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Chapter 4. RETAIL MANAGEMENT: A STRATEGIC APPROACH, 9th Edition. Retail Institutions by Ownership. BERMAN EVANS. Chapter Objectives. To show the ways in which retail institutions can be classified

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Chapter 4 l.jpg

Chapter 4

RETAIL

MANAGEMENT:

A STRATEGIC

APPROACH,

9th Edition

Retail Institutions by Ownership

BERMAN EVANS


Chapter objectives l.jpg

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


Figure 4 1 a classification method for retail institutions l.jpg

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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Advantages

Flexibility in formats, locations, and strategy

Control over investment costs and personnel functions, 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

Competitive State of Independents


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Figure 4.2 Useful Online Publications for Small Retailers


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Convenience store

Conventional supermarket

Food-based superstore

Combination store

Box store

Warehouse store

Specialty store

Variety store

Traditional department store

Full-line discount store

Off-price chain

Factory outlet

Membership club

Flea market

Store-based Retail Strategy Mix


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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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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

Competitive State of Chains


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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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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, start-up practices, management training

common for restaurants, real estate

Franchise Formats


Figure 4 5 business qualifications sought by mcdonald s for potential franchisees l.jpg

Figure 4.5 Business Qualifications Sought by McDonald’s for Potential Franchisees

Personal Integrity

Entrepreneurial

Spirit

Financial

resources

Ideal

Franchisee

Ability to motivate

and train

Willingness to

complete training

Ability to manage

finances

Willingness to

devote time


Figure 4 6 structural arrangements in retail franchising l.jpg

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


Figure 4 7 franchises and business opportunities l.jpg

Figure 4.7 Franchises and Business Opportunities


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Advantages

small capital required

acquire well-known names

operating/management skills taught

cooperative marketing possible

exclusive selling rights

less costly per unit

Disadvantages

oversaturation could occur

franchisors may overstate potential

locked into contracts

agreements may be cancelled or voided

royalties are based on sales, not profits

Competitive State of Franchising


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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

From the Franchisor’s Perspective


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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


Competitive state of leased departments l.jpg

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

Competitive State of Leased Departments


Figure 4 8 vertical marketing systems l.jpg

Figure 4.8 Vertical Marketing Systems

Independent Channel System

Functions:

Manufacturing

Wholesaling

Retailing

Ownership:

Independent Manufacturer

Independent Wholesaler

Independent Retailer


Figure 4 8 vertical marketing systems25 l.jpg

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


Figure 4 8 vertical marketing systems26 l.jpg

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


Figure 4 9 sherwin williams dual vertical marketing system l.jpg

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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