Adolescence and the Path to Maturity in Global Retail

Adolescence and the Path to Maturity in Global Retail

By
Bart J. Bronnenberg, Paul B. Ellickson
Journal of Economic Perspectives. November
2015, Vol. 29, Issue 4, Pages 113-134

We argue that, over the past several decades, the adoption and diffusion of “modern retailing technology” represents a substantial advance in productivity, providing greater product variety, enhanced convenience, and lower prices. We first describe modern retailing, highlighting the role of modern formats, scale (often transcending national boundaries), and increased coordination with upstream and downstream partners in production and distribution. In developed markets, the transition to modern retailing is nearly complete. In contrast, many low-income and emerging markets continue to rely on traditional retail formats, that is, a collection of independent stores and open air markets supplied by small-scale wholesalers, although modern retail has begun to spread to these markets as well. E-commerce is a notable exception: the penetration of e-commerce in China and several developing nations in Asia has already surpassed that of high-income countries for some types of consumer goods. To understand the forces governing the adoption of modern technology and the unique role of e-commerce, we propose a framework that emphasizes the importance of scale and coordination in facilitating the transition from traditional to modern retailing. We conclude with some conjectures regarding the likely impact of increased retail modernization for the developing world.