself more firmly in South East England. New formats are likely to develop in this area but their market penetration is likely to be slight.
This form of proximity retailing is likely to grow in importance from several different sources including petrol companies, conversions of currently unfocused local grocery and CTN shops, supermarket groups developing new formats and from specialist firms, including Watson and Philip. The high density of residential development in most Scottish cities encourages this type of retailing. The key issue over the next few years will be whether the capital investment will be available to enable these stores to reach their potential although some of the IT related investment may be able to piggyback on the benefits to these stores obtained through selling National Lottery tickets.
Specialist food stores
While most types of specialist food retailing are under severe pressure from the widening offer in grocery superstores two particular areas have shown growth subsequent to the establishment of clearly defined formats and market positioning. These are specialist off-licences and stores in the health food sector. In Scotland there are approximately 1,000 specialist off-licences. Nationally the Thresher chain, owned by Whitbread, is the largest chain with over 1,600 stores after its acquisition of Peter Dominic, but it is operating several formats, each with a different market position. Victoria Wine/Haddows has almost 1,000 units and Augustus Barnett (Bass) has over 500 throughout the UK. Each of these large firms is experimenting with several formats dependent on store location. The development of health food shops in Scotland lags the national trend and is still, at the specialist level, the preserve of independent retailers. While in both these areas the large food stores have increased their market presence the creation of clearly defined specialist formats has enabled consolidation and even some growth by specialist chains and specialist independent retailers.
A further specialist format which is likely to increase in importance through the mid-1990s is specialized by location and by product. This is the in-town convenience supermarket. Tesco, Safeway and Iceland have developed store formats suited to town centre locations in order to compete specifically with the foodhall offer of Marks & Spencer.
The stores provide a particularly wide range of convenience foods suited to consumers visiting the store from their workplaces. It is likely that several of these will be developed in the larger Scottish cities, following the lead of Tesco Metro in Aberdeen, Glasgow and Edinburgh.
The overall pattern in the food retail sector in Scotland is that there is likely to be more variety of formats with the market becoming more clearly segmented. At the same time there is likely to be an increase in the amount of sales space in food retailing but with little real increase in consumer spending on food products.
There is likely to be growth in numbers of destination retailing superstores within existing product areas covered by these stores and in product areas new to this type of format, such as clothes, office products, shoes, sports goods and leisure products. It is expected that in Scotland in the five years from January 1993 there will be at least an additional 4 million sq. ft of non-food superstores constructed, probably over 80 per cent of it in retail warehouse parks. Figure 3 shows the estimated amount of space in retail parks at each year end together with a possible figure for 1997.
As the nature of the products sold in these stores and retail parks changes so there will be a requirement for a higher quality of environmental provision of the retail parks. With the advent of shoes, soft goods, clothes, and leisure-oriented products sold in a superstore format so there is likely to emerge a demand for higher investment in the finishes of stores and retail parks. This base of higher costs will have to be recovered through higher sales per sq. ft.
It is likely that there will be entry into Scotland by firms presently represented only in England with small numbers of stores, for example IKEA, Office World, Business Superstore, Pet City and also there will be new entrants to the UK, for example Home Depot from the USA, who, if successful, may move into Scotland later. It is probable that some of the older food superstores will be recycled as non-food superstores possibly with the creation of large discount stores.
This format has been very successful in the USA and there is an expectation, partly based on expansionist statements by US operators, that it will be successful in the UK in the next few years. A study by Morgan Stanley of the UK potential market for Price Costco, the leading US firm which also has links with Carrefour, suggests scope for three in Scotland but this may not be the only operator and probably there is a market potential for at least six stores on the assumption that the format is successful in being translated to the UK environment and also proves to be attractive to Scottish consumers. Planning permission has been granted for the first site to be developed by Price Costco and it is also due to open in 1995. It is unlikely, however, that this format will be a major success in Scotland. Flat ownership is high, inhibiting bulk buying; car ownership is low, limiting consumer accessibility; there is considerable competition from established cash and carry operations and the current clubs trading in England have not fulfilled their earlier expectations.
Factory outlet centres
This form of retailing which has developed strongly in the USA may expand in the UK where currently there are a small number of firms involved. This type of retailing involves selling the branded products of major manufacturers at heavily discounted prices in stores directly linked to the production facility. It represents an attempt by the manufacturers to integrate forwards into retailing and so to control the profit margin through the whole channel of distribution. The stores began as a means of disposing of surplus fashion stock at the end of the season but they have become a mechanism for manufacturers to sell current product directly to the consumer. Attempts are being made to group factory shops into specific retail parks. Hornsea Discount Village, a C&J Clark development at Street, Cheshire Oaks, The Great Western Factory Park at Swindon, and The Fort at Fort Dunlop, Birmingham, are either operating or currently under active development. Schemes have been proposed for Scotland at Stirling and Kinross but have not obtained permissions for development.
Non-food discount stores
A number of firms have established clearly targeted discount formats in the non-food sector, for example, Poundstretcher, T&S (Supercigs), Amber Day (What Everyone Wants), Ratners, Your More, Millets, Peacocks, Bargain Books and Happit. These discount stores have a clear message of low price but price is not the only component of format design, for example Ratners offers a choice alongside price, Supercigs offers convenience.
Three features characterize the discount format:
(1) A low cost base - both labour and occupancy costs are low. Typical levels of wages as a percentage of sales (1994 figures) are DFS 7.2 per cent, T&S 8.9 per cent while rent as a percentage of sales reflects the secondary locations with figures for What Everyone Wants of 3.4 per cent, T&S 2.4 per cent and DFS 2.4 per cent.
(2) Buying power and flair - this can be achieved by volume buying, for example Ratners, but it also results from an entrepreneurial management style with buyers given freedom to operate. An important element of discounting is opportunistic buying of reject stock, end of lines, cancelled orders and overruns. Such opportunities occur not just in recessionary times but also in a growing economy, although the reasons for the stock being available are different.
(3) High stock turn - stock change must be rapid in order to retain consumer interest and promote return visits. Stock also has to move quickly to provide space for the new opportunistic buys and so price reductions to move slow stock are frequent but present the danger of margin erosion.
Entry into and exit from discounting is rapid as witness the closure of Glasgow-based Clothesline. Despite the need for entrepreneurialism, successful discounting also needs tight operational controls and systems. There are many small firms in the sector who are attempting to create their individual format, for example Bankrupt Clothing Co. which operates in England and expanded into Scotland. Such firms will continue to appear, and in some cases disappear, in the short least property of city centres and in the fringe areas of established shopping districts. Likely areas for increases in numbers of discount store formats in Scotland are recorded music and videos, stationery and office supplies, branded cosmetics and perfumes. Such stores are important in adding variety and excitement to shopping environments as well as appealing to bargain driven shoppers.
Non-food fashion and style stores
The type of format includes a wide range of specific formats targeted at a variety of consumer needs and segments. Clear targeting of stores will create opportunities for store development when discretionary spending on clothing, shoes and leisure products rises as the economy emerges from recession. Strong corporate and store branding will be important for the high street proximity retailers with these formats. Prime locations with heavy consumer traffic will be at a premium and redeveloped and new shopping centres will be needed in town centres in order to provide the additional space needed for this type of retailing. The contrast between prime and secondary locations will become even greater as prime locations with shopper concentrations will be strongly sought after and secondary locations will be used by the discount sector formats and by small highly specialist operations. The current ability of some discount retail formats to locate in prime areas, for example Bargain Books and Superdrug, will be difficult to sustain as rental levels begin to rise.
Although we can expect many of these formats to focus on prime space the firms involved will be making substantial efforts to keep rental costs under control; groups such as Etam with rents 11.7 per cent of sales, Next (8.8 per cent), Laura Ashley (9.1 per cent) and Burton (8.8 per cent) in 1990 will be aiming to move these percentages downwards, probably nearer to a more sustainable 7 per cent. Rental levels in Scotland are below most of the rest of UK for comparable property but in recent years, they have levelled off rather than falling back as has occurred in England.
Issues for the shopper's environment
The changes in consumers' demand and retailers' behaviours considered in earlier sections of this article have implications for the processes generating the structure both of urban land-use and of urban relationships. Retailing remains an urban activity, and despite some suggestions of an increase in home-based shopping, it is likely to remain, through the 1990s, an activity with over 90 per cent of retail sales passing through shops, the vast majority of which are in towns and cities. The pattern of retail land-use, and its management through the planning system, influences and is influenced by the activities of retailers, who are themselves responding to consumer demands[16,17].
As part of the strategy of retailers to increase their market share and to increase market coverage there is a tendency for firms to consider new locations in smaller towns. Formats have to be designed which are suited to, and are profitable in, these smaller towns, for example Superdrug. Furthermore, the population increase in these communities makes them attractive potential locations even for some existing formats, for example Argos. For some of these towns in Scotland there is also the opportunity to develop tourist-related retailing. At the same time, however, there are processes at work, for example increased consumer mobility, which enhance the potential attractiveness of the prime shopping areas of the larger cities and other processes, for example the desire to use the car for travel to shop for bulky items, which encourage the suburbanization of retail activity. The balance of these various processes is complex. Retailer and consumer driven processes are supplemented by broader governmental policy on the environment at local, national and European levels.
The relationship between retail planning policy and the broader environmental policies is far from clear. Reducing the deliveries by large vehicles into town centre retailers may be a positive improvement to environmental conditions in town centres but the substitution of either many small vehicles (cf. Japan) or of retail locations in the suburbs/green belt (cf. USA) may have even more detrimental effects on town centre environments. Again, fewer but larger stores improves the energy efficiency of moving goods from manufacturer to retailer but may be less energy efficient in moving goods from retailer to place of final consumption. Considerations of energy use and of environmental impact of traffic are not limited to choices of intra-urban spatial patterns of retailing but inter-urban patterns also are relevant, with the new attractiveness to retailers of medium sized towns with high quality environments. The various issues of environmental impact, both positive and negative, in respect of alternative patterns of retail provision have yet to be studied fully either conceptually or empirically.
In addition to inter-firm competition for consumer spending, which has been the focus of earlier sections, there is inter-urban competition. Towns, mainly through local government and public agency activity, enhance their attractiveness both to retailers as places for investment and to consumers as places to shop, by the provision of a range of activities, including:
* the provision of easy access and plentiful parking for shoppers;
* the provision of public transport systems which integrate and focus on major shopping areas;
* the creation of safe, aesthetically acceptable, and interesting environments for shoppers;
* the effective management of the built environment and the services necessary for its support;
* the encouragement of the property industry to provide the types of shop unit appropriate to current retailer needs at appropriate locations in town centres, in suburban centres and in non-central types of development;
* the establishment, in effect, of a market position for shopping districts in the same way that retailers position themselves in their market.
Failure of towns to provide adequately on these criteria results in trade leakage to other towns and the build up of pressures from retailers for new retail space in purpose built out-of-town regional centres which would be in effect new town centres. Pressures in the mid-1990s for such new centres in Scotland will depend to a considerable extent on the ability of existing town centres to manage their environment and market themselves as places for destination shopping. All the factors of consumer and retailer attractiveness are likely to become more significant rather than of less importance through the 1990s. For example, more consumers will wish to use their car for shopping trips and so require parking spaces; consumers will expect vehicle free and safe shopping spaces; retailers will expect a secure, well managed urban infrastructure. Therefore, there will be substantial pressures on urban authorities to provide the infrastructure necessary for successful retailing, with the threat being that either other towns will provide the infrastructure or new regional centres will be created. Infrastructure provision for shopper and retailer, at an ever improved level of quality, will be the basic prerequisite for shopper choice of place to shop. The general increase in floorspace which is likely will add to the intensity of inter-urban competition with the quality of the urban environment becoming of increased importance as an aspect of inter-urban differentiation.
The commercial balance within towns among the central area, suburban shopping districts, free-standing stores, and edge-of-town/off-centre developments is both complex and very dynamic. The Government has hardened its approach in England and Wales to new out-of-town developments in a series of policy notes and this has been reinforced by the findings of an all-party select committee investigating this issue. It is useful to consider each of these generic locations for retailing and to consider the major current and potential changes in Scotland.
There is little hard empirical research evidence about retail changes in central areas in Scotland, or even more widely within the UK[20,21]. Various changes appear to be under way and it is widely believed that:
* The intensity and productivity of retail use in the core of central areas is increasing. This results from redevelopment, improved managerial methods, for example with the use of IT, and greater use of in-store concessions, for example Iceland in Littlewoods; all are attempts to improve space productivity. The introduction of several stores into property previously operated as a single store has been widespread, for example the introduction of a range of Burton formats into Debenhams store units and Scottish Power's experiments to use space in Marks & Spencer in Kirkcaldy, and seems likely to increase, thus turning larger units into small focused shopping centres. A further example of this search for methods to improve productivity is the attempt by some retailers, not only in town centre stores, to increase sales to business customers alongside personal and household customers. Such moves result in the destinations between retail and quasi-wholesale activity becoming increasingly blurred.
* The core area of prime retail space is reducing and the differentials between prime, secondary and tertiary space are getting greater.
* Improvements in the environmental infrastructure, such as improved parking and pedestrianization of shopping areas, increase shopper attraction substantially.
* There are fewer firms who control central area retail uses (property owners, owner-retailers and renter-retailers). There are thus fewer firms who make decisions which affect the retail structure of central areas. Some new entrants to this small group come from outside the UK and these may play an important role through the 1990s as they introduce new ideas into a previously relatively conservative property sector.
* Commercial blight is commonplace and increasing. Many buildings in the frame of the centre are unsuited to modern retailing and in addition the consolidation of the central core increases the potential blight in the frame.
* A potential change is the generation of redevelopment opportunities for large shop units (and associated parking) in these currently less attractive areas. The commercial reality of such opportunities will probably depend on public sector financial incentives of some form, and the application of restrictions on permission for such stores in suburban locations, but the danger of this restrictive policy would be artificial protection not only of town centres but also those non-central developments already in operation.
* Town centre management schemes enable the central area to co-ordinate its marketing and establish a market position. Such schemes appear to have been stimulated by the competitive effect of non-central developments causing the central area to respond in order to re-establish its position as the main area for retailers in the town. There are several criticisms of such schemes. First, is the expectation of retailers that they will contribute to the financing of management activities above their existing local and central tax contributions; second, is the cosmetic nature of some of the management programmes which are environmentally superficial, failing to address the real issues of planning and management of the town centre; third, is the potential overlap with already operating local government services and responsibilities; fourth, it is not always clear what is the area of responsibility of the manager; finally, many of the town centre management schemes are short-term initiatives from which instant results are expected while the issues being addressed are in reality much longer-term problems. Despite these criticisms of the concept it is believed to work, it has gained substantial support from some retailers, most notably Marks & Spencer and Boots, and from some local authorities, and, in the future, there is the opportunity of potential backing perhaps from local enterprise companies (LECs), Scottish Enterprise, and possibly EU sources.
* Changes in land-use associations are taking place. In larger cities moves of office jobs to suburban sites affect interactions between office workers and retailers. Leisure and social land-uses may become more closely linked to retail land uses in similar fashion to the food courts which have been established in large shopping centres.
* Total retail sales volumes in the central areas of the larger towns probably have decreased in recent years. Many of the larger retailers have increased their sales significantly but the loss of sales has been among smaller firms and often in secondary or tertiary locations.
Suburban shopping districts
Within the larger towns and cities the network of suburban shopping areas has developed over the last 100 years. Suburban shopping is not new; for example, by 1971 the Princes Street shopping area in Edinburgh accounted for less than 25 per cent of retail sales in Edinburgh and central Dundee accounted for less than half the retail sales in Dundee. The suburban shopping districts have so far changed the least of all the intra-urban components of retail provision but the processes of retail change seem likely to have a major impact on these centres over the next ten to 20 years. Again there is little rigorous empirical research but views are:
* The viable minimum size of suburban shops and of shopping districts will increase at a faster rate than the growth in retail sales. This will create a double impact with fewer shops and fewer shopping districts. There will be consequential substantial changes of use or commercial blight.
* Suburban shopping districts which can attract major investment for redeveloped facilities will be attractive locations for the downsized formats of the multiple retailers.
* Peripheral contraction of the larger suburban shopping districts is likely to be substantial.
* Many of the older suburban shopping districts have property suffering from physical and commercial blight. This incidence of blight is likely to increase in the mid- to late-1990s despite an upturn in the retail business cycle.
Individual and free-standing stores
Local neighbourhood and corner shops provide for immediate convenience needs and are a relatively strong part of the intra-urban network. Provision, after many years of decline, may see some increase during the mid- to late-1990s as the convenience store formats become more firmly established through the petrol station companies, Spar type organizations, and large retailers with clearly defined small shop offers for example R S McColl.
A second group of free-standing stores are the large units, both in food and non-food sectors, often built in the first phase of the move out of established shopping districts, in the 1970s. Relatively few (although some) of these have been developed in recent years with new developments more commonly either being part of larger schemes or linked to retail parks, rather than being stand alone stores. Despite the lack of new stores of this type there is a substantial number dating from between the late 1960s and late 1980s. Many of these will continue to trade for many years, but it is possible that the older ones may prove suitable for conversion to meet the expansion demands of current discount retailers and as entry stores for the new discount formats.
The amount of retail sales accounted for by retailing in edge and out-of-town and off-centre locations has increased in absolute and in proportional terms over the last ten years[23,24]. Specific figures are not available but the increases in floor space and the increases in sales volume of the firms involved support such a view. This type of location has proved successful for large space users who are destination retailers and for smaller stores who trade off the consumers attracted by the larger units. Retail parks of groups of large units are successful and are likely to increase in number in Scotland over the next five years. The increase in this type of development is likely to result in the various schemes adopting different market positions, for example the proposed "discount park" at Paisley, and establishing different functions and possibly specialisms, for example a retail park may emerge which specializes in electrical products for home and office, or one specializing in furniture and furnishings.
The balance of provision
The evolving pattern of provision suggests that, subject to planning policy:
* town centres will retain, possibly increase, their importance, but within a smaller overall area, and will increase their retail leisure component;
* edge-of-town and off-centre developments will increase in importance; individually-sited stores will sustain their importance but potentially change function;
* suburban shopping districts will decline in relative, and in many cases absolute, importance.
The intra-urban balance within any town, however, while influenced by these market trends, will depend greatly on local circumstances, such as size, historic legacy of buildings, road network, tourist attractiveness, economic base and many other factors. Planning policy will play a considerable role in influencing the speed at which these market driven changes occur.
EU policy influences
The role of EU policy as a factor influencing the built environment is likely to increase during the 1990s as the single market becomes more effective and as environmental policies become more widely applied. The increased internationalization of retailer operations will be encouraged by the removal of various non-tariff barriers among the European countries. Attempts to harmonize legislation of land-use planning might well begin to affect the policies towards retail location by the late 1990s.
Of more immediate effect on retailers are current EU policies on packaging and recycling which require retailers to become responsible for collection and disposal of packaging materials. The impact of this policy in the countries where it is already in effect, most notably Germany, is a requirement to provide space, at the store, for the collection and sorting of various types of packaging. The amount of sales space is reduced, staff are required to supervise receipt, sorting and disposal of packaging, and so costs of operation are increased. Changes along these lines will have to be introduced in stores in the UK over the next few years. The impact of these policies are greatest for the food retailers. These activities, and the additional costs, are more easily accommodated at the purpose built larger shop units at non-central locations; provision for these facilities in a large Marks & Spencer foodhall at a High Street store, for example, will create new problems of space and customer management.
Expansion of EU involvement in issues of the environment is possible, particularly in respect of issues associated with the conservation of town centre urban environments and more general policies on efficient energy use. Such EU initiatives could encourage the renewal of interest in the town centre as a location for retailing. Potentially EU programmes may be aimed at town centre management and other central area initiatives. By the end of the 1990s such policies might well be acting as a stimulus to new investment in retailing in town and city centres. While there is still debate on the various environmental impacts of alternative spatial structures for intra-urban retailing there are few, if any, substantive studies of the comparative energy and environmental costs of central area and suburban retailing. There is a notable absence of studies on the various trade-offs of energy use in the development, operation, distribution systems and consumer use of different store formats and locations. Such would need to be considered before EU or national programmes of support for particular locations could be justified on environmental grounds.
Conclusions and review
The increases in retail space which are likely in Scotland over the remainder of the 1990s will result in greater inter-urban and intra-urban competition in the spatial system of retailing. Towns, through their local governments and trader associations, will be required to provide shoppers with improvements to the shopper's environment, and in the same way that retailers must respond to the needs and changes of consumer demand, so also towns must similarly respond if they are to retain their position as foci of retail activity.
Within urban areas several of the processes of change point to increased importance for town centres which may become more intensively used, for local convenience oriented shops and for edge-of-town/off-centre developments. The same changes point to a decrease in importance for the suburban shopping district, some of which are likely to contract.
There are difficulties in establishing how retail change is taking place in Scottish towns owing to the absence of adequate statistics. There is need of a better statistical record of both the structural and the spatial aspects of retail performance and provision in Scotland. Until better statistics are available it is possible only to infer the change which is taking place by considering activity in new developments and the performance of retail firms.
The consumer-led changes in retailing discussed in this article need to be considered in the framework of Governmental aims and policies on environmental issues, including maintaining green belts, reducing transport emissions and reducing traffic congestion. Within the Scottish context the likely demands for new retail developments seem unlikely to require large tracts of greenfield sites. The patterns of development suggest some recycling of current schemes, some redevelopment on brownfield sites, and only limited development on greenfield sites. The more general environmental issues associated with transport management, traffic controls and energy use create more complex and difficult questions. It is quite unclear what is the energy budget, in private and public sector terms, of different forms of retail development. While retail and related land uses are major generators and receivers of vehicle trips, there is no authoritative analysis of vehicle emissions associated with alternative spatial structures of retail provision. It is even unclear whether there are substantial differences in total emissions associated with alternative spatial structures. It is possible that corporate differences in transport and logistics management may be of greater significance to explaining total energy use than is the spatial pattern of retail land use. It is widely assumed (but unproved) that retailing in a city centre is more energy efficient than dispersed retailing but other market related reasons, such as concentrated pattern of provision being a more effective way to satisfy fragmented consumer demand, may be more important for the future wellbeing of town centres.
Retailing in Scotland, in common with the rest of the UK, has shown considerable dynamism over the last economic cycle. There are however some interesting differences between the situation in Scotland and the rest of the UK which have particular implications for the continuing evolution of retail structures in Scotland. First, the speed at which market concentration is occurring appears to be at a faster rate in Scotland than in the UK as a whole. This appears to be a reverse of the situation of the earlier decades. Second, fewer of the major corporate decisions relating to retail provision in Scotland are made in Scotland. This has a variety of important secondary implications for the wider Scottish economy, for example concerning the amount and levels of managerial employment in retailing in Scotland, the location of decisions on the allocation of profits, and the decisions on sourcing of products sold in Scotland. Third, interformat competition may well be increasing more strongly than inter-firm competition. This has implications for the governmental policies on land-use planning control as well as for the forms of price and promotion policy followed by retailers. A fourth factor of relevance to understanding the evolution of retailing in Scotland is the apparent reduction in locally based innovation in the sector. With more innovation emanating from head offices of large firms and fewer head offices being located the consequence is less indigenous innovation. These four implications of current trends will help shape the pattern and structure of retailing in Scotland into the next century.
[Figure 1 to 3 ILLUSTRATION OMITTED]
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John Dawson is Professor of Marketing at the University of Edinburgh, Edinburgh, Scotland.
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|Publication:||International Journal of Retail & Distribution Management|
|Article Type:||Industry Overview|
|Date:||Oct 1, 1995|
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