Retail Institutions by Ownership

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Chapter 4

• Retail Institutions by Ownership

RETAIL MANAGEMENT A STRATEGIC APPROACH, 10th
Edition
BERMAN EVANS
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Chapter Objectives

• ways retail institutions are classified
• Retailers on the basis of
• ownership type
• characteristics

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Chapter Objectives

• influence methods
• Used in the distribution channel by
• manufacturers,
• wholesalers,
• retailers

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Figure 4-1 A Classification Method for Retail
Institutions
I Ownership
II Store-Based Retail Strategy Mix
III Nonstore-Based Retail Strategy Mix
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1. OWNERSHIP FORMS
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Ownership Forms

• Independent
• Chain
• Franchise
• Leased department
• Vertical marketing system
• Consumer cooperative

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INDEPENDENT STORES

• OWNERSHIP FORMAT

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Independent Retailers

• 2.2 million
• 70 run by owners families
• Account for
• 35 of total stores
• 3 of U.S. store sales
• Why so many?
• Ease of entry

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Competitive State of Independents

• Advantages
• Flexibility in
• formats, locations, strategy
• Control over
• investment costs - personnel functions,
• strategies
• Personal image
• Consistency independence
• Strong entrepreneurial leadership

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Competitive State of Independents

• Disadvantages
• Lack of bargaining power
• Lack of economies of scale
• Labor intensive operations
• Over-dependence on owner
• Limited long-run planning

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Figure 4-2 Useful Online Publications for Small
Retailers
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chains

• Ownership format

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Chain Retailers

• multiple outlets
• under common ownership
• centralized or coordinated
• purchasing and decision making
• about 110,000 retail chains
• operating 800,000 sites

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Competitive State of Chains

• Advantages
• Bargaining power
• Cost efficiencies
• Efficiency from
• computerization,
• sharing warehouse ,etc.
• Defined management philosophy
• long-run planning

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Competitive State of Chains

• Disadvantages
• Limited flexibility
• Higher investment costs
• Complex managerial control
• Limited independence
• among personnel

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franchising

• Ownership format

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Franchising

• A contractual agreement
• between franchisor retail franchisee,
• allows franchisee to do business
• under an established name and
• according to a given pattern of business

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Franchising

• Franchisee pays an initial fee
• a monthly of gross sales
• in exchange for exclusive rights
• to sell goods services
• in an area

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Franchise Formats

• Business Format
• Franchisee receives assistance
• location,
• quality control,
• accounting systems,
• startup practices,
• management training
• Common for restaurants, real-estate

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Figure 4-5 Business Qualifications Sought by
McDonalds for Potential Franchisees
Financial resources
Experience
Strong credit
Growth capability
Ideal Franchisee
Customer and employee focus
Planning ability
Willingness to complete training
Ability to manage finances
Full-time commitment
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Competitive State of Franchising

• Advantages
• Low capital required
• Acquire well-known names
• Operating/management skills taught
• Cooperative marketing possible
• Exclusive rights
• Less costly per unit

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Competitive State of Franchising

• Disadvantages
• Oversaturation could occur
• Franchisors may overstate potential
• Locked into contracts
• Agreements may be cancelled or voided
• Royalties are
• based on sales, not profits

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From the Franchisors Perspective

• Benefits
• National or global presence possible
• Qualifications for franchisee/operations are set
  and enforced
• Money obtained at delivery
• Royalties represent revenue stream

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From the Franchisors Perspective

• Potential Problems
• Potential for harm to reputation
• Lack of uniformity
• may affect customer loyalty
• Ineffective franchised units
• may damage resale value, profitability
• Potential limits to franchisor rules

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Franchise Formats

• Product/Trademark
• Franchisee acquires
• the identity of a franchisor
• by agreeing to sell products
• and/or operate under the franchisor name
• Franchisee operates autonomously
• 2/3 of retail franchising sales

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Wholesaler-Retailer Structural Arrangements

• Voluntary
• A wholesaler sets up a franchise system and
  grants franchises to individual retailers
• Cooperative
• A group of retailers sets up a franchise system
  and shares the ownership and operations of a
  wholesaling organization

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Leased departments

• Ownership format

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Leased Departments

• A leased department
• is a department in a retail store
• that is rented
• to an outside party

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Competitive State of Leased Departments

• Potential Pitfalls
• Lessees may negate store image
• Procedures may conflict
• with department store
• Problems may be blamed
• on department store
• rather than lessee
• ex Jewelry depts

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Competitive State of Leased Departments

• Benefits
• one-stop shopping to customers
• Lessees handle management
• Reduces store costs
• Provides a stream of revenue

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Vertical Marketing systems

• Ownership format

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Vertical Marketing systems

• Manufacturer Wholesalers -Retailers
• doing business
• as a _______?________, too

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Figure 4-9 Sherwin-Williams Dual VMS
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Figure 4-8b Vertical Marketing Systems
Partially Integrated Channel System Functions
Manufacturing Wholesaling Retailing Ownership T
wo channel members own all facilities and perform
all functions
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Figure 4.8c Vertical Marketing Systems
Fully Integrated Channel System Functions
Manufacturing Wholesaling Retailing Ownership A
ll production and distribution functions are
performed by one channel member
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2. Store based retail

• Method of classifying retailers

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Store-Based Retail Strategy Mixes

• Convenience store
• Conventional supermarket
• Food-based superstore
• Combination store
• Box store
• Warehouse store
• Specialty store

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Store-Based Retail Strategy Mixes

• Variety store
• Traditional department store
• Full-line discount store
• Off-price chain
• Factory outlet
• Membership club
• Flea market

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3. Non-store-retailers
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Nonstore-Based Retail Strategy Mixes and
Nontraditional Retailing

• Direct marketing
• Direct selling
• Vending machines
• World Wide Web
• Other emerging retail formats
• ??????

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Non-traditional

• Consignment thrift stores
• Garage sales
• Craft hobby stores
• Souvenir shops
• Special event sales
• (sports music venues)
• Tourism retailing
• (amusement parks MOA - Paris

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THE END
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Figure 4-3 The Body Shop
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Figure 4-6 Structural Arrangements in Retail
Franchising
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Figure 4-7 Franchise and Business Opportunities
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Figure 4-8a Vertical Marketing Systems
Independent Channel System Functions
Manufacturing Wholesaling Retailing Ownership I
ndependent Manufacturer Independent
Wholesaler Independent Retailer
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Leased Departments

• The proprietor is responsible f
• or all aspects of its business and
• pays a percentage of sales as rent
• The department store
• sets operating restrictions
• to ensure consistency and coordination