Economies of scope and economies of scale are two concepts that explain why costs are often lower for larger companies. Economies of scope focus on the average total cost of production of a variety of goods. In contrast, economies of scale focus on the cost advantage that arises when there is a higher level of production for one good. A company that benefits from economies has lower average costs because costs are spread over a variety of products. For example, it is much easier for a restaurant chain to offer new dishes than to start a new restaurant chain offering the same new foods. Advertising can promote multiple dishes at the same time, and the new foods can be prepared and served using the same equipment and personnel.
6).
Theory 2
The success or decline of retailers is frequently “attributed to the business environments” including customers and competitors (Pradhan, p 65). Thus, in consistence with “Darwinian approach of ‘survival of the fittest’, those retailers that most effectively adapt to economic and demographic changes are most likely to grow and prosper” (Pradhan, 65). Evolution theory is “based on the effects of the external, uncontrollable environment on the retail industry and the organisations operating within it” (Fernie et al, 2015, p. 67). However, it has been argued by many theorists and researchers that organisations ability to “adapt to their environments attributes” mostly to their flexibility and power “rather than the environment” (Morgan, 2006). Thus, the survival can be determined by the organisations understanding of environmental stability, resistance to change, and their development of mechanisms that support them during uncertainty.
Theory 3
Retailers emerge, develop, mature and decline in direct response to internal and external circumstances (Hall, Knapp et al 1961; Sun, 2002). The RLC provides a useful perspective to predict the business performance of retail institutions as it specifies the series of stages that every retailer goes through. However, the RLC has been criticised because of the “difficulty in defining the exact time when the organisation moves from one stage to another” (Fernie, J et al. 2015, p. 33). Thus, in order for the concept to be useful the retailer would want to know exactly when the growth or maturity phase has ended, in order to implement marketing objectives and strategies accordingly. Arguably, it may be difficult to detect the time spent at every stage as the lifespan of many companies becoming shorter with new retailers entering and exiting the markets rapidly (Fernie, J et al. 2015). “The theory assumes that retailers are passive victims of the market change and competitor action”, thus failing to recognise that they may achieve sustainability of their business through other aspects, for example, brand repositioning. Evidently, number of retailers have successfully “repositioned their organisations’ to grow their businesses to prove that the inevitable decline predicted by the RLC is not necessarily the case” (Moore, 2010).
Application of Theory
The following section aims to support the explanation of A&F failure by critically analysing the quotes identified in section 1 and expanding on the theories discussed in section 2. Throughout the section, emergence of competitors, change in consumer expectations, economic shift and functional stupid management, have been identified as the primary causes of failure.
Environmental Evolution Theory
A&F is positioned within “a dynamic and rapidly changing industry” (Akehurst and Alexander, 1995, p. 67) which creates an ambiguous environment due to the rate of change and innovation created by the external stakeholders (Male, 2003). With a large offer and low switching costs, consumers possess bargaining power (Porter, 1979) over apparel retailers and are consistently looking for the best quality and cheapest prices, unless they have loyalty to a particular brand (Perrier, 2013). Thus, due to the highly turbulent nature of the industry, firms having to constantly change and adapt to grow and survive (Male, 2003). The structural change of the industry and survival of retailers can be explained using Darwinian ‘natural selection’ theory. A&F has been disrupted by the new, ‘fittest’ species including Forever 21, who have managed to ad
