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Chapter 4

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  1. Chapter 4 RETAIL MANAGEMENT: A STRATEGIC APPROACH, 9th Edition Retail Institutions by Ownership BERMAN EVANS

  2. 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

  3. Figure 4.1 A Classification Method for Retail Institutions I Ownership II Store-based Retail Strategy Mix III Nonstore-based Retail Strategy Mix

  4. Ownership Forms • Independent • Chain • Franchise • Leased department • Vertical marketing system • Consumer cooperative

  5. 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

  6. 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

  7. Figure 4.2 Useful Online Publications for Small Retailers

  8. 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

  9. 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

  10. 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

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

  12. Nonstore-based Retail Strategy Mix and Nontraditional Retailing • Direct marketing • Direct selling • Vending machine • World Wide Web • Other emerging retail formats

  13. Figure 4.4 MasterCuts: A Well-Defined Management Philosophy

  14. 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

  15. 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

  16. 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

  17. Figure 4.6 Structural Arrangements in Retail Franchising

  18. 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

  19. Figure 4.7 Franchises and Business Opportunities

  20. 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

  21. 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

  22. 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

  23. 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

  24. Figure 4.8 Vertical Marketing Systems Independent Channel System Functions: Manufacturing Wholesaling Retailing Ownership: Independent Manufacturer Independent Wholesaler Independent Retailer

  25. 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

  26. 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

  27. Figure 4.9 Sherwin-Williams’ Dual Vertical Marketing System

  28. 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?