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Retail Mgt. 11e (c) 2010 Pearson Education, Inc.

publishing as Prentice Hall


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Retail
Institutions by
Ownership
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RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH
11th Edition

BERMAN EVANS
Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall
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Chapter Objectives
To show the ways in which retail institutions
can be classified
To study retailers on the basis of ownership
type and to 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
2.2 million independent U.S. retailers
Account for one-third of total store sales
70% of independents operated by owners and
their families
Why so many? Ease of entry
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Competitive State of Independents
Advantages
Flexibility in formats,
locations, and strategy
Control over investment
costs, personnel
functions, and strategies
Personal image
Consistency and
independence
Strong entrepreneurial
leadership
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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Chain Retailers
Operate multiple outlets under common
ownership
Engage in some level of centralized or
coordinated purchasing and decision making
In the U.S., there are roughly 110,000 retail chains
operating about 900,000 establishments
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Competitive State of Chains
Advantages
Bargaining power
Cost efficiencies
Efficiency maintained
by computerization,
warehouse sharing,
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: Louis Vuitton A Powerhouse of
Upscale Retailing
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Franchising
A contractual agreement between a franchisor and a
retail franchisee that 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
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
Customer and
employee focus
Strong credit
Willingness to
complete training
Ability to manage
finances
Planning ability
Growth capability
Ideal
Franchisee
Experience
Full-time
commitment
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Figure 4-6: Structural Arrangements in
Retail Franchising
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Wholesaler-Retailer
Structural Franchising 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: Franchise and Business Opportunities
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Competitive State of Franchising
Advantages
low capital required
acquisition of well-
known names
operating/
management skills
taught
cooperative
marketing possible
exclusive rights
less costly per unit
Disadvantages
over-saturation could
occur
franchisors may
overstate potential
contractual
confinement
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

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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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
provides one-stop
shopping to
customers
lessees handle
management
reduces store costs
provides a stream of
revenue
Potential Pitfalls
lessees may negate
store image
procedures may
conflict with
department store
problems may be
blamed on
department store
rather than lessee
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Figure 4-8a: Vertical Marketing Systems

Independent Channel System

Functions:
Manufacturing
Wholesaling
Retailing

Ownership:
Independent Manufacturer
Independent Wholesaler
Independent Retailer

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Figure 4-8b: 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 4-8c: 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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