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The extended specialty store: a strategic opportunity for the 1990s.

The Extended Specialty Store: A Strategic Opportunity for the 1990s

All significant innovations in retailing--from the department store of the 1860s to the warehouse club of the 1970s--were responses to the key environmental developments of the time. By taking advantage of changes in consumer preferences, emerging technology, and other market realities, strategic developments altered the character of retailing.

The reliance of a new strategic development on a changing environment, and the extent to which the development really does alter the character of retailing, is easier to view from an historical perspective. The supermarket concept of the 1930s, for example, changed food purchasing from an almost every day shopping trip to a neighborhood market to a less frequent, longer distance shopping trip to a larger facility. It also fundamentally changed food shopping from clerk service to self-service.

Such as significant change could not have happened by accident. It occurred because the supermarket was designed to capitalize on five significant consumer and technological developments:

* Rising levels of literacy, due to mandated public schooling, which made it possible for vast numbers of people to purchase food via self-service rather than clerk service.

* The impact of radio advertising in creating brand awareness, which further aided self-service buying.

* Packaging technology that came out of World War I, and in-home refrigerators that provided longer shelf life for products purchased weekly rather than daily.

* Relatively wide-spread automobile ownership, which allowed shoppers to drive longer distances on these less frequent shopping trips.

* Price sensitivities created by the Great Depression.

This is not to suggest that Michael Kullen conducted a strategic audit--at least in the sense the term is used today--before opening the first supermarket. It can be suggested, however, that Michael Kullen understood that there were certain forces at work that almost guaranteed the success of the supermarket concept in the early 1930s. In an era without these factors, say in 1880 or 1910, the supermarket could not have emerged.

All other great innovations in retailing have had a similar set of societal, economic, and market characteristics facilitating their success. This strongly suggests that any new strategic developments must be designed to take advantage of the environment in which they will operate. If the environment of the future can be read, new innovations can be anticipated.


Viewed from a long-term perspective, strategic change in retailing seems to take place during phases: brief periods of revolution and much longer periods of evolution. During revolution, an entirely new concept emerges and ultimately is accepted into the marketplace. During evolution, the concept is modified into slightly different modes and adapted for use in other lines of trade.

Table 1 highlights the three great retailing revolutions of the twentieth century: the supermarket, the discount store, and the warehouse club. These concepts, far more than any others, have shaped the terrain of retailing today. The supermarket involved the first use of self-service concepts in a major product category. The discount store widened self-service to encompass a wide range of goods, including durable goods. The warehouse club demonstrated how dramatically lower cost and service structures could be incorporated into retailing.

There are two points that are especially important regarding Table 1. First, there is an apparent ancestral lineage running through the three concepts. The supermarket applied self-service, lower priced retailing to food items. The discount store expanded that base concept to durable goods. Finally, the warehouse club drove the limited service, lower price idea to a much more dramatic point. In all three instances, consumers were trading in a traditional set of services for lower price.

In point of fact, the services surrendered may not have been really desirable to consumers. That the services were willingly surrendered certainly indicates they were not essential. Whether the services were significant or not, is not important. What is important is taht the history of retailing innovation over the past 50 years is the exclusive domain of lower service/lower price concepts. Innovation on the specialty store side has been virtually nonexistent.

The second key point from Table 1 is that retailing is seemingly due for another strategic thrust during the next few years. The 25 years or so between the supermarket and the discount store was followed by another 20 years or so to the emergence of the warehouse club. Seemingly, environmental pressures build up in the market over time to create an opportunity for yet another revolution. Given the rapid pace of change in society at present, another revolution seems due.


Despite the possibility that the time is right for the next phase of retailing revolution, it seems likely that retail innovation will face a difficult gestation. The challenges facing new development are twofold.

First, the profit potential associated with developing entirely new strategies has diminished over the last 20 years. The underlying reason is that the intelligence gathering capabilities of major retailers has greatly increased. Virtually every new retail concept is immediately noted, analyzed, and critiqued by competitors within a matter of days.

Where once it was posible to develop a new concept and enjoy the rewards of innovation for some time, it is now likely that any successful new concept will be copied immediately. The result is a natural hesitancy to innovate. At present, prevailing wisdom suggests that the difficulties of innovation may not be worth the effort. A more cost-effective approach is to be a fast second, duplicating any successful new development. With such thinking, major strategic developments are unlikely.

The second, and probably more difficult, challenge is that any totally new retail innovation may have to break the historical lineage that exists from the supermarket through the discount store to the warehouse club. In strategic terminology, there may have to be an inflection point in strategic activity.

The challenge is that there is a diminishing return: transferring store operating functions to the consumer (to lower costs) in exchange for lower prices can be effective up to a point. When there are no costs left however, no transference is possible. At present, the cost structure of most warehouse clubs and related concepts is so low, there may not be any significant cost reductions left.

Strategic Diversity

If the historical lineage of trading service for price is broken, and it seems likely it will be, there are two significant implications for retailing. They involve (1) the degree of diversity of new retailing forms that may emerge, and (2) the sectors of retailing in which innovation may take place.

The diversity issue is particularly intriguing. If innovation is not focused exclusively on price competition, then every other dimension of competition emerges. Innovation could take the form of new definitions of customer service, revised assortments, or other equally ambiguous areas of change. In short, a great deal more creativity will have to be applied to strategic innovation than ever before. Possibly, many diverse new forms of competition could emerge, depending upon the area of competition emphasized in the innovation.

The issue of which sectors of retailing will most likely witness innovation is open to conjecture. Possibly on the mass merchandising side, new concepts that emphasize broader assortments, expanded services, and less of a pure price thrust could emerge. It could be argued that many of the super specialty stores already represent a move towards less pure price competition.

More likely, the change in strategic emphasis away from price--if it occurs--will move the strategic pendulum back into the specialty store arena. The next two decades could well be dominated by new forms of specialty stores.

The Current Strategic Void

The challenges to strategic innovation are not inconsequential. As a result, there appears to have been a delay in pure strategic activity. Much of the effort that might have gone into innovation has been spent in other ways. In particular, a great deal of emphasis has been placed on developing derivative concepts based upon the discount store and warehouse club models.

Arguably, the last two decades have probably witnessed more evolutionary development than any other period in retailing history. The result is a richness of concepts ranging from hypermarkets to office supply super stores.

The opportuntiy for evolutionary growth may be waning, however. It is hard to identify a product category in which at least some form of specialty super store does not exist. Similarly, most of the categories in which warehouse operations make economic sense have already been developed. It may be time for the next retail revolution.


If there is to be a renaissance in strategic development, it must start with an assessment of the market realities that will drive the new strategies. With all of the monitoring of trends that takes place in retailing today, this should be a simple undertaking.

Unfortunately, much of the trends assessment activity of recent years has been geared exclusively toward short-term issues. This is great for the tactician, but it does nothing for the strategist. Real attention must be given to the underlying factors that will drive the market.

Historically, the trends that have fueled innovations have been concerned with either the consumer or technology. This seems unlikely to change in the future, so trend assessment should focus on these areas. Change has also been influenced by a few, global trends rather than a large number of highly specific factors. Again, this seems like a reasonable assumption for the future. Effort should be focused on a short list of generic developments.

Before proceeding, it is important to note that there is no guarantee of success in projecting the factors that will influence innovation. Indeed, the soothsayer's life is fraught with uncertainty. Even so, five factors seem expecially important in looking towards the future--two consumer trends, two technological trends, and one labor market trend.

* Fragmentation of Consumer Markets. The demise of the traditional middle class and associated values had lead to a wide range of different life styles, attitudes, brand preferences, and shopping patterns. This creates an expanded opportunity for tightly focused specialty stores.

* Scarcity of Time. Largely because of the tendency towards dual income families and families headed by a single adult, there is now a paucity of time for traditional shopping activity. This development has already manifested itself in a number of ways, including greater use of mail-order, the growth of shopping services, and a general distaste for shopping. This provides an opportunity for additional mechanisms taht make shopping easier or more interesting.

* Personal Computer Technology. With the advent of the personal computer it is possible to do things locally that cannot be done with larger MIS facilities. As a result, some small stores now have more sophisticated POS/inventory control systems than do many large national chains. The ability of PC technology to do data base manipulation to monitor shopping patterns is unprecedented in history.

The most significant implication of this trend is that the historical technological advantage enjoyed by large firms is waning. This factor also suggests that retailers of all sizes can know more about the buying patterns of customers and item movement than ever before.

* Interactive Video. As of yet, this effort has been dominated by an emphasis on the technology rther than the customer. The experiments have also been broad general merchandise efforts rather than focused on a precise market. Not too surprisingly, the results have been disastrous.

If these experiments eventually prove successful, they provide the basis for precise marketing to sub-groups of consumers. When combined with more sophisticated sales tracking via PC technology the quality of promotional efforts should increase greatly.

* Service Worker Shortages. The inability to find an adequate number of retail employees has increased salary costs, reduced customer service levels, and lead to even further customer complaints about the shopping experience. The implication here is to provide methods to increase perceived customer service without producing a labor intensive environment.

It may not be possible for any one new retailing concept to capitalize on all these developments. If it can, though, its likelihood of success should be greatly increased.


If projecting the trends that will influence retail innovation is difficult, projecting the actual nature of those innovations is downright impossible. However, the trends do suggest a potential pattern. Although it is not possible to identify the exact shape of the final strategies, it may be possible to outline some likely developments.

One concept that is likely to emerge is the extended specialty store. This involves marrying conventional specialty store retailing with a new technology for facilitating sales outside of the store itself. To accomplish this, the marketing approach must focus on the specific needs of as small a customer base as is possible. In addition, the customer base must be one willing to absorb slightly higher prices in exchange for greater service.

There are five specific components of the pure extended specialty store concept, each designed to capitalize on the five trends underlying the concept:

* Interactive Combination of In-store/Outbound Sales. This is the linchpin of the entire concept, and what differentiates it from existing concepts is a blend of shopping methods that provides the opportunity to make shopping a more pleasurable, or at least less onerous, experience.

Given the need for personal inspection, trial, and fitting of most goods, at least with current technology, outbound selling will probably always be only a facilitating device, with the bulk of the sales coming in the store.

From a marketing perspective, it is also important for the concept to be store dominant: companies that have tried both retail and direct mail have had notoriously poor performance records. In the new store format, technology can be used for customer ordering in some instances, for arranging appointment-based shopping, and for the display of goods in video catalogues. Ideally, interactive video would provide a strong in-home sales component.

* Clear Target Market. This will allow the concept to capitalize on the fragmentation of customer needs. Operationally, a tight focus is also helpful in tracking of customer purchasing patterns as it reduces both the customer and SKU count.

Ideally, the customer base should be identified through life-style attributes for maximum marketing impact. Given the role that technology will play in the concept, the initial target market group will probably be well educated.

* Localized PC Technology. This involves using the PC for customer order processing as well as for tracking sales patterns, initiating promotional messages for specific customers, and other related activities. This is harnessing technology for marketing purposes, not operational or financial ones.

The key term in this concept is localized. Instead of relying upon centralized MIS facilities, most applications will be processed within the individual store or department. Precise tailoring is possible.

* Massive Customer Support Services. Customer needs for additional services in a time-constrained world will be emphasized. Clearly, interactive shopping will be one critical component of the offer. However, human support services are equally important and could include shopping by appointment, shopping services and delivery, and potentially even in-home trial.

* Intraprenerial Organizational Structure. This involves dividing the firm into smaller units able to utilize technology more effectively, develop common goals, learn the customer base, share in incentive compensation, and maintain a high service commitment. Given labor market challenges, this is probably even more difficult than harnessing the appropriate technology.

An interesting role model for this concept is the department store of the late 1940s and early 1950s. At that time, many retail clerks had a clientele or following that shopped with them regularly. Today, a clearly targeted base could allow such a clientele to be re-established. With proper technological support, it could be done economically.



In assessing the potential impact of the extended specialty store there are three issues that need to be addressed. First, is the concept really any different from retailing concepts that already exist? The second is an examination of the categories in which the concept might become well established. Finally, what types of stores might easily embrace the concept?

Degree of Innovation

The extent to which the extended specialty store is perceived as breaking new ground depends in part upon how one views the existing retail structure. From close up--i.e., viewed component by component--it appears that many of the factors which comprise the concept are already well established in retailing.

Many specialty stores embody a very tightly defined customer base. Most analysts see this as one of the keys to retailing success today. Similarly, the use of personal computer technology is already a reality and is growing exponentially. Numerous ventures in video-based shopping exist; some with a degree of success, some in serious need of re-thinking, and some still at the point of experimentation.

When the concept of the extended specialty store is viewed from afar, however, as a combination of attributes in a flexible arrangement, it clearly represents a major strategic re-thinking of retail activity. Most video-based shopping activities are designed to replace retail stores, not support them. Also, the video experiments today have much more in kin with mass merchandising than with specialty store concepts.

When the other elements of the mix are added--new technology for the personalized sales tracking, expanded services, and revised personnel procedures--the concept represents a radical departure from current shopping mechanisms. It truly would represent a moment of revolutionary retail development.

Target Categories

The main impetus to innovation is always the innovator. The push for a new concept could come from managers in any number of different lines of trade. More likely, as have many past innovations, it could come from outside the field.

Once established however, the nature of the concept suggests an orientation towards high ego involvement goods sold to moderate to upper income shoppers. Older shoppers who are more service prone are an excellent target. The entire apparel field is also a likely field of experimentation.

The Types of Stores

The final issue is to examine what type of store(s) might be enticed to employ innovation. Once again, this is an attitudinal issue and depends upon exactly how the concept manifests itself. Some generalizations do seem in order, though:

* Localized Specialty Stores. These seem the most likely to take advantage of the concept. Such firms have always been more creative in serving local needs than chain stores. However, harnessing the technology on a localized basis seems an overwhelmingly difficult challenge. Both cost reduction and task simplification are needed in the technology.

* National Specialty Stores. These stores have the greatest potential for using a new concept. However, the most successful firms actually have the most to lose in terms of a re-thinking of retail networks. Consequently, they will probably offer serious resistance to change, at least initially. In the long run, Their most serious challenge in facing the concept is to implement a more intrapreneurial organizational structure.

* Department Stores. This entity has been particularly hard hit by the growth of traditional specialty stores. This means that it should be eagerly seeking new forms of distribution that work within the product structure already established. Whether or not department store executives can bring themselves to accept new thinking is open to conjecture.


Retailing innovation arises because firms develop new concepts to take advantage of changing consumer, technological, labor, and capital developments. At present, many of these trends support the development of a new form of specialty retailing. Such a concept could take advantage of consumer distaste for retailing in a mixed retail/in-home shopping format. If so, it could represent a major strategic shift in retailing thinking.

Dr. ALBERT D. BATES Profit Planning Group Boulder, Colorado
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Author:Bates, Albert D.
Publication:Journal of Retailing
Date:Sep 22, 1989
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