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Retail Institutions

Types of Retailers
About Retail Institutions
A retail institution refers to basic format or structure of a

Classification of Retail Institutions

a) Based on Ownership
b) Store-based retail strategy mix
c) Non store-based retail strategy mix and Non-traditional
Ownership Chain

General Merchandise
Food Oriented Retailers: Retailer:
Store-based retail Convenience store, Specialty store, Category
strategy mix Conventional Supermarket, Specialists, Department
Supercenter, Hypermarket, store, Discount stores,
Warehouse store Off-price chain, Factory
Outlet, Drug Stores

Non store-based retail Direct Marketing

strategy mix and Direct Selling
Non-traditional Vending Machine
retailing World Wide Web

These classifications are not mutually exclusive.

Ownership based Retail Institutions

An independent retailer owns only one retail unit. The management has
direct contact with the customers and can quickly respond to their needs.

• Advantages:
– Flexibility of choosing the retail format and retail location.
– Devising a strategy becomes easier.
– Investment costs are low.
– They are able to sustain consistency in their work.
– Better customer relationship management.
• Disadvantages
– In bargaining with distributors, they do not posses much power because
they buy in small quantities.
– Cannot gain economies of scale in buying and maintaining inventory
because they have financial constraints.
– Operations are often handled manually with little computerization.
– Limited advertisements.
– Unequal distribution of work.
– Limited time given to planning because of over-involvement of owner
into daily operations.
Chain Stores
A chain retailer operates multiple outlets under common ownership. It
usually engages in some level of centralized purchasing and decision

• Advantages
– They have the bargaining power due to their volume of purchase.
– Achieve cost efficiency due to performing the wholesale functions themselves.
– Efficiency in multiple stores is attained by shared warehousing facilities; large
purchases, SOPs, centralized decision making etc.
– Work faster with the use of computers while ordering merchandise, forecasting
– Can advertise
• Disadvantages
– May or may not be consistent in their strategy.
– Investments are high.
– Loose control of the management.
– Personnel may have limited independence.

• It involves a contractual arrangement between a franchisor and a retail

franchisee, which allows the franchisee to conduct a given business under
established name and according to a given pattern of business.

• The franchisee pays an initial fee and a monthly share of gross sales in
exchange for the exclusive rights to sell goods and services in a specified

• Franchising is a retail organizational form in which small businesses can

benefit being a part of a large retail institution.
Types of Franchising
• Product/Trademark franchising:
– In this type franchisees operate independently of their franchisors.
– The franchisee adhere to certain rules and regulations but sets store
operating hours, store location criteria, store facilities and display etc.

• Business format franchising:

– Involves more interactive relationship between the franchisee and
– Franchisees receives assistance on site location, quality control, start-up
practices, management training and responding to problems.
Advantages to the franchisee:
 Franchisees can own retail enterprise with relatively lower
capital investment.
 Franchisees acquire well known name and good service lines.
 SOPs and management skills may be taught to the franchisees.
 Cooperative marketing used , that could not be afforded
 Franchisee purchases may be less costly per unit due to the
volume bought by the overall franchise.

Disadvantages to the franchisee:

 Over saturation can occur if there are too many franchisees
situated at one location.
 Franchisee may get locked into contract provisions whereby
the purchases must be made through franchisors or certain
approved vendors.
 Franchisee agreement can be of short duration.
 Under most of the contracts, royalties are percentage of gross
sales, regardless of franchisee profits.
Advantages to the franchisor:
 Global presence
 Less investment
 After franchisee have paid for their franchised outlets, franchisor still
receive royalties
 Franchisees are not owners, they have greater incentive to work hard.
Thus, benefiting the franchisor

Disadvantages to the franchisor:

 Franchisee could harm the overall reputation, if they do not adhere to
the company standards.
 Lack of uniformity among the outlets can adversely affect the
customer loyalty.
 Intra-franchise competition is not desirable
 Ineffective franchised units affect the profitability of the franchisor.
Store Based Retail Strategy Mixes
Food Oriented Retailers
Type of Size
(000 sq. Location Merchandise Prices Services Promotion
Retailer ft.)

Convenience 2-3 Neighbourhood Medium width Average Average Moderate

Store and low depth
of assortment;
average quality

Supermarket 20 - Neighbourhood Extensive Average Average Heavy use

50 width and of
depth of newspaper,
assortment; flyers and
average coupons,
quality; self-service
and generic
Type of Size
(000 sq. Location Merchandise Prices Services Promotion
Retailer ft.)

Hypermarket 100 - Community Wide variety of Low Average Low

300 shopping food (60 – 70
centre or %) and general
isolated site merchandise

Warehouse 100 - Secondary Moderate width Very Low Little or

store 150 site, often in and low depth; low none
industrial emphasis on
area manufacturer
brands bought
at discounts
General Merchandise Retailers
Type of (000 Location Merchandise Prices Services Promotion
Retailer sq.

Specialty 4- Business Very narrow Competitive Average Heavy use

Stores 12 district or width of to above to of displays,
shopping assortment; average excellent may have
centers extensive extensive
depth of sales force.
average to
good quality
Category 50 - Stand Narrow Low Low to Low to
Specialists 120 alone, variety but high Moderate
power strip very deep
centers assortment
Department 100 Regional Broad variety, Average to Average Average to
Store - Malls, Stand average to high to high high, direct
200 alone deep mail,
assortment catalog use
Type of Size
(000 sq. Location Merchandise Prices Services Promotion
Retailer ft.)

Discount 60 - Stand Broad variety, Low Low Heavy use of

Store 80 alone, Low to average newspaper ads,
power strip assortment price oriented
centers messages
Factory 20 - Outlet Average variety, Low Low Use of
outlets 30 malls deep but newspapers,
varying brands not
assortment advertise,
Flea Street Average variety, Low Low low
Market (market average and
area) varying
Drug 3 - 15 Stand Narrow variety, Average Average Low to average
Stores alone, strip average to deep to high
centers assortment
Non Store-based Retail Strategy Mix
Direct Marketing
• It is a form of retailing in which a customer is first exposed to a good or
service through a non-personnel medium (such as direct mail, broadcast or
cable TV, radio, magazine, newspaper etc.) and then orders by mail, phone
(usually a toll free number), fax or by computer.

• Direct marketing can be divided into two broad categories:

– General: General marketing firms offer a full line of products from

clothing to house ware.

– Specialty: Specialty firms focus on narrow product lines.
Advantages of Direct Marketing
• Reduced costs: startup cost, inventory cost, location cost, sales force cost.

• Possibility of offering lower prices.

• Shopping convenience for the customers.

• Specific consumer segments can be pin pointed using mailers.

• A store based retailer can supplement its regular business and expand its
geographic area.
• Products cannot be examined prior to purchase.

• Prospective entrants may underestimate the costs. Catalog preparation,

printing and mailing can be an expensive job.

• The most popular catalogues draw purchases from less than 10% of

• Clutter exists

• Some firms have given a bad name to the industry due to late deliveries and
providing damaged goods.
Direct Selling
• It includes both personal contact with consumers in their homes (and other
non-store locations such as offices) and phone solicitations initiated by a

• Examples: Carpet selling, vacuum cleaner, other household products,

cosmetics, books, encyclopedia etc.

• It emphasizes convenience in shopping and a personal touch.
Vending Machine
• It is a retailing format involving the coin or card operated dispensing of hot
and cold beverages and food or snacks items.

• It eliminates the use of sales personnel.

• It allows round the clock sales.

• Location of the machines can be done according customer’s convenience.
World Wide Web
• WWW in the field of retailing relates to online retailing.

• It enables retailer’s world wide presence.

• Enhances the retailer’s brand.

• Provides information to the consumers.

• Promotes new products.

• Furnish customer service.

• Cost efficient

• Can announce special offers and also employment opportunities.
Single and Multi Channel Retailing

• Single-Channel Retailing:
– If a firm sells to consumers through one format.

• Multi-Channel Retailing:
– If a firm sells to consumers by combining store and non-
store retailing- as well as using multiple store formats.
• What multi-channel cross-selling opportunities exists?

• How should the product assortment strategy be adapted to each

channel? How much merchandise overlap should exist across

• Should prices be consistent across channels?

• How can a consistent image be devised and sustained across all


• What is the role of each channel?

• Ensuring the distribution of products to the stores as well as

directly to the customer.
• The retailer can use the most appropriate channel to sell particular goods.

• Enable to reach different target markets.

• Enable to fulfill the customers desires.

• A store based retailer can leverage tangible assets by using excess capacity
in its warehouse to service catalog or web sales.

• A firm can also leverage its well known brand name (an intangible asset)
by selling online in geographical areas where it does not have its stores.

• There is an opportunity for increased sales.
Integrated Multi-Channel Strategy
• Integrated promotions across channels.

• Ensuring product consistency across channels.

• Having an effective information system that can share data

across channels.

• Enacting a store pickup process for items purchased on the

web or through a catalog.

• Searching for multi-channel opportunities with appropriate