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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





9th Edition

Retail Institutions by Ownership


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

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Figure 4.1 A Classification Method for Retail Institutions





Retail Strategy Mix



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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Flexibility in formats, locations, and strategy

Control over investment costs and personnel functions, strategies

Personal image

Consistency and independence

Strong entrepreneurial leadership


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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Bargaining power

Cost efficiencies

Efficiency from computerization, sharing warehouse and other functions

Defined management philosophy

Considerable efforts in long-run planning


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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Franchising Retailing

  • 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 Retailing

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

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

Personal Integrity







Ability to motivate

and train

Willingness to

complete training

Ability to manage


Willingness to

devote time

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Figure 4.6 Structural Arrangements in for Potential FranchiseesRetail Franchising

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Wholesaler-Retailer for Potential FranchiseesStructural 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 for Potential FranchiseesBusiness Opportunities

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Advantages for Potential Franchisees

small capital required

acquire well-known names

operating/management skills taught

cooperative marketing possible

exclusive selling rights

less costly per unit


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 for Potential Franchisees

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 for Potential Franchisees

  • 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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Benefits for Potential Franchisees

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

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Figure 4.8 Vertical Marketing Systems for Potential Franchisees

Independent Channel System






Independent Manufacturer

Independent Wholesaler

Independent Retailer

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Figure 4.8 Vertical Marketing Systems for Potential Franchisees

Partially Integrated Channel System






Two channel members own all facilities and

perform all functions

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Figure 4.8 Vertical Marketing Systems for Potential Franchisees

Fully Integrated Channel System






All production and distribution functions

are performed by one channel member

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Web-Based Exercise System

  • 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?