Competition and complementarity in retailing Competition between formats and locations in German retailing

The structure and locational system of retailing in Germany faced during the last decades a profound change. Important factors were on the supply side the appearance of new formats of retail stores, the enterprise concentration process and the progressive internationalisation. They not only changed the supply-structure but in addition induced a shift in the importance of retail locations. Very recently consumer behaviour undergoes alterations linked with post-fordist individualisation of shopping motivation and of spatial orientation towards different centres. These changes induced a shift towards attractive centres and sub-urban locations while scattered locations are under strong pressure. In den letzten Jahrzehnten verzeichnete der Einzelhandel starke Veränderungen des Standortsystems. Beeinflußt wurden diese Veränderungen auf der Angebotsseite durch das Auftreten neuer Betriebsformen, den Konzentrationsprozeß von Unternehmen und die fortschreitende Internationalisierung. Sie führten nicht nur zu neuen Angebots strukturen sondern trugen auch zum Wandel der Bedeutung von Versorgungsstandorten bei. Auf der Nachfrageseite zeigen sich gegenwärtig immer ausgeprägtere post-fordistische Individualisierungen der Verhaltensweisen und in der Orientierung auf Zentren. Die Angebotsund Nachfrageveränderungen begünstigen attraktive Zentren und suburbane Standorte während Streulagen an Bedeutung verlieren.


Introduction 1
During the last decades retailing in Germany faced a profound change in the supply structure, the consumer behaviour and the locational distribution.On the supply side the appearance of new formats of retail stores, the enterprise concentration process and the progressive internationalisation not only changed the supply-structure but in addition induced a shift in the importance of retail locations.Very recently consumer behaviour undergoes alterations linked with post-fordist individualisation of shopping motivation and of spatial orientation towards different centres; Nearest-Centre-Links become less important while often changing spatial flexibility in consumption dominates.This article investigates in the first part the mayor development tendencies of the supply and demand side and shows their effects on the locational distribution of retailing in Germany.In the second part differences between West-and East-Germany, which resulted from the socialist system in the GDR and the reunification process, will be discussed.
Changes in the structure of the supply-side New formats of retailing 2 For a long period, the structural change of the supply side was influenced by the appearance of new types of stores.This restructuring of the supply is characterised by the retail life-cycle hypothesis.It postulates that each type or format of retailing has only a limited life span and in the course of its development regular changes occur in its market share (cf.Brown, 1988;Kulke, 1992).A type or format of retailing can be described by typical characteristics like average sales space, service intensity, price level and assortment of goods.There is a continual emergence of new formats of retailing, however only those survive, whose characteristics comply better with the existing conditions of supply and demand than those of older formats.In the beginning of the life-cycle only a few retailers of the new type exist.If this new format is successful it gains significantly in importance in the following growth phase.The market share of the new format increases and it replaces older formats.The maximum market share is reached during the maturity phase, while towards the end of the life-cycle the sales stagnate or even reverse.

3
The changing market share of retail formats can be observed in Germany during the last decades (Fig. 1).In food retailing small stores with sales assistants dominated until the end of the 1950s.Beginning in the early 1960s, they were gradually replaced by the new type of self-service store, which used the new self-service-principle and operated on a larger space with a broader assortment of articles.In the 1970s a new type of store -the so called supermarket -expanded steadily.Supermarkets were bigger (more than 400 sqm sales space) and offered a more varied assortment of articles at a lower price level.From the mid 1970s in addition hypermarkets expanded very rapidly.They are large businesses (more than 1,000 sqm sales space) pursuing an aggressive price policy, are selling groceries and are offering a wide variety of simple non-food articles.During the last 10 to 15 years the most successful format has been the discount store (e.g.Aldi, Lidl); these stores have more or less the same size like supermarkets but are offering a highly standardised assortment (e.g.supermarkets have usually between 8,000 and 12,000 articles but discount stores only offer 660 to 1,300 articles; Kulke, 2004) on an extremely low price level; therefore they possess a better cost structure and are more and more replacing the classical supermarket.

4
Comparable shifts between formats can be observed in the non-food sector (Fig. 2).Until the 1970s, two types of formats, the department stores offering a wide assortment of goods and the specialised stores with a small but deep range of articles, were dominating the market.Since then both have been increasingly replaced by specialised discount stores.They are relatively large retail businesses offering a similar range of goods like specialised stores, but the self-service principle and a relative low personnel intensity allows these markets to sell their goods at a lower price level.

5
The structural change according to the life-cycle hypothesis has in addition spatial effects (Klein, 1997;Kulke, 1998).Due to the factor that every new format has other typical characteristics, their locational preferences differ compared to old formats (Fig. 2).In general one larger unit often replaces more than one smaller unit; therefore the number of stores is reduced and especially in scattered locations and smaller housing areas with a limited demand potential a thinning out process of the supply network can be observed.In addition the new formats contributed to the suburbanisation process of retailing.Classical self-services stores were located mainly in the housing areas, the supermarkets were already found in urban sub-centres or in open spaces in the neighbourhood of the housing areas.The hypermarkets predominantly chose non-integrated locations at the outskirts of the towns; there they find reasonably priced and sufficiently large building lots with good road connections for private transportation.Because of their size they are often unable to find the space they need in the existing centres.Very recently the discount stores are replacing supermarkets in housing areas; with them a local supply can be sustained but with a smaller assortment of articles.The change of formats and locations in West-Germany took place over a period of four decades.
Step by step bigger units gained in importance (in Fig. 1 the years 1966-1990), which induced a thinning out process of the supply network especially in the housing areas and small villages and encouraged the development of suburban shopping locations.In contrast East-Germany possessed at the time of the reunification a very traditional structure of formats (Kulke, 1998, p. 175f); the food sector was served by several relatively small units and non-food articles were offered by a limited number of classical department stores and specialised stores.Hence, the average floor space per store amounted in the GDR in 1988 only to 68 sqm compared to 200 sqm in West-Germany (in 1985).With the reunification many new big formats were opened in the East while most of the small units had to be closed; this can be seen in Fig. 1 by the fast reduction of the Number of self-service stores between 1990 and 1995.Due to the transformation induced change today modern formats (hypermarkets, discounter, specialised discount stores) and non-integrated locations (table 1) have a higher share in the East than in the West.During the last decades in parallel with these changes of the formats was a structural change of the companies.In the past a traditional one-store enterprise, where the owner himself was working in the store, was typical for retailing; usually these stores were linked to an wholesale trade organisation which delivered the goods.Since the 1960s a strong enterprise concentration process can be observed in German Retailing.Today large enterprises with several chain-stores are dominating the market.The Ginicoefficient, which shows the distribution of sales shares among the business size classes of enterprises, rose from 0.72 in 1962 to 0.87 in 2002 (Fig. 3).These chain-stores offer a highly standardised assortment of articles and are especially concentrating on those goods, which are sold very often.With the strategy of having several stores and distribution centres these companies are able to realise internal economies of scale.And due to the factor that they are buying large volumes of articles they are in the position to put pressure on producers concerning prices and qualities.During the last ten years the strong position of the companies further increased with the introduction of new technologies (Henschel, 2005).The big companies were the first to introduce modern supply chain management systems based on information and communication technologies.With the use of scanner-cash-boxes and electronic article management systems they were able to optimise the assortment and the delivery system.But in addition, by using these electronic systems, they now have an advantage in Competition between formats and locations in German retailing Belgeo, 1-2 | 2013 information concerning consumer behaviour and typical combinations of article sales (Fig. 4).Therefore in the sense of the global commodity chain discussion (e.g.Gereffi, 1996;Wrigley and Lowe, 2002) in retailing typically a buyer driven structure can be identified.The big companies have a strong purchasing power compared with producers of standardised articles.And they are able to optimise the assortment in every store dependent on the local demand structure.Therefore they have a strong competitive advantage on the market compared to production and demand.The enterprise concentration process has effects on the locational system of retailing.Compared to independent stores the chain stores usually have lower costs and a higher sales space productivity; therefore they are able to occupy the more attractive (and more expensive) locations in the urban centres while independent retailers are either forced to close down or to survive in spatial market niches.Surveys show (e.g.Kulke, 1998) that chain-stores are dominating the city-centres, the planned shopping-centres and the large retail agglomerations at the outskirts of the towns.Independent retailers are only found in higher shares in small villages and in minor sub-centres and housing areas of towns where only a limited demand potential is available.And these areas face a further thinning out process of supply when the shop-owner reaches the retirement age, because no successor is willing to continue with the business.foreign countries (table 2).Driving forces for the internationalisation are the stagnating sales at the home market, the more easy international relations in Europe due to the EUintegration process and the expectation to gain additional turnover in other markets (Alexander, 1997;Kulke, 1997, McGoldrick and Davies, 1995, Wortmann 2003).Typically enterprises use for the international expansion retail formats, which have proved to be successful at the home market and which are different to existing formats in the foreign market.Examples for that are the Swedish furniture seller IKEA (with 216 stores in 21 foreign countries, 2005) or the German grocery discounter Aldi (with 3,741 stores in the home country an with 2,643 stores in 11 other countries; 2002), which both were successful on the international market with new formats.

Table 2. Internationalisation of German retailing (Number of employees in 1000).
Source : Wortmann, 2003; based on data of the German Bundesbank 12 The form of international expansion in detail is dependent on the assortment of articles sold by the retailers (Gotterbarm, 2004;Kulke, 1997).Non-food retailers with a quality oriented assortment of articles prefer the centres of large agglomerations and follow a hierarchical (dependent on the size of the towns) expansion process (e.g.Nike-stores, Bennetton-stores).Large units with a high consumer attraction (like IKEA) first enter locations at the outskirts of large agglomerations and then expand to smaller agglomerations.The expansion process of grocery retailers (with perishable goods) is different to the hierarchical pattern; they usually follow a space oriented strategy.In one region they open several units which can be delivered by one central located distribution centre.
13 German retailers showed a strong expansion process to the European market during the nineties (Wortmann, 2003, p. 18f); today German retailers employ more than 310,000 persons abroad and the big food-discount chains gain already one third of their turnover in foreign countries (e.g. in the year 2001 Aldi 28%, Lidl 30%, Metro 41%, Rewe 20%; Gotterbarm, 2004, p. 56).In Germany for a long time foreign retailers only possessed a limited market share (table 2) and were mainly be found in the non-food sector.These companies showed the typical hierarchical spatial expansion process by either entering the market with big units in suburban locations (IKEA since 1974, Toys'R'Us since 1986) or with specialised stores in the city centres (e.g.Benetton, H&M, Zara, Orsay).During the last years some international chains tried to enter the food sector (e.g.Wal-Mart in 1998; see Gotterbarm, 2004), but German chain-stores are still dominating this sector.The efforts of foreign companies either failed (like Netto in East-Germany) or were less

Competition between formats and locations in German retailing
Belgeo, 1-2 | 2013 successful (like Wal-Mart with 92 units; 2002).This can be explained by the strong domination of big national chains (in 1999 the ten biggest food-chains gained a share of 81% of the turnover), by the high price competition in Germany and by logistical problems for new companies.

Changes in consumer behaviour
14 During the last decades the individual incomes of consumers in Central Europe increased more or less constantly.With higher incomes the demand structures are changing; consumers not only buy more goods but in addition especially more higher ranking articles (e.g.entertainment electronics, clothes) while the demand for basic need articles (e.g.groceries) stagnates (Kulke, 2005).And under the condition of more or less the same available time for shopping the consumers have to buy more articles during one visit to a shopping facility (called coupling).In addition with higher incomes usually the equipment of households with private transportation (cars) improves; with better private transportation more attractive shopping facilities are within reach of the consumers.The income increase led to a reduction of demand in small stores and scattered locations and was an important element of the thinning out process of the supply network in Germany.
On the other side, centres with a broad assortment of articles (possibility for coupling) and non-integrated locations (due to the bigger spatial flexibility by car use) gained in importance.
15 Very recently additional elements of change in consumer motivation appear and lead to a post-fordist individualisation of spatial consumer behaviour (Gerhard, 1998;Wrigley and Lowe, 1996).Individual consumers show a polarisation in their behaviour which is mainly dependent on articles: First they very often show a strong price orientation for basic need articles, second they have a tendency for 'smart shopping' of high quality brand products (using special offers for these products) and third they are willing to spend much money for life-style products in an attractive entertainment environment.Connected with these new forms of behaviour is the reduction of importance of so called Nearest-Centre-Links (Heinritz, Klein and Popp, 2003, p. 135f).In the past consumers usually bought the needed articles in the next centre where these products were available.Today the consumers show a very flexible and often changing spatial orientation; the visit to nearby or fare away shopping facilities is dependent on daily changing shopping motivation, coupling with other activities and availability of time.Surveys in the Berlin-area show (done by Kulke and Martin in 2004; based on 1,709 questionnaires), that Nearest-Centre-Links are still strong for price-oriented food shopping (two thirds of all purchases) while in the non-food sector more end more spatial flexibility dominates (Nearest-Centre-Links for clothes only 47% and for entertainment electronics 57%).
16 These new forms of behaviour have effects on the position of different retail formats and locations in competition.Price shopping promotes the development of discount stores in food retailing and of specialised discount stores in non-food retailing.Entertainment oriented behaviour is in favour of attractive centres where different formats of retailing, larger magnet-stores with a broad assortment of articles and additional service enterprises (e.g.restaurants, cinemas, fitness-studios) are located.
Competition between formats and locations in German retailing Locational Change in German retailing 17 The characterised changes of supply and demand developed in West-Germany over a period of four decades and changed step by step the locational system of retailing (Fig. 5; Kulke, 1998).Due to the appearance of larger units and to the reduction of demand in villages and housing areas the supply network of smaller food-stores thinned out.First higher ranking centres with a broader assortment of articles increased their market share.Since the 1970s non integrated locations at the outskirts of the towns expanded fast.Today a hierarchical system of classical shopping centres -city, sub-centres and some smaller neighbourhood shopping areas -still exists in the urban areas of West-German cities.But the supply network is completed by non-integrated locations at the outskirts of the towns; there mainly hypermarkets and large specialised discount stores (e.g. for furniture, entertainment electronics) are to be found.Nevertheless the development of suburban locations is restricted by regional planning laws and mainly limited to space intensive units like furniture stores, home improvement stores and hypermarkets (Guy, 1998;Kulke, 1992).At the moment especially smaller sub-centres with less attractive shopping environment and a limited assortment of articles are under strong pressure.Non-integrated locations try to diversify themselves to attract priceshoppers and entertainment-shoppers and are gaining in importance (table 1).
Figure 5. Model of the locational system of retailing in Germany.
18 In East-Germany (Jürgens, 1996;Meyer, 1992;Pütz, 1997) the starting point was quite different.Like in all socialist countries there was a planned hierarchical system of nonfood centres in the towns and a very dense system of small food-stores in the housing areas; non-integrated locations did not exist (table 1).In general the supply was very  Source: Kulke, 1998, p. 176 (based on different statistics) 19 With the reunification very suddenly the new formats of retailing were established and the new forms of consumer behaviour -due to an rapid increase in income and private mobility -were adopted.And the planning restrictions of West-Germany did not exist at that time in the East, which opened a locational window of opportunity for establishing retail spaces in non-integrated locations.Immediately after the reunification all stores were privatised.Most of the small food-stores (mainly small self-service stores) had to close down, because they had an unfavourable cost structure and a limited assortment of articles and therefore were not able to compete with the modern super-and hypermarkets.Within a few months West-German chain-stores took there chance to conquer the East-German market by opening modern formats; in the beginning they mostly chose locations at the outskirts of towns and villages.In the built up areas -due to unsettled proprietary rights -almost no locations were available.Only a little bit later, large specialised discount stores and shopping centres were developed in non-integrated locations.Until the mid nineties these developments caused a strong suburbanisation process of retailing while the supply network in the towns deteriorated.These developments can be seen in the Berlin-area (table 3).Until the mid-nineties the strongest expansion of floor space occurred at the outskirts of the agglomeration; there the floor space per inhabitant rose from 0.27 sqm to 1.42 sqm.
20 In the middle of the nineties the suburban developments were limited by planning laws and in addition the proprietary rights in the built up areas were cleared.Since then a reorientation towards the urban areas can be observed, where several shopping centres were developed during the last years.They now fulfil the function of city-centres and urban sub-centres but are very different in their characteristics compared to West-German centres.Usually they are owned by one developer, who rents the lots to national and international chain stores; in general the share of independent stores in East-Germany is very limited.All stores are located in one building surrounding a pedestrian zone; restaurants and other service units are included and nearby parking facilities available.These new units are very attractive either for price-shoppers or for entertainment-shoppers.This reorientation can be seen in Berlin; there the sales space in the built up areas increased during the years 1997 to 2003 by 28.4% and the sales space per inhabitant today amounts to 1.25 sqm.
21 Today at the outskirts of the towns a overstoring-process already can be observed and some of the less attractive units are now closing down there.But still until today the market share of non-integrated locations is in East-Germany much higher than in West-Germany (table 1).

Conclusion 22
To explain retail developments always the combination of changes on the supply side, of modifications in consumer behaviour and of influences of the planners have to be taken into consideration.During the last decades the appearance of new retail formats, the enterprise concentration process and very recently the internationalisation were driving forces for retail change.At the moment new forms of consumer behaviour show increasing importance for the locational developments.Looking at the position of different types of retail locations in competition, centres with an attractive mix of formats, complementary services and a broad assortment of articles and locations with discounters seem to be the winners.Problematic is the position of scattered locations and of smaller sub-centres without special attraction.

Figure 1 .
Figure 1.Change in the market share of different retail formats in food retailing in Germany (until 1990 only West Germany).

Figure 2 .
Figure 2. Characteristics, market share and locations of different retail formats in Germany.

Figure 4 .
Figure 4. Model of the retail commodity chain.

Table 1 . Market share of different types of retail locations.
Source: Kulke, 2002; based on surveys in the Berlin area and estimations in West-Germany Competition between formats and locations in German retailing Belgeo, 1-2 | 2013Enterprise concentration process in retailing 7 Competition between formats and locations in German retailingBelgeo, 1-2 | 2013 limited compared to the West; the average floor space per inhabitant amounted in East-Berlin only to 0.32 sqm per inhabitant compared to 0.94 sqm in West-Berlin (table3).And there always was more consumer demand for non-food articles than available supply (table4).