Journal of Retailing 87S (1, 2011) S53–S66

Retailing in a Globalizing Environment Werner Reinartz a,∗, Benedict Dellaert b,1, Manfred Krafft c,2, V. Kumar d,3, Rajan Varadarajan e,4 a Department of Retailing and Customer Management, University of Cologne, Albertus-Magnus-Platz 1, 50923 Cologne, Germany b Department of , Erasmus University Rotterdam, Postbus 1738, 3000 DR, Rotterdam, The Netherlands c Department of , University of Münster, Am Stadtgraben 13-15, 48143 Münster, Germany d J. Mack Robinson School of Business, Georgia State University, Atlanta, GA 30303-3989, United States e Department of Marketing, Texas A&M University, TAMU 4112, College Station, TX 77843-4112, United States

Abstract In recent years, the combination of and population growth in emerging markets and less developed markets has accelerated the progression of globalization of retailing and globalization by retailers. The challenges faced by global and globalizing retailers (retailers who currently have or intend to establish a market presence in mature markets, emerging markets and less developed markets) can be more daunting compared to those faced by firms in other industries such as automobiles, steel, and computers. Retailing innovations that are responsive to the characteristics of distinctive national markets and broader aggregations of markets such as mature, emerging and less developed markets are critical to the success of global and globalizing retailers. Against this backdrop, this paper focuses on retailing innovations in the context of a globalizing retailing environment. It attempts to shed insights into the characteristics of retailing innovations conducive to superior performance in distinctive national markets and across broader aggregations of markets. Towards this end, we first examine the environmental conditions of markets in different development stages, namely mature, emerging and less developed markets, and explore consumer based, based, and legal/regulatory based challenges faced by globalizing retailers in these markets. Second, we show how these challenges can be transformed into opportunities with retailing innovations. We conclude with a roadmap for future and present propositions on future development with respect to retailing innovations in these markets. © 2011 New York University. Published by Elsevier Inc. All rights reserved.

Keywords: Retailing; Mature markets; Emerging markets; ; Globalization

Introduction subject to the influence of globalization forces. The influence of these globalization forces is evident with regard to various Over the past several decades, modern retailing has become aspects of retailing such as the retailing , product increasingly global in scope. The term globalization of retailing assortment, store format, and branding. encompasses many interrelated developments such as (1) major Alongside these changes, retailers that operate in a global retailers based on mature markets establishing a market presence retail market environment are also confronted with the fact that in countries in different stages of economic development, (2) the the structure of retail markets in various countries is commen- supply chain undergirding the operations of retailers becoming surate with its stage of development. While in most western increasingly global in scope, and (3) the diffusion of retailing markets, retailers face challenges typical for mature markets, innovations in various parts of the world. By and large, the retail in emerging markets such as the BRIC- (Brazil, Russia, India, market environment in numerous countries worldwide has been China) nations and other country markets with similar charac- teristics growing at and/or are projected to grow at significantly higher rates, they face a different set of challenges. Likewise, ∗ Corresponding author. Tel.: +49 221 470 5751. less developed markets such as many countries in Africa exhibit E-mail addresses: [email protected] (W. Reinartz), their own distinctive dynamic from the standpoint of retailing. [email protected] (B. Dellaert), [email protected] (M. Krafft), While countries and markets across the globe show consider- [email protected] (V. Kumar), [email protected] (R. Varadarajan). able heterogeneity in terms of the development stage – and 1 Tel.: +31 10 4081353. associated structural and supply chain characteristics – one 2 Tel.: +49 251 83 25025. 3 Tel.: +1 404 413 7590. can broadly distinguish between three subgroups of retail mar- 4 Tel.: +1 979 845 5809. kets: (1) mature markets such as in Western Europe and North

0022-4359/$ – see front matter © 2011 New York University. Published by Elsevier Inc. All rights reserved. doi:10.1016/j.jretai.2011.04.009 S54 W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66

America, (2) emerging markets such as in Asia, Central and their own unique product bestows the firm with a competitive South America and Eastern Europe, and (3) less developed differentiation advantage. markets such as in Africa and some parts of Asia and South America. Retailing innovations in emerging markets – challenges and Against this backdrop, the study focuses on retailing innova- opportunities tions in a globalizing retail market environment. The globalizing retailing environment comprised of differentially developed A major challenge faced by globalizing retailers based in retail markets presents a number of challenges to both estab- mature markets in their attempts to sell to customers in emerg- lished retailers operating in multiple markets as well as local ing markets (particularly, to potential customers residing in incumbents and presents interesting questions to researchers rural areas) is the absence of a well developed and functioning (Minten, Randrianariso, and Swinnen 2009). For instance, what retailing distribution network, mass media, transportation, and might be viewed as a retailing innovation by customers in an storage (Goldman, Ramaswami, and Krider 2002; emerging or less developed retail market environment may or Samiee 1993). One approach to addressing these challenges is may not be viewed as such by customers in a mature retail market to increase the number of distributors in rural areas by helping (Peres, Muller, and Mahajan 2010). If this phenomenon is driven people to start their own small store. Project Shakti, launched in by the diffusion of concepts and ideas across markets this is not 2000 as a partnership of Hindustan Unilever in India with non- the major focus of our approach. Rather, our focus is on innova- governmental organizations, banks and the Indian government, tions per se (and not on diffusion of innovations across markets). entailed enlisting women residing in villages to become direct- Thus, we investigate innovation challenges that are specific for to-consumer distributors for Unilever’s products such as each of the three different global retail market subgroups. Exam- laundry detergent, bath soap, toothpaste and shampoo. The com- ples of major dimensions of innovations in retailing that we pany provides training in areas such as selling and bookkeeping incorporate are: retail formats, branding, assortment, process to help rural residents become micro-entrepreneurs. After an innovations, customer experience, , new initial investment in stock, usually through a loan from self- media, handling of payment and order fulfillment. The following help groups or micro-finance banks facilitated by Hindustan vignettes shed insights into the above issue and other challenges Unilever, most Shakti entrepreneurs net a monthly profit of as well as opportunities associated with studying innovations in 700–1000 rupees (US$15–22). This, coupled with the earnings retailing in a globalizing environment. of a spouse working in the fields, typically doubles the household income. By the end of 2007, there were more than 45,000 Shakti Retailing innovations in mature markets – challenges and entrepreneurs covering three million homes in over 100,000 opportunities villages in India. In other words, Project Shakti has enabled Hin- dustan Unilever to distribute its product offerings to millions of In mature markets such as North America, both the infras- customers in rural India. Understandably, this is a retailing sys- tructure for physical distribution of products and consumer tem innovation initiated by a manufacturer rather than a retailer. purchasing power are largely in place. More often, the retailing Nevertheless, it sheds insights into the kinds of retailing inno- innovation challenge in such markets is to replace goods, ser- vations that retailers may have to come up with in order to make vices, and experiences that are currently being consumed with inroads into rural markets in emerging and less developed mar- innovative new goods, services and experiences as a path for kets. The retailing innovation does not entail a business operating growth. The rationale being, most basic needs of consumers from a standalone retail outlet, but from the home of a female are being more than adequately met and hence, retailers need micro-entrepreneur. Similar approaches have been applied by to focus on how they can fulfill the higher-order needs of con- other big manufacturing companies. For example, Procter & sumers (Lusch, Vargo, and O’Brien 2007; Pine and Gilmore Gamble has started to work with so-called “mom and pop” shops 1998) and thereby grow. In other words, retailers have to think to overcome the distribution challenge in emerging markets by about how they can create superior for consumers through offering their products in small package sizes to fit on crowded innovations that go beyond satisfying basic needs. One exam- shelves and by using a network of local representatives to keep ple of a firm that does this quite successfully is Build-A-Bear, the shops stocked (Economist April 17, 2010). a retailing franchise based in the United States. The St. Louis- based company allows customers to create their own customized Retailing innovations in less developed markets – stuffed animals. Since its founding in 1997, the company has challenges and opportunities grown to $468m (2008) in revenue and operates 410 stores in the US and in other countries. Build-A-Bear offers customers an In less developed markets, retailing innovations often entail interactive “make your own stuffed animal” retail-entertainment being responsive to specific local conditions (Goldman 1974; experience. It thus combines customization of the product to Kaynak and Cavusgil 1982; Minten 2008). For instance, a broad individual consumers’ desires with the concept of entertainment cross-section of consumers in a number of less developed coun- and experience. In a market environment in which consumers tries in Africa do not have bank accounts due to the combined are flooded with (exchangeable) physical products, the above effect of their low income levels and a sparse network of bank retailing innovation, by providing customers with an entertain- branches and ATMs. However, mobile phone service providers ing experience while at the same time enabling them to co-create have made considerable inroads and ownership of mobile phones W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 S55 is on the rise. This environmental condition has provided the the first to systematically address innovations in retailing. But impetus for retailing innovations such as use of mobile phones despite the fact that innovations in retailing have been investi- to facilitate retail transactions. Case in point is M-Pesa (M for gated frequently over the years, to the best of our knowledge, mobile, pesa in Swahili means money), a mobile-phone based there is a dearth of literature that provides a comprehensive money transfer service that was developed by Vodafone and overview of aspects of innovations in retailing, especially in the sponsored by the UK-based Department for International Devel- context of environmental factors that retailers are confronted opment. M-Pesa enables retail payments via mobile phone in with in the global arena in which they operate. lieu of physical currency at participating retail outlets, and even money transfer between individuals. Here again, we have an Global market types illustration of a retailing innovation but initiated by a mobile phone service provider and not a traditional retailer, but never- As noted earlier, with regard to the study of issues relating theless seems to be having a transformative effect on the retailing to the retailing innovations in a globalizing retail market envi- landscape. ronment, the market context in which the innovation takes place In general, our discussion highlights the relevance of a must be borne in mind. Retailing is a business that entails the contingency perspective for studying innovations in retailing firm interacting with the customers it serves on an ongoing basis. (Alexander, Shaw, and Curth 2005; Goldman, Krider, and Customers’ attitudes and behaviors both influence and are influ- Ramaswami 1999; Goldman, Ramaswami, and Krider 2002; enced by the actions of competing retailers in a marketplace. Minten 2008). The focus of our paper is on retailing innova- Additionally, whether a good, service, process, business model tions that are responsive to the stage of development of specific or organizational structure is considered as novel also depends markets, and focuses on the following research questions: on its degree of newness to both the consumers and the firm (Hauser and Urban 1977). In other words, what is seen as an • How should innovation in a global retail market environment innovation in one region may already be a common practice in be conceptualized? some other parts of the world. However, as pointed out earlier, • What are some major environmental challenges faced by our focus is on innovations per se and not diffusion of innova- retailers competing in mature markets, emerging markets and tions. With respect to context, we broadly distinguish between less developed markets? three types of markets based on their stage of development – • Which innovation challenges do these environmental chal- mature, emerging, and less developed markets. lenges predicate? Most of the extant literature on retailing and retailing innova- • How can retailers address these innovation challenges effec- tions is in the context of developed or mature markets (Goldman, tively and thereby transform them into opportunities? Ramaswami, and Krider 2002; Kacker 1988). Geographically, most of North America, Western Europe and parts of Asia In order to address these questions, we first conceptualize the constitute mature markets. However, selected urban districts in components of the retailing innovation agenda by the stage of emerging markets also belong in this group (e.g., cities such as development of markets across the globe. Towards this end, we Hong Kong and Shanghai, and city states such as Singapore). identify specific innovation challenges which are linked to the Emerging markets refer to countries and regions experiencing environmental conditions. Next, we explore how these innova- substantial and rapid economic growth and industrialization that tion challenges can be addressed effectively. Finally, we develop are likely to emerge in the future as mature markets (Gielens and a set of research implications and questions for future research. Dekimpe 2007). For purposes of this paper, emerging Also, it is important to note that for the most part we do not refer to regions of the world experiencing rapid informational- investigate the (related) topic of diffusion of innovations across ization under conditions of limited or partial industrialization regions. In this paper, our focus is on innovations in retailing (Center for Knowledge 2008). In other words, con- from the perspective of innovations geared to specific markets sumers in these markets are informed about and exposed to and not merely the adoption of specific aspects of retailing prac- goods and services from mature markets, while still conform- tice in a country market that originated elsewhere. For example, ing to certain traditional habits, attitudes, and structures. Rapid a number of retailing processes, , formats, etc., that urbanization is one of the reasons for the increased interest were initially rolled out in a particular country or a region (a among retailers based in mature markets in emerging markets. cluster of countries) tend to be subsequently launched in other The BRIC countries are widely viewed as the largest emerg- countries. ing markets. Other important emerging markets include Mexico, Poland, South Africa, South Korea, and Turkey. The total pop- Global market types and retailing innovation processes: ulation of these emerging countries considerably exceeds the conceptualization of the dimensions population of developed countries, making these regions partic- ularly attractive for mature market-based retailers and retailing In his influential article on the Wheel of Retailing, Hollander innovations that are responsive to the distinctive characteristics (1960) pointed out that new types of retailing follow evolution- of these markets. ary paths, and discussed the possibility of a “natural of While we exclude least developed countries (i.e., regions retailing” in the evolution of innovations in retailing. Although suffering from extreme poverty and lacking political as well focused exclusively on retail formats, his work was one of as social stability) from the scope of our paper, we do address S56 W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 innovations in retailing in the context of less developed coun- a major force behind innovations in retailing (Verhoef et al. tries, sometimes referred to as the “base of the pyramid” country 2010). markets (Anderson and Markides 2007; Goldman 1981). These • Legal and regulatory based challenges refer to innovation economies are characterized by low per-capita income, not being challenges and opportunities related to differences in gover- fully industrialized, and lacking a sophisticated legal or financial nance and regulations in the different markets. As discussed systems. Whereas in a global context, less developed countries in writings on national innovation systems (Nelson 1993) and tend to be generally viewed as base of the pyramid markets, the of nations (Porter 1990), regula- countries in emerging markets are also characterized by the pres- tory constraints and the stability or volatility of political and ence of a sizeable base of the pyramid market segment, besides legal systems strongly affect innovativeness and R&D per- more affluent market segments. formance. The role of the legal environment has also been In an attempt to highlight the potential for retailing innova- recognized by governments, particularly those which view tions in mature, emerging and less developed markets, we draw innovativeness as a major objective. For example, in order to attention to Schumpeter (1943, p. 10) who described drivers of learn more about major conditions for innovation to flourish, innovations as follows “[...] the fundamental impulse that sets the European Union conducts an annual review of innova- and keeps the capitalist engine in motion comes from the new tion performance of all EU member countries. Based on this consumers’ goods, the new methods of production or transporta- review, a scoreboard assessing the innovation performance of tion, the new markets, the new forces of industrial organization all EU member countries is made. This scoreboard serves as that capital enterprise creates.” Though Schumpeter did not a benchmark and to identify barriers to innovation in the legal explicitly consider the retailing context, his general proposi- systems of individual countries. tion that consumer based, industry based and market based contexts affect the success and failure of innovations closely These environmental factors drive retailers’ efforts to bet- corresponds with the major environmental factors examined in ter serve their customers in different types of markets through this paper. Additionally, contingency theory is helpful in recog- innovations and thereby enhance their performance. nizing environmental characteristics that influence innovations, In the next section, we focus on retailing innovations in such as environmental stability, complexity, diversity, and hos- the context of market types (mature, emerging and less devel- tility (Galbraith and Nathanson 1978). Both, classic studies oped) and environmental challenges (consumer based, industry (e.g., Lawrence and Lorsch 1969; Mintzberg 1979), as well as based, and legal and regulatory based) in each of these mar- more recent studies (e.g. Atuahene-Gima 2007; Burgess and kets. This is preceded by a brief overview of major dimensions Steenkamp 2006; Tellis, Prabhu, and Chandy 2009) provide of innovations in retailing explored in extant literature – retail empirical credence for the role of environmental context as a formats, branding, assortment, process innovations, customer major driver of organizational design in general, and innovations experience, information technology, new media, handling of in particular. payment and order fulfillment as major dimensions of retailing A review of relevant literature and discussions with industry innovations. experts suggest three broad categories of environmental factors – Retail formats have been investigated as an important dimen- consumer based, industry based, and legal and regulatory based sion of innovations in retailing. Among others, formats such as – present major innovation related challenges and opportunities supermarkets were considered as innovations when they were to retailers: first introduced in markets that are currently viewed as mature retail markets. Thus, the development of new retail formats based • Consumer based challenges refer to innovation challenges on the circumstances especially in emerging markets and less and opportunities related to differences in the characteris- developed markets represents a promising source of retailing tics of customers in the mature, emerging and less developed innovations. markets. The fact that the success of an innovation is depen- The importance of branding as a dimension of retailing inno- dent on its ability to address the current needs of customers vation encompassing store brands and private labels has been better than existing offerings, or address the latent needs of discussed in literature (Steenkamp and Dekimpe 1997). Retail- customers, highlights the importance of involving customers ers’ strategic decisions such as single versus multiple private in developing innovations. Many companies have recognized label brand names, their positioning, and differentiation within that getting customers engaged in innovation processes is a and across market environments is subsumed under branding as crucial step (Verhoef, Reinartz, and Krafft 2010). a dimension of innovations in retailing (Ailawadi and Keller • Industry based challenges refer to innovation challenges and 2004). Notwithstanding some overlap with retail format and opportunities related to differences in the nature of com- branding, specifics of assortment such as variety, stock own- petition, technology and suppliers in mature, emerging and ership and speed of replenishment have also been identified as less developed markets. The industry context, particularly potential ways for a retailer to differentiate itself from competi- the intensity of in a market and supply chain tors (Davidson, Bates, and Bass 1976, p. 91). management, has been identified as a major driver of success Process innovations such as market research and supply chain versus failure in innovation management (Ganesan et al. 2009; management also constitute potential avenues for retailers to Scholefield 1993). Similarly, technological developments are achieving a competitive advantage. For example, new forms at the very heart of innovations, and have been identified as of collaboration between manufacturers and retailers in sup- W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 S57 ply chain management such as efficient consumer response Innovation challenges predicated by environmental (ECR) and category management represent major innovations challenges in retailing pioneered by companies such as Walmart in the US and Metro in Europe (Huchzermeier and Iyer 2010). Further- In this section, we examine the relevance of various retail more, new forms of market research and marketing intelligence environment factors (consumer based challenges, industry generation such as UPC scanner data based, customer loyalty based challenges, and legal/regulatory based challenges)to program based and customer experience management based retailing innovations in different types of markets. Tables 1–3 activities (Burke 2010) represent innovations in retailing. Other provide illustrative examples of retail challenges and innovation important dimensions of retailing innovation include those in opportunities across the three types of markets in the context the realm of customer experience, such as innovations based of consumer, industry and legal/regulatory based challenges. on store atmosphere, expertise and knowledge of front-end Historically, retail firms have innovated in their home country staff, information technology and new media enabled retail- (typically in markets that one might currently characterize as ing innovations (Mathwick, Malhotra, and Rigdon 2001; Pine mature markets) and then rolled out these innovations in other and Gilmore 1998), and the handling of payment (Avlonitis and countries. Increasingly however, the growth of emerging mar- Papastathopoulou 2000). ket economies such as India and China has forced retailers to Finally, retail goods and services have to be delivered. While modify their innovation strategies in order to be responsive to consumers in mature markets are faced with problems such the unique challenges posed and opportunities presented by as lack of time, lack of parking space in cities, and ensuring these markets. In the broader context of innovation literature, that items purchased over the are delivered in a timely this has spurred debate and discussion on trickle-down versus manner, consumers in less developed countries often lack any trickle-up innovation (trickle-up or reverse innovations refer means of transportation. In both cases, innovations constitute to successful innovations developed in emerging markets by less expensive and/or timely ways of order fulfillment. multinational enterprises being subsequently launched in mature

Table 1 Innovations in retailing in mature markets. Mature markets

Environmental climate Innovation challenge Potential dimensions of Examples retailing innovation

Consumer based challenges • Changing demographics • Generation upload • Real-time listening (MR • Best-Buy – listening in • IT-integrated life styles • Ageing process) online • Lower mobility and • Local affordable availability • Multi-channel integration • J. Crew – personal income • Customization–personalization • Product design (private shopper • Heterogeneity in taste labels), supply chain (access) • Build-A-Bear, Nike – • Individualization • Co-creation development mass customization and supportive online purchase environments Legal/regulatory based challenges • Sustainability related • Reducing environmental • Green innovations • Sainsbury’s – electric issues footprint • Economic sustainability vans • Dynamics of economics • Partnering with public • Walmart – eco-ratings in regional clusters development Industry based challenges Competition • Low barriers to entry • Defending market position • Non-imitable innovations • Rue-lala – unique • Expansion of store • Developing dynamic • First-mover advantage discounts brands capabilities to respond to new • Adaptability • Disney-Partnering • Vertical competition challenges • Zara – high speed supply Suppliers • Outsourcing and • Developing joint innovations • Global sourcing and • Walmart – global off-shoring with partners alliances partnering • Disintermediation • Coordinating supply chain • Multichannel routes to • Apple, Adidas, Nike – • Vertical integration by information market manufacturer stores producers • Process coordination across multiple partners Technology • E-commerce • Integrating technology in • Integration between online • Sears – multi channel • M-commerce product offerings and in-store sales and • networks • Improving process efficiency shopping experiences • Metro – RFID • Radio frequency with new technology • Real-time data and new innovation center identification (RFID) data warehouse tools • Apple – concept stores • Design of new shopping experiences (online and in-store) S58 W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66

Table 2 Innovations in retailing in emerging markets. Emerging markets

Environmental climate Innovation challenge Potential dimensions of Examples retailing innovation

Consumer based challenges • Rising middle income • Spreading good/service • Tiered pricing structure • Airtel (India) – assorted class offerings across a continuous catering to various income pricing structure • Increasing urbanization, distribution of income levels levels • Beijing Xidan Mega-Cities • Offering variations in package • Value packs and services to Department store (China) • Younger class of sizes to cater to the younger class the various market segments – strategic product population • Aligning brands and customers • Storing the right product in placement • Higher density of the right store at the right time population Legal/regulatory based challenges • Liberalized government • Negotiating local content • Strategic partnerships and • Walmart and Bharti – regulations requirement clauses alliances with local players India • Inter-state rules and • Competing in an environment • Localized packaging • Huiyuan Juice and Coca regulations of differences in official/business vendors Cola (failed acquisition) – • Stability in governments language and frequent changes in • Business agility in adapting China – constantly changing policies to changing policies • Globus (India) – government policies increased responsiveness Industry based challenges Competition • Large companies • Creating competitive advantage • Encourage local • Pepsi, Coca Cola diversifying into retail through thorough data collection endorsements to create sense • Tesco, Carrefour industry and mining of ‘belonging’ with the • Foschini Chain, South • Presence of a large • Creating unique brand identity consumer segment Africa unorganized retail sector to differentiate from the smaller • Focused research to study • International companies and more disorganized retail units core, organized and entering the markets • Gathering more comprehensive unorganized players market intelligence reports Suppliers • Poor transportation • Streamlining supply chain • Organize supply based on • Reliance Petroleum Ltd. infrastructure • Optimizing distribution market (rural, urban, etc.) – India • Limited access to networks • Backward integration of • Tesco and Samsung supplier network • Outsourcing to other markets business processes (Homeplus supermarkets) – South Korea Technology • Limited applications of • Rethinking and applying IT for • Customize CRM and SCM • Reliance Retail (SAP IT Business Intelligence solutions to fit local business Implementation) – India • Lower penetration of • Focusing on cashless processes credit cards transactions and mobile • Leapfrogging technology generations of technology, relatively high interest in technology markets in which they compete) (Immelt, Govindarajan, and areas by integrating different goods and services and adapting Trimble 2009). retail processes to meet the needs of older people closer to their homes. With respect to product development, further exploiting Mature markets heterogeneity in tastes also offers opportunities for innovation. Full personalization or customization of products and retail pro- Consumer based innovation challenges cesses is an extreme example of leveraging such heterogeneity. Many of the innovation challenges faced by retailers in For example, online apparel retailers such as Lands’ End have mature markets are customer-centric in the sense that they successfully nurtured customer loyalty by offering customized require designing retail processes and products to better match clothing options (Piccoli, Bas, and Ives 2003). (shifting) customer needs (Shah et al. 2006). A first cluster of A second cluster of consumer based challenges involves the consumer based challenges in mature markets relates to chang- touch-point of information technology (IT) and consumer needs. ing demographics and life-style driven consumer requirements, Mobile and online information technology make consumers such as those of an increasing proportion of elderly citizens in more and more flexible in terms of where and how they wish markets such as Western Europe and Japan. This trend implies to access retailer information and where and how to purchase retailing innovations that are responsive to the mobility and products (Kleijnen, de Ruyter, and Wetzels 2007; Lyons 2009). shopping needs of this cluster. For example, consumers may In addition, IT-enabled tailored (e.g., location specific) retail wish to have easy access to both health and leisure facilities, information and offerings are increasingly becoming the norm and perhaps even residential service offerings (Lumpkin and (e.g., Nikolov and Shukla 2009). Furthermore, IT allows con- Hunt 1989). Retailers have opportunities for innovations in these sumers to interact closely with one another which in turn calls W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 S59

Table 3 Innovations in retailing in less developed markets. Less developed markets

Environmental climate Innovation challenge Potential dimensions of Examples retailing innovation

Consumer based challenges • High disparity in • Positioning and developing • Pricing tiers for each • PetroJam, Jamaica income levels goods and services for distinct segment • Starbucks • Increasing inflation income levels • Corporate social rates • Providing subsidies by responsibility • Lack of basic amenities partnering with foreign companies to mitigate the limited consumer spending power Legal/regulatory based challenges • Unstable governments • Tailoring offerings to suit local • Tailor formats across • Oriental Weavers Co. • Lack of central environment markets • Fertilizer Retail in West economic focus • Leveraging subsidies available • Passing subsidies to Africa • International debtor from developed nations customers through lower pricing Industry based challenges Competition • Cartelization of retail • Entering into multiple market • Enable strategic business • Nakumatt industry territories in the region partnerships through larger Supermarkets, Kenya • Decentralized and simultaneously retail chains unorganized retailing • Gathering comprehensive • Focus research on environment market intelligence individual market dynamics • Many very small retailers Suppliers • Lack of infrastructure • Investing in supply chain • Stockpile inventory and • Fast Retailing Co with • Poor distribution • Integrating backward and develop own supply network Grameen Bank networks partnering with suppliers • Leverage on availability of • Bad credit structure • Building trust in real-estate vendor–supplier relationships Technology • Banking/currency • Enabling small ticket payments • Payment by mobile phone • M-Pesa, Kenya infrastructure • Enabling alternative modes of non-existent payment • Consumers without bank accounts for retailers to monitor consumer-to-consumer communications Zara) or to develop new non-imitable products (Ganesan et al. and respond to the market intelligence generated. These environ- 2009). Retailers in mature markets also increasingly extend into mental trends pose important innovation challenges to retailers the direction of new non-traditional services such as healthcare and create potential opportunities for innovations in terms of: (Malvey and Fottler 2006) and financial products (Alexander and (a) developing IT applications such as real-time listening, co- Pollard 2000). This challenges them to compete in new markets creation tools (Piccoli, Bass, and Ives 2003), (b) supportive characterized by new demands, product-market boundaries, and online purchase environments (Xiao and Benbasat 2007), and (c) regulations. location based information services (e.g., applying RFID tech- nology) (Gaukler, Seifert, and Hausman 2007). Additionally, Legal/regulatory based challenges the integration of multiple channels involving IT and non-IT Retailers in mature markets face a number of legal and enabled environments is another area of innovation opportunity regulation based challenges. In particular, it is likely that gov- (Verhoef, Neslin, and Vroomen 2007). ernments in mature markets will increasingly place demands on the environmental sustainability of retail processes and prod- Industry based challenges ucts. For example, the U.S. Environmental Protection Agency Competition between retailers in mature markets tends to be sets limits on cadmium in toy jewelry, owing to the metal’s relatively intense. Relatively low levels of government protec- health hazard implications. This has resulted in retailers such tionism and a strong legal system, high-level market information as Dress Barn Inc. and Claire’s Boutiques Inc. recalling neck- and a strong physical infrastructure often leads to competition laces, earrings and bracelets after finding the products contained between global retail chains in these markets. In addition to cadmium.5 Thus, designing sustainable products and processes the verticalization of manufacturers, sourcing of products is constitutes an opportunity for innovations in retailing. For exam- also relatively flexible because many suppliers are available. Thus, retailers’ innovation opportunities are mainly dependent on their ability to design flexible supply chains that can effec- 5 Bloomberg News (August 31, 2010), “EPA to limit cadmium in jewelry if tively respond to changes in competitive market conditions (e.g. consumer agency fails to act,” http://www.dailyherald.com/story/?id=404767. S60 W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 ple, Sainsbury’s, a UK retailer, recently introduced electric urban ing their preferences from the traditional attire to more ‘modern’ home-shopping delivery vans to promote greener retail opera- apparel (such as jeans and t-shirts). Globus, a popular cloth- tions. In a broader sense, retailers may also be able to partner with ing retailer in India, underwent a complete transformation in a local governments in finding regional solutions to develop inno- very short time in order to adjust to this change in consumer vative ways to promote sustainable local growth in a dynamic preferences. and open world (Porter 1998). Industry based challenges Emerging markets A major obstacle that retail firms face when attempting to enter emerging markets is the competition from local players. Consumer based challenges Overcoming this hurdle can take years when the host country Despite recent economic advances, the average consumer brands are supported by the local government. Additionally, the in emerging markets tends to be price sensitive (Dawar and retailing structure in emerging markets is characterized by a Chattopadhyay 2002). However, the economic growth in emerg- relatively large unorganized sector and many retailers are of ing markets is also creating a growing, relatively wealthy small scale and unregistered. In South America, large retail- middle class. This creates locally attractive retail markets, which ers face stiff competition from the smaller players. Such small has lured major international retailers such as Carrefour and retailers have been shown to have greater resilience against the Walmart into these regions. This effect is strongest in the larger retailing chains (Humphrey 2007), a phenomenon which metropolitan areas with their large population density. Given the threatens the existence of retail chains in emerging economies greater price sensitivity coupled with the wide income disparity because it is more difficult to gain large market shares in these among individuals and households in emerging markets, retail- markets. ers are faced with the challenge of effectively targeting different The reason for this dominance of smaller retailers is twofold. customer groups (market segments) within these national mar- First, the sheer number of smaller in emerging coun- kets (Burgess 2003). Given this difficult task to simultaneously tries is much larger than the number of retail chains that have serve consumers at the bottom, in the middle and at the top of a presence in these countries. Second, consumers (in emerg- the income pyramid, companies might focus on those consumers ing economies) often tend to rely on ‘local’ produce which is that become more affluent and thus move up the income pyramid. stocked in the smaller retail stores rather than in those oper- An innovation that retailers have been successful with in emerg- ated by chains, a phenomenon which is becoming more and ing markets is a tiered pricing structure that caters to various more common (Gilmour and Gale 2002). As a result, mod- market segments. For example, the Beijing Xidan Department ern retail chains only account for one third of consumer goods Store uses a configuration that is tiered in its design structure, sales in China and only one fifth in India (Economist April 17, and caters to consumers of various income segments. The pre- 2010). This creates opportunities for retailers in these markets mium and more expensive brands are located on the higher floors to innovate in optimal shelf space usage, product assortment, of the store, and the less expensive brands on the lower floors. and marketing expenditures to accommodate ‘local’ produce as Innovations in product size variations can be more effective well. in emerging markets than in mature markets. Such innova- The next link in the retail chain is constituted by the sup- tions by retailers often entail product adaptations commensurate ply and distribution networks. In order to ensure profitability, with the relatively lower income, lack of storage facilities, and firms must have access to a reliable supplier network. In the different purchase habits of customers in these markets. Case case of emerging economies, retailers faced with a number of in point is product adaptations in response to more frequent challenges in establishing reliable supplier networks have inno- purchases, but in smaller quantities by customers in emerging vated in different ways. Some retailers have created their own markets (for example, kirana outlets or small grocery stores supplier networks. For example, TOPS, a leading food retailer in India). in Thailand, invested in the development of an exclusive fresh- Emerging markets also have grown to be relatively high on produce supply chain and distribution center in order to create technology innovativeness, as a consequence of skipping one or a shorter and more streamlined supply network in the country more generations of technology and the associated sunk infras- (Hagen 2002). tructure costs. In the last decades, erstwhile technology-related barriers have gradually receded with the growth of globalization Legal/regulatory based challenges and the increasing interest of multinational companies.6 Retailing in emerging markets is generally more heavily The changing consumer preferences also have a great impact influenced by the host country’s government than in mature on retailers’ innovation strategies. Consumer preferences are markets. For example, Brazil’s substandard growth in the 1980s often affected by changing ‘trends’ in other (developed) coun- spurred the government to introduce heavy structural reforms, tries. For instance, in the 1990s, India saw a sudden spurt in especially in the retailing sector. The reforms included trade lib- ‘western’ influence on clothing. Consumers were rapidly shift- eralization and opening of markets. Henisz and Zelner (2010) observe the importance of and governmental regulation in emerging economies and prescribe a direct political approach 6 OECD (2000), Innovation and the Environment: Sustainable Development. to investing in emerging markets. In the case of India, the trade Paris, France: OECD Publications. liberalization reforms of 1991 have proven to be a boon to W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 S61 large scale retailers. The country has seen unprecedented growth order to address these consumer based challenges, retailers in in the fields of retailing, manufacturing, production and agri- less developed markets are increasingly resorting to technolog- culture. In 2006, the Government of India opened the retail ical innovations that enable cashless transactions, even in the industry to the world by allowing up to 51% foreign direct invest- absence of bank accounts (see the M-Pesa example in an earlier ment (FDI) through the single-brand retail route. Following section of the paper). this change in the retailing climate, FDI inflows between April 2000 and April 2010 in single-brand retail trading stood at USD Industry based challenges 194.69 million, according to the Department of Industrial Policy In less developed markets, the poor infrastructure and lack and Promotion (DIPP), Government of India. These inflows are of basic amenities imply that retail outlets need to be located expected to drive retail growth in India, primarily from the rural close to where consumers live. Therefore, typically many small markets. retailers operate close to the consumers’ homes and as a con- Takada and Jain (1991) also found that the legal system and sequence a large share of the competition in retail markets in governmental issues play a major role in the innovation process. these areas is relatively unorganized and diffused. An additional Therefore, firms usually develop long term relationships with implication of the poor infrastructure facilities is that it cre- host countries in order to negotiate better agreements regard- ates a supply chain bottleneck. and ing land, labor and . A major challenge that retailers face facilities in less developed markets severely limit the savings when investing in emerging economies is changes in policy in in inventory costs and the effectiveness of sales that retailers the aftermath of changes in the country’s leadership. Retailers operating in more developed mature markets are able to achieve have employed a range of innovative strategies in the face of through just-in-time delivery. Retailers in these markets have legal and regulatory challenges. Although entering into strate- innovated by stockpiling inventory through large warehouses gic alliances with domestic firms is a pervasive practice in the that can store relatively more products than is typically the case manufacturing sector, it is relatively less pervasive in the retail- in more developed economies. Thus, where innovations in retail ing context. Since existing FDI regulations in India do not permit supply chain management in saturated markets have typically foreign retailers with multiple brands, Walmart’s joint venture focused on keeping stocks as low as possible, in less developed with Bharti Enterprises in India is an example of retailers using markets the direction of innovation may be reversed. Retailers innovative strategies to overcome regulatory challenges. Joint for example may choose to extensively stock inventory to be ventures as a mode of entry into emerging markets by retailers able to maintain a continuous supply of products at their retail based in mature markets enables them to leverage the capabili- facings. ties of the domestic alliance partner to manage relations with the On the supplier front, retailers often face poor, disjointed local government as well as to offer product assortments better distribution networks in less developed markets. Since the num- suited to local market conditions. ber of firms in each stratum is very limited, retailers have little say in dealer preferences and distributor agreements. Retailers Less developed markets in some areas have therefore invested in backward integration, producing a number of the goods they sell either themselves or Consumer based challenges through franchises. For example, Fast Retailing Co. from Japan Less developed markets are often characterized by low is working with Grameen Bank group in Bangladesh to provide domestic production and high inflationary pressure, resulting clothes priced at around $1. To do so, the firm is planning to use in lower per capita income. Further, the in locally procured materials and local production, as well as to less developed markets tends to be more heavily skewed towards mobilize women receiving small loans from the Grameen Bank the extremities than in emerging markets, implying even starker to build up a sales network. This is another innovation that is distinctions in income levels (Bagchi 1982). Some retailers have illustrative of differences between mature and less developed responded to this environmental condition by creating product markets. offerings catering specifically to either one of these segments Innovations in just-in-time retail delivery strategies and sup- (Anderson and Markides 2007). For instance, retailers aim to plier partnerships that have emerged in mature markets may not serve the relatively small affluent segment of the population by be suitable for the less reliable market conditions in less devel- offering premium priced products and/or the relatively large oped markets. This has pressured retailers in these markets to poorer segment of the population with lower priced product innovate by bringing supplier tasks within their own operations offerings. Also, the banking sector in these markets tends to be allowing them to create a more stable basis to meet consumer comparatively rudimentary. Many consumers do not have bank demand. accounts or credit cards. Therefore, most transactions entail the The market-level dynamics in less developed markets pro- use of currency. This can have an adverse impact on retailers in vide a contrast relative to mature and emerging markets. Due numerous ways. First, without a financial system to back them to the political, economic, infrastructural and consumer level up, retailers cannot comfortably credit consumer transactions complexities in these environments and reduced possibilities for future sales. Second, the total size of the sale is always lim- for economic law enforcement, producers may form cartels and ited by the amount of money the consumer is currently carrying. ‘territories’ among themselves, giving rise to a self-blocking Further, both consumers and retailers are potential victims of monopolistic system of producers (Clarke and Evenett 2003; frequent burglaries due to the breakdown of law and order. In Connor 2007). Additionally, the legal systems in these markets S62 W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 do not always have stringent anti-trust . Entering these mar- capabilities as a basis for innovations in retailing processes is kets entails retailers having to break through cartel barriers. New Nordstrom’s seamless integration of inventory on specific prod- entrants have for example resorted to opening retail outlets in ucts at the retailer’s web warehouse with inventory of the same the form of large chains that are well spread throughout a region products at each of its bricks-and-mortar stores. Thus, when a of dominance, thereby simultaneously employing all members consumer shops online for a particular item and the firm is out of a competing cartel. of stock at its web warehouse, the system checks whether the product is available at any of its physical stores. If that is the Legal/regulatory based challenges case, the transaction is completed and the product shipped from In less developed markets characterized by frequent changes the store which has the product available in stock. Following in governments, the political system is generally less conducive the successful integration of the inventory of various SKUs at to making investments in the infrastructure, public distribution individual stores with the inventory of the SKUs at the online systems, etc. The governments in some less developed markets store, the firm’s inventory turnover is reported to have touched have placed strong restrictions on international trade. Foreign a five-year high in 2009. As a consequence of such IT enabled, subsidies to retailers from developed countries and NGOs offer- enhanced process capabilities, Nordstrom is reported to have ing goods and services in these markets have sometimes enabled achieved a significant increase in the percentage of customers them to overcome the barriers of closed markets. In these cases, who bought merchandise after searching for an item at its online retailers have been able to establish a presence by passing on store (Clifford 2010). these subsidies to the consumers (Anderson and Billou 2007). The implication for retailers is developing new data analysis For example, producers and retailers of agricultural products capabilities. Data analytics capabilities driven analysis of vast such as seeds and fertilizers enjoy both domestic and interna- amounts of data have the potential to provide insights to retailers tional subsidies in West Africa. into opportunities for retailing innovation. Innovation therefore With the lack of basic amenities such as food and healthcare, needs to take place at the organizational level as well as at the the socio-political climate in less developed nations significantly functional level. At the organizational level, building up a strong weakens the financial system and trade in these regions is largely analytical and customer insight function is the key (Atuahene- driven by trust and personal relationships. Retailers in these mar- Gima 2002). At the functional level, firms need to implement kets are, therefore faced with a paradoxical situation of having competencies with respect to the relevant data sources such as to make heavy investments in an environment with a high risk scanner panel data, multichannel data, card program data, online of value destruction due to policy changes of the ruling gov- data and data from RFID tracking devices (e.g., Manchanda et ernments. As a result, retailers such as the Oriental Weavers’ al. 2006; Urban and Hauser 2004). Company in Egypt have innovated by resorting to personal and Whereas many retailers – even in mature economies – have direct selling efforts when marketing their products. Personal been focusing on maximizing supply chain efficiencies, com- selling has the advantage of low fixed costs in terms of long- peting successfully on strong customer understanding has been term assets such as physical retail outlets, while simultaneously more of an exception than the norm. Consequently, innovation in creating a fabric of trust with consumers through face-to-face this domain has both exploitative as well as exploratory charac- transactions. The high cost of human resources in developed teristics (Benner and Tushman 2002). Exploitative in the sense nations limits the degree to which organizations in these mar- that many of the associated activities build on existing technolog- kets can invest in direct personal selling techniques. Firms in ical trajectories and involve improvements in existing activities, less developed markets have leveraged on the availability of and exploratory in the sense that certain activities use new hith- less expensive human labor to train and deploy a large direct erto non-existing types of data and potentially might lead to sales force. business models that focus on different product-market domains. Examples of new data refer to many online and social network Implications for future research contexts. Related research questions are: How can retailers take Mature markets advantage of consumer-to-consumer (C2C) communication and observations of their behavior in online social networks (e.g., if A key characteristic of mature retail markets is the (over) they become fans of a company profile on )? Exam- abundant availability of data regarding customers. Depending ples of new business models refer to retail formats that leverage on context and firm activities, these data comprise the gamut long-tails (Anderson 2004) or new Internet based formats such of behavior, demographics, attitudes, marketing resource allo- as group buying or private sales (Grewal and Levy 2009). cation – all at an individual level. For example, Walmart handles From a research perspective, a question that arises is how more than 1 million customer transactions every hour, accumu- retailers can take advantage of the long-tail not only in the lating data totaling more than 2.5 petabytes – the equivalent online environment but also in the offline, while recognizing of 167 times the number of in America’s Library of that the ‘long-tail’ effect is uneven across product categories Congress. Accordingly, the challenge that most retailers face (Elberse 2008). is not the lack of access to specific data but rather the inability Another area of potential research is reexamining the direc- to transform available data into decision-relevant information tionality of cross-national lead–lag effects with respect to and insights. Illustrative of a firm’s information technology diffusion of innovation. While it is considered to be the rule that W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66 S63 innovations usually are developed and applied first in mature ing room at the same time. Although in some countries this markets and then transferred to emerging and less developed may not be permitted, according to the article, Aravind has not country markets, as discussed in earlier sections of this paper, experienced any problems with infections by doing so. The size some of the most recent and novel innovations in retailing are of the market for affordable health care services in emerging being developed and applied first in either emerging or less markets and less developed markets points to research focus- developed country markets. A likely driver of this trend is the ing on innovations in the delivery of health care services under growing interest among major retailers in countries with the the broader rubric of services retailing (retailing of intangibles- highest growth rates and/or future growth potential. Interest- dominant products) as an important avenue for future ingly, preliminary evidence suggests that successful innovations research. from less developed countries (such as M-pesa) are later adopted Yet another example of a service retailing innovation in India in mature markets. In other words, traditional views of lead is the HP i-community Mobile Photo Studio Project that enables and lag countries in the diffusion of innovations now warrant female entrepreneurs to leverage HP’s high-resolution digital reexamination in the evolving global retail market environment. photography and printing services in ways that are new and In addition, it also calls for new models in international diffu- impactful in rural areas. By providing on-the-spot processing sion and adoption of retailing innovations. Such models, rather to rural residents at a modest price, with equipment leased from than assuming that innovations “cascade down” from head- HP and consumables purchased at market rate from HP, many of quarters in developed countries initially to emerging country the entrepreneurs are reported to have been able to double their markets and subsequently to less-developed country markets, monthly family income. In a sense, Hindustan Lever’s Project must allow for bi-directional dispersions of innovations (Kumar Shakti initiative in India and HP’s i-community Mobile Photo and Krishnan 2002). Emerging literature on reverse innovation Studio Project defy the concept of retailing innovation to the (Immelt et al. 2009) also point to the need for research along extent that there is neither a physical location nor a web address these lines. There is thus also a need for empirical insights at which customers transact with the retailer. into how innovations in retailing occur and disperse across Teece (1986, p. 287) describes a regime of appropriability as countries. the environmental factors, excluding firm and market structure related factors, that govern an innovator’s ability to capture the Emerging markets profits generated by an innovation. He distinguishes between two key dimensions of appropriability – the nature of the tech- As noted earlier, emerging markets such as India and China nology (product, process, tacit, and codified) and the efficacy of are characterized by large segments of the population that fall legal mechanisms of protection (patents, copyrights, and trade under different income groups. This presents a challenge as well secrets). Teece notes that when imitation is easy, markets do not as an opportunity for retailers to serve customers spanning multi- work well, and profits from innovation may accrue to owners ple layers of the income pyramid. Case in point, Prahalad (2006), of certain complementary assets, rather than to developers of in a seminal article titled, “The Innovation Sandbox,” identified the intellectual property. This, as he points out, highlights the four criteria that innovations for the base of the pyramid markets need for the innovating firm to establish a prior position in these must meet in order to be successful (i.e., have a major impact in complementary assets. On the one hand, this issue is particu- serving the base of the pyramid markets). The innovation must: larly pertinent in the context of innovations in retailing in light (1) result in a good or service of world-class quality, (2) achieve of the low barriers to entry into the retailing sector and ease of a significant price reduction – at least 90 percent off the cost of imitation of a number of retailing innovations (e.g. store format, a comparable good or service in the West, (3) be scalable – be product assortment, and price points). On the other hand, it is also able to be produced, marketed, and used in many locales and conceivable that under certain environmental and organizational circumstances, and (4) be affordable to potential customers at contexts, the innovating firm may be more inclined to facilitate the bottom of the economic pyramid – people with the lowest emulation of its innovation through imitation by other organi- levels of income in any given . zations that are either its direct competitors or non-competitors. While these criteria for innovations for the base of pyramid This is likely to be the case with retailing innovations designed markets are pertinent to goods and services, the exemplars on to reach the base of the pyramid markets. Facilitating imitation low cost retailing innovations in the health care services sector in of an innovation rather than erecting deterrents is likely to be the India (Narayana Hrudayalaya Cardiac Care Center, Aravind Eye norm when a retailing innovation, whether in the goods or ser- Care, and the Jaipur Foot) highlighted by Prahalad are insightful vices sectors designed to reach the base of the pyramid markets is from the standpoint of avenues for future research. In an article a cooperative venture involving both for-profit and not-for-profit focused on Aravind Eye Care, Rubin (2001) draws attention to organizations. the hospital’s success at substantially lowering costs in every These considerations point to the following as research ques- area of its service through various product and process inno- tions that merit inquiry: (1) How do (how can) retailers protect vations. For instance, he notes that while it costs hospitals in their retailing innovations from being appropriated? (2) How do the United States about $1650 to perform a cataract operation, (how can) pioneers of retailing innovations in emerging markets the cost at Aravind Eye Care is about $10. Among the inno- and less developed markets that are primarily targeted at the base vations that have enabled Aravind to achieve such substantial of the pyramid markets facilitate diffusion of such innovations cost reductions is putting two or more patients in an operat- for the larger benefit of customers in these markets? S64 W. Reinartz et al. / Journal of Retailing 87S (1, 2011) S53–S66

Less developed markets dized retailing could potentially also be highly context/country dependent, which further points to potential avenues for future One central innovation challenge to retailers in less developed research into the process of innovation for retailing in less devel- markets is to design product and supply chain strategies to ser- oped countries. vice the population groups that differ at a very basic level in terms More generally, research questions grounded in mid-range of income, accessibility, and preferences. Sizeable segments of theories that recognize and explicate the moderating effects of the population have very low incomes and many of them are organizational and environmental contingencies on the relation- hard to reach through the available distribution and communi- ship between retailing innovation and performance constitute cation channels (e.g., those living in low income – rural areas). an avenue for future research. Illustrative of the relevance of Other segments are somewhat easier to reach but still require organizational and environmental contingencies is the follow- completely different dedicated distribution and communication ing: retailing innovations of Type A (multiple store formats for example through many small local stores (e.g., low income versus single store format), pursued by retailers of Type B (non- – urban populations). At the same time there is also a segment domestic retail entrant from mature market versus entrenched of consumers who have a very high income (e.g., the highest domestic retailer), under market structure conditions of Type C income – urban population) and expectations comparable to the (mature market versus emerging market versus less developed expectations of consumers in mature markets, who can be tar- market), will lead to performance of Type D (superior versus geted with marketing communications similar to those employed poor performance). in mature markets and a small number of high-end stores. Future research to develop a better understanding of the Conclusion different segments can be particularly promising in providing guidance for future retailing innovations. In particular such As the scope of retailing further expands and more retail research could address questions such as the following: (1) What firms globalize, they face new challenges. Innovations in retail- are some critical distinguishing and targetable features of the dif- ing are an imperative in order to transform these challenges into ferent segments in less developed markets that tie in with clearly opportunities and successfully compete, particularly in mature different behaviors and needs?, (2) How are these behaviors and markets and less developed markets. Against this backdrop, in needs of the different segments likely to shift over time as the this paper, we explore (1) consumer based, (2) industry based, economy of a less developed market develops?, and (3) What and (3) legal/regulatory based challenges and opportunities that retail strategy components can be used to address each of the mature markets, emerging markets and less developed markets different behaviors and needs? present to retailers and the associated innovation challenges. 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