How to Avoid Being Crushed by "The Wheel of Retailing"
After completing work in Shakespeare and English, Malcolm McNair became fascinated with the retail industry, and in 1958 described what he saw happening in the field after the Second World War as “The Wheel of Retailing.”
According to Harvard Business Week, “The wheel of retailing is a concept that has been used to describe phenomena in which retailers use low-price strategies to build market share, to the point where the goal shifts from attracting new customers to building margins and profits through higher prices. This creates room for retailers with new low-price business models to create a further turn of the wheel.”
Experts thought the concept debunked by Wal-Mart, but then the internet—specifically, Amazon—entered the field, undercutting Wal-Mart on price and convenience. Now, experts wonder if it is Amazon that has managed to stop—or at least pause—the wheel.
Let’s look at how this concept applies to the pet industry...
Does “The Wheel of Retailing” Apply to Pet Stores?
Arguably, retailers like PetSmart and Petco rose to ascendance by competitively pricing pet products and are now challenged by online outlets seek to defeat them both on price and convenience.
The acquisition of Chewy.com by PetSmart is clearly an attempt to succeed where Wal-Mart failed, by leveraging an online platform to avoid becoming irrelevant.
But where does that leave smaller retailers?
Many independent pet stores focus on quality instead of price as a differentiator to help them grow market share. They often are not looking to expand by opening additional stores, and instead seek just to profitably run one (or maybe a few) stores in a single local market.
This strategy—appealing to a more discriminating customer—is more similar to that of a brand like Whole Foods (recently acquired by Amazon) than to that of Wal-Mart. I would argue, this means that most independent pet retailers are not subject to the same rules imposed by The Wheel of Retail theory as their larger cousins.
From profiling dozens of pet retailers over the years, I can definitively say no one opens an independent pet store unless they are driven by a love of pets. Many retailers start out with providing high-quality products to local pet owners as their primary goal.
In a world where most businesses can fall into one of two categories—high-growth or lifestyle businesses—I’d argue that most independent pet stores are the latter for their founders. They’re building a business to provide them and their families with a way of life, not simply to grow and then sell.
Because their goal isn’t “growth,” as is so often the case for larger companies, maximizing market share is important, but seen more as a means to an end than as the goal of the company itself.
So, most independent retailers likely face one of two scenarios.
Driven by a love of pets, they decide to open a store. Then they either develop a sense of what local demand calls for and provide it, creating a stable and profitable business, or they fail to balance profitability and passion and are often out of business a few years later.
Still, there are some that fall victim to “The Wheel of Retailing,” finding themselves undercut by competition from big box retailers—and now online outlets as well. That means it’s important for retailers to understand theories like this one, and to watch for it, so they can avoid becoming a victim to the turning of that wheel.