Chapter 4

Retail Institutions by Ownership

RETAIL MANAGEMENT: A STRATEGIC APPROACH,

9th Edition BERMAN EVANS

Chapter Objectives
To show the ways in which retail institutions can be classified To study retailers on the basis of ownership type and examine the characteristics of each To explore the methods used by manufacturers, wholesalers, and retailers to exert influence in the distribution channel
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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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Ownership Forms
Independent Chain Franchise Leased department Vertical marketing system Consumer cooperative

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Independent Retailers
2.1 million independent U.S. retailers 50% of these are run by owners and their families Account for 40% of total stores and 3% of U.S. store sales Why so many? Ease of entry

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Competitive State of Independents

Advantages Disadvantages Flexibility in formats, Lack of bargaining locations, and strategy power Control over investment Lack of economies of costs and personnel scale functions, strategies Labor intensive Personal image operations Consistency and Over-dependence on independence owner Strong entrepreneurial Limited long-run leadership planning

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Figure 4.2 Useful Online Publications for Small Retailers

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Store-based Retail Strategy Mix

Convenience store Conventional supermarket Food-based superstore Combination store Box store Warehouse store Specialty store
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Variety store Traditional department store Full-line discount store Off-price chain Factory outlet Membership club Flea market

Chain Retailers
Operates multiple outlets under common ownership Engages in some level of centralized or coordinated purchasing and decision making In the U.S., there are roughly 100,000 retail chains operating about 750,000 establishments
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Competitive State of Chains

Advantages Bargaining power Cost efficiencies Efficiency from computerization, sharing warehouse and other functions Defined management philosophy Considerable efforts in long-run planning

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

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Figure 4.3 Carrefour: The Largest Foreign-Based Retailer in the World

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Nonstore-based Retail Strategy Mix and Nontraditional Retailing

Direct marketing Direct selling Vending machine World Wide Web Other emerging retail formats

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Figure 4.4 MasterCuts: A Well-Defined Management Philosophy

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Franchising
A contractual agreement between a franchisor and a retail franchisee, which allows the franchisee to conduct business under an established name and according to a given pattern of business Franchisee pays an initial fee and a monthly percentage of gross sales in exchange for the exclusive rights to sell goods and services in an area
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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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Business Format franchisee receives assistance: location, quality control, accounting systems, start-up practices, management training common for restaurants, real estate

Figure 4.5 Business Qualifications Sought by McDonalds for Potential Franchisees

Personal Integrity Entrepreneurial Spirit Ability to motivate and train Ideal Franchisee Financial resources Willingness to complete training Willingness to devote time

Ability to manage finances

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Figure 4.6 Structural Arrangements in Retail Franchising

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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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Figure 4.7 Franchises and Business Opportunities

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Competitive State of Franchising

Advantages small capital required acquire well-known names operating/manageme nt skills taught cooperative marketing possible exclusive selling rights less costly per unit
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Disadvantages
oversaturation could occur franchisors may overstate potential locked into contracts agreements may be cancelled or voided royalties are based on sales, not profits

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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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

Leased Departments
A leased department is a department in a retail store that is rented to an outside party The proprietor is responsible for all aspects of its business and pays a percentage of sales as rent The department store sets operating restrictions to ensure consistency and coordination
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Competitive State of Leased Departments

Benefits Potential Pitfalls
provides one-stop lessees may negate shopping to store image customers procedures may lessees handle conflict with management department store reduces store costs problems may be blamed on provides a stream of department store revenue rather than lessee
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Figure 4.8 Vertical Marketing Systems

Independent Channel System Functions: Manufacturing Wholesaling Retailing
Ownership: Independent Manufacturer Independent Wholesaler Independent Retailer

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Figure 4.8 Vertical Marketing Systems

Partially Integrated Channel System Functions: Manufacturing Wholesaling Retailing
Ownership: Two channel members own all facilities and perform all functions

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Figure 4.8 Vertical Marketing Systems

Fully Integrated Channel System Functions: Manufacturing Wholesaling Retailing
Ownership: All production and distribution functions are performed by one channel member

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Figure 4.9 Sherwin-Williams Dual Vertical Marketing System

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Web-Based Exercise
Subway is one of the largest retail franchisors in the world Based on the information found under Franchise Opportunities on the Subway website, would you be interested in becoming a Subway franchisee?

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