The history & evolution of retail industry

Summary

The retail industry has evolved significantly from mom and pop stores to modern e-commerce platforms. Chain stores emerged with the rail system, expanding product offerings and services. FMCG brands like Procter & Gamble and Unilever standardized products, while TV and refrigerators revolutionized advertising and product storage. Walmart pioneered technology in retail, and Costco innovated with a membership model and simplified supply chain. ALDI focused on private-label items and cost-effective operations. The internet has further transformed retail, enabling global e-commerce giants like Amazon and Alibaba to break geographical barriers, emphasizing product and service innovation as the core of retail.

Takeaways

• 🏪 Mom and pop stores, being independent or family-owned, have been a part of the retail industry for over 200 years and maintain strong neighborhood relationships.
• 🛒 Chain stores emerged with the rail system, allowing for nationwide distribution and standardization of retail services, with early examples like A&P and Woolworth's.
• 🧼 The rise of consumer brands like Procter & Gamble and Unilever in the early 20th century marked the beginning of Fast Moving Consumer Goods (FMCG), with a focus on branding and packaging.
• 📺 The 1930s saw the advent of television, which revolutionized advertising and led to the creation of 'soap operas' to promote soap brands.
• 🧊 The popularity of refrigerators expanded the FMCG category to include food products, significantly growing the industry.
• 🚗 The mass production of automobiles led to a shift in retail store locations, with pioneers like Sam Walton opening Walmart stores in less prime areas.
• 🛍️ Walmart's adoption of technology, such as a $24M satellite communication system in 1987, allowed for real-time data transfer and competitive pricing strategies.
• 💳 Costco innovated by simplifying its supply chain, focusing on a limited number of SKUs, charging membership fees, and selling products at cost price.
• 🛒 ALDI, a German retailer, offers a no-frills shopping experience with a lean selection of private-label items and minimal advertising.
• 🌐 The internet has led to the rise of e-commerce platforms like Amazon, eBay, and Alibaba, allowing retailers to sell products globally without geographical limitations.

Q & A

What is the historical significance of mom and pop stores in the retail industry?

Mom and pop stores, existing for over 200 years, are significant as they are the ancestors of the retail industry, being small, independent, or family-owned businesses that often have strong ties with their local communities.

What are some limitations faced by mom and pop stores?

Mom and pop stores typically have limited scale, purchasing power, and may operate with less sophisticated systems. This can result in higher product prices, a limited product range, and restricted operating hours.

How did the rail system influence the evolution of retail?

The rail system facilitated the birth of chain stores by enabling efficient logistics and distribution across the country, allowing factories to manufacture products for a wider market.

Which consumer brands emerged during the evolution of chain stores and why are they significant?

Procter & Gamble and Unilever emerged as significant brands during this period, symbolizing the Fast Moving Consumer Goods (FMCG) industry by standardizing and packaging consumer products, which helped in their widespread adoption.

What role did television play in the growth of FMCG brands?

Television became a platform for advertising, particularly for soap brands, leading to the coining of the term 'soap opera'. This helped FMCG brands to grow by reaching a broader audience.

How did the popularity of refrigerators impact the FMCG industry?

The widespread use of refrigerators allowed the FMCG categories to expand to include food products, which in turn made FMCG companies significantly larger as they could now store and sell perishable goods for longer periods.

What was Sam Walton's strategy for Walmart that differed from traditional retail?

Sam Walton's strategy involved opening Walmart stores in the outskirts rather than prime city locations, leveraging the mass production of automobiles to reach customers who could travel to these stores.

How did Walmart use technology to gain a competitive edge in the retail industry?

Walmart adapted technology by launching a $24M satellite communication system in 1987, which allowed for real-time data transfer and business intelligence, enabling them to price competitively with their 'Everyday Low Price' strategy.

What were the key strategies that Costco employed to compete with Walmart?

Costco simplified its supply chain by focusing on 3,000 SKUs, charged an annual membership fee to attract serious customers, and initially sold products at cost price, later adjusting to include a small margin for profit.

How does ALDI's retail model differ from traditional supermarkets?

ALDI focuses on a no-frills shopping experience with a lean selection of private-label items, avoiding most big brands to save on marketing costs. They also have a policy of no advertising and rely on their 'ALDI Informs' newsletter for communication.

How has the Internet influenced the evolution of retail?

The Internet has led to the rise of e-commerce marketplaces like Amazon, eBay, and Alibaba, allowing retailers to sell products without geographical barriers, thus revolutionizing the retail ecosystem.

Outlines

00:00

🏪 Evolution of Retail: From Mom and Pop to Superstores

This paragraph traces the history and evolution of retail from mom and pop stores, which have been around for over 200 years and are still significant today, to the emergence of chain stores and superstores. Mom and pop stores, being small and family-owned, had limitations in scale and purchasing power. The advent of the rail system facilitated the birth of chain stores, which could distribute goods nationwide. By the 1920s, brands like A&P and Woolworth's were established. The paragraph also discusses the rise of consumer brands like Procter & Gamble and Unilever, which standardized products through branding and packaging. The introduction of television in the 1930s revolutionized advertising, leading to the term 'soap opera.' The popularity of refrigerators expanded the FMCG category to include food products. The narrative then moves to the impact of automobiles on retail, with the example of Walmart, which used technology and a strategic approach to outpace competitors like Kmart. The paragraph concludes with the innovations of Costco and ALDI, which simplified supply chains and focused on private-label items, respectively.

05:00

🌐 The Impact of Internet on Retail: E-commerce and Beyond

The second paragraph discusses the transformative effect of the Internet on the retail industry, leading to the rise of e-commerce platforms like Amazon, eBay, and Alibaba. These platforms have allowed retailers to sell products across geographical boundaries, thus revolutionizing the retail landscape. Despite these changes, the core of retail remains the product itself. The paragraph emphasizes that while the methods of selling and servicing customers have evolved with technology, the essence of retail is still about delivering quality products to consumers.

Keywords

💡Mom and pop stores

Mom and pop stores refer to small, independently owned businesses that are often family-operated. These stores have been a part of the retail landscape for over 200 years and are characterized by their personal touch and strong community ties. Despite their limited scale and purchasing power, they continue to play a significant role in the retail ecosystem. In the script, mom and pop stores are highlighted as the ancestors of the retail industry, emphasizing their historical importance and their ongoing contribution to local economies.

💡Chain stores

Chain stores are retail businesses that operate multiple, geographically dispersed locations under a central ownership. The script mentions the emergence of chain stores in conjunction with the development of the rail system, which facilitated the distribution of goods across the country. This led to the growth of factories and the ability to manufacture products for a broader market. Chain stores like A&P and Woolworth's are cited as examples of early successful chains that became well-established by the 1920s.

💡Fast Moving Consumer Goods (FMCG)

FMCG refers to a broad category of consumer products that are sold quickly and at relatively low cost. These goods are typically packaged and branded in a way that makes them easily recognizable to consumers. The script points out that FMCG brands like Procter & Gamble and Unilever played a pivotal role in the evolution of retail by standardizing and packaging consumer products, making them more accessible and appealing to a wide customer base.

💡Procter & Gamble

Procter & Gamble is a multinational consumer goods corporation that specializes in a wide range of FMCG products, including cleaning agents and personal care products. The script highlights Procter & Gamble as one of the key pioneers in the FMCG industry, emphasizing its role in branding and standardizing products, which helped to shape the retail landscape and consumer behavior.

💡Unilever

Unilever is another multinational FMCG company with a diverse portfolio of food, home, and personal care products. Similar to Procter & Gamble, Unilever is noted in the script for its significant contributions to the FMCG sector through product innovation, branding, and packaging, which have been instrumental in the evolution of the retail industry.

💡Super stores

Super stores are large retail establishments that offer a wide variety of products under one roof. The script discusses the rise of super stores as a part of the retail evolution, which was enabled by the growth in product SKUs and the need for more efficient distribution and storage systems. Super stores represent a significant shift from smaller, more localized retail formats to larger, more centralized shopping experiences.

💡Satellite communication system

The script mentions Walmart's launch of a $24M satellite communication system in 1987, which was a pioneering move in retail technology. This system allowed for real-time data transfer between various parts of the business, including headquarters, distribution centers, suppliers, and stores. The implementation of such technology was a game-changer, enabling Walmart to maintain competitive pricing and operational efficiency.

💡Costco

Costco is a membership-based warehouse club that offers a limited selection of products at discounted prices. The script describes Costco's innovative approach to retail, which includes simplifying the supply chain by focusing on a smaller number of SKUs, charging an annual membership fee, and selling products at or near cost price. Costco's strategy is an example of how retailers can differentiate themselves in a competitive market by focusing on value and customer loyalty.

💡ALDI

ALDI is a German discount supermarket chain known for its no-frills shopping experience and focus on private-label products. The script highlights ALDI's strategy of offering a lean selection of items, primarily from its own brand, to keep prices low. ALDI's approach to retail is an example of how a focus on cost efficiency and minimal branding can be successful in the market.

💡E-commerce

E-commerce refers to the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. The script discusses the rise of e-commerce marketplaces like Amazon, eBay, and Alibaba, which have revolutionized retail by allowing businesses to sell products without geographical limitations. E-commerce is a key component of the retail industry's evolution, demonstrating how technology has transformed the way consumers shop and businesses operate.

💡Convenience stores

Convenience stores are small retail businesses that offer a selection of everyday items, typically for immediate consumption. The script notes the proliferation of convenience stores in Japan, which cater to the needs of an aging population and those living alone. These stores provide a wide range of products, from groceries to fresh food and cosmetics, offering a high level of convenience similar to fast-food chains. Convenience stores are an example of how retail formats adapt to the specific needs and trends within a market.

Highlights

Mom and pop stores, as the ancestors of the retail industry, have been around for over 200 years and continue to play an important role today.

These small, independent, or family-owned businesses enjoy good relationships with their local communities.

Mom and pop stores face challenges such as limited scale, purchasing power, and often have higher prices and limited product ranges.

The birth of chain stores coincided with the development of the rail system, enabling nationwide product distribution.

By the 1920s, chain retailing was well established in the U.S., with brands like A&P and Woolworth's leading the market.

The emergence of super stores led to an increase in product SKUs and the maturation of chain stores.

Procter & Gamble and Unilever were established as key FMCG brands, standardizing consumer products through branding and packaging.

The FMCG concept began with soap and detergent manufacturers in 1839, predating the widespread use of television.

The 1930s saw the rise of TV advertising, with soap operas becoming a popular way to promote soap brands.

Refrigerators allowed FMCG categories to expand into food products, significantly growing the industry.

The rail network, chain stores, and FMCG brands collectively contributed to the first evolution of the retail ecosystem.

Before cars were common, retail brands like Kmart and Macy’s dominated with prime city locations.

Sam Walton's Walmart revolutionized retail by opening stores in outskirts and leveraging technology for competitive pricing.

Walmart's $24M satellite communication system in 1987 enabled real-time data transfer, supporting its 'Everyday Low Price' strategy.

Costco innovated by simplifying its supply chain to 3,000 SKUs, focusing on sales volume to compete on price.

ALDI's no-frills approach limits inventory to private-label items, avoiding the costs of big brands' marketing expenses.

Japan's retail landscape adapted to its aging population and single living trend with the rise of convenience stores and pharmacies.

E-commerce platforms like Amazon, eBay, and Alibaba have broken geographical barriers for retailers worldwide.

Despite technological advancements, the core of retail remains the product, with innovation focusing on how to sell and serve customers.

Transcripts

Mom and pop stores are the ancestors of the retail industry,

they existed more than 200 years ago

and they still play an important role in the retail ecosystem today.

Mom and pop stores are small business entities

that are independent or family-owned,

they usually enjoy good relationships with the neighborhood.

However, they had limited scale, limited purchasing power,

and comparatively unsophisticated operations.

Their products tend to be more expensive,

their product range can be limited

as were their hours of operations.

The first evolution of retail happened with the birth of chain stores,

which coincided with the rail system that connected the country.

Factories grew and they are able to manufacture products

for the whole country, tapping on the logistics

facilitated by the rail network.

By the early 1920s,

chain retailing was well established in the United States,

with A&P, Woolworth's, American Stores,

and United Cigar Stores among the largest.

When chain stores were established,

super stores emerged and product SKUs grew.

Chain stores or super stores wouldn’t mature without good products.

This is when two very important consumer brands were established - Procter & Gamble and Unilever, which are still popular today.

Procter & Gamble and Unilever,

which are still popular today.

They are the symbols of Fast Moving Consumer Goods (FMCG),

by branding, standardizing and packaging the consumer products.

In fact, soap and detergent manufacturers started the FMCG concept

way earlier in 1839 as the products

are not required to be stored in the fridge.

It was only until the 1930s when TVs started to appear

and become a platform for the manufacturers to promote their brands.

TV programs were made to advertise soap brands

and that’s how “soap opera” was coined, in case you wondered.

When refrigerators became popular,

the FMCG categories expanded to food products,

which made FMCG companies much bigger than they were.

Therefore, we can conclude that the rail network

enabled the distributions, chain stores standardized the services,

and FMCG brands standardized the products.

TVs facilitated advertising,

refrigerators enabled food products to be stored longer,

all these contributed to the first evolution of the retail ecosystem.

Before cars became common,

there were two big retail brands in the United States

Kmart and Macy’s,

with their stores located in prime areas in the cities.

The next retail evolution coincided

with the mass production of automobiles,

and the retail stores no longer need

to be located at prime locations.

Enter Sam Walton,

who opened his first Walmart store in Rogers, Arkansas.

His approach was to first open stores in the outskirts

instead of full country roll-outs.

In 1980, there were only 276 Walmart stores

falling short of 2,000 Kmart stores.

In 2020, there were 10,000 Walmart stores worldwide

dwarfing 600 Kmart stores.

Walmart was one of the first retail companies to adapt technology

by launching a $24M satellite communication system in 1987.

It was the world’s largest private satellite network,

which allowed real time transfer of data between headquarters,

distribution centers, suppliers and stores.

The business intelligence enabled Walmart

to price competitively, championing “Everyday Low Price”,

unlike seasonal promotions by Kmart.

After Walmart, Costco emerged with its retail innovations.

How did Costco compete with Walmart

who carries 140,000 SKUs with low prices?

First, Costco simplified its supply chain by focusing on 3,000 SKUs only.

With sales volume concentrated at a selected range,

Costco can compete in price.

Second, Costco charged a $65 annual membership fee

to attract serious customers, which was a bold move at that time

but the scheme was doubted by the public.

Third, Costco was selling the products at cost price to the consumers

and only made profits from the membership fees.

However, consumers couldn’t believe

that they are buying good quality products at such a low price.

Hence, Costco adjusted its strategy by making a small margin.

There is another interesting case from Germany - ALDI,

who focuses on no-frills shopping experience.

ALDI doesn’t sell products of most of the big brands

as the company believes that these brands

make the customers pay for all their marketing expenses.

ALDI limits its inventory to a lean selection of private-label items.

90% of the products sold are from its own brand line.

The brand has a policy of no advertising in Germany

and relies mainly on weekly offline

and online newsletter called “ALDI Informs”.

They even converted the store into the first self-service store

to save employees costs.

Next stop? Japan.

With its aging population and single living trend,

convenience stores and pharmacies started to mushroom in Japan.

You can basically grab everything from those stores,

from grocery, cosmetics, to fresh food

as convenient as fast-food chains.

Retail evolves again when the Internet is widely used.

E-commerce marketplaces have been on the rise around the world

with the launch of giants we know today.

Sites like Amazon, eBay, Alibaba have enabled retailers,

big and small, to sell their products without geographical barriers.

The fundamentals of retail have never changed though,

the content is always the product.

It is how the retailers innovate to sell the content

and service the customers.