18072760 retail institutions by ownership

8/7/2019 18072760 Retail Institutions by Ownership

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Chapter 44Retail Institutions by Ownership

RETAIL

MANAGEMENT:

A STRATEGIC

APPROACH,



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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 examine the

characteristics of each

To explore the methods used by

manufacturers, wholesalers, andretailers to exert influence in the

distribution channel



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Figure 4.1 A Classification

Method for Retail InstitutionsI

Ownership

II

Store-based

Retail Strategy Mix

III

Nonstore-basedRetail 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

familiesAccount for 40% of total stores and 3% of

U.S. store sales

Why so many? Ease of entry



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Competitive State of Independents

Advantages

Flexibility in formats,locations, and strategy

Control over investmentcosts and personnelfunctions, strategies

Personal image

Consistency and

independence Strong entrepreneurial

leadership

Disadvantages

Lack of bargainingpower

Lack of economies of scale

Labor intensiveoperations

Over-dependence on

owner Limited long-run

planning



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Figure 4.2 Useful Online

Publications for Small Retailers

http://www.sba.gov/



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Store-based Retail Strategy Mix

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



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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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Competitive State of Chains

Advantages

Bargaining power

Cost efficiencies

Efficiency fromcomputerization,sharing warehouseand other functions

Defined management

philosophyConsiderable efforts

in long-run planning

Disadvantages

Limited flexibility

Higher investment

costsComplex managerial

control

Limited

independence amongpersonnel



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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 RetailingDirect marketing

Direct selling

Vending machineWorld 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 businessunder 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 acquiresthe identity of a

franchisor by agreeingto sell products and/or operate under thefranchisor 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



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Figure 4.5 Business Qualifications Sought by

McDonald’s for Potential Franchisees

Personal Integrity

Willingness to

complete training

Financialresources

Willingness to

devote time

Ability to manage

finances

Ability to motivate

and train

EntrepreneurialSpirit

Ideal

Franchisee

http://www.mcdonalds.com/corporate/franchise



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Figure 4.6 Structural Arrangements in

Retail Franchising



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Wholesaler-Retailer

Structural ArrangementsVoluntary: A wholesaler sets up a franchise

system and grants franchises to individual

retailersCooperative: 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 Franchises and

Business Opportunities

http://www.ftc.gov/



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Competitive State of Franchising

Advantages

small capital required

acquire well-knownnames

operating/management skills taught

cooperative marketingpossible

exclusive sellingrights

less costly per unit

Disadvantages oversaturation could

occur

franchisors mayoverstate potential

locked into contracts

agreements may becancelled or voided

royalties are basedon sales, not profits

http://www.ftc.gov/bcp/franchise/netfran.htm

http://www.ftc.gov/bcp/franchise/netfran.htm



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From the Franchisor’s Perspective

Benefits

national or global

presence possible

qualifications for franchisee/ operations are

set and enforced

money obtained at

delivery

royalties representrevenue stream

Potential Problems potential for harm to

reputation

lack of uniformity mayaffect customer loyalty

ineffective franchisedunits may damageresale 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 allaspects 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

DepartmentsBenefits

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 4.8 Vertical Marketing

SystemsIndependent Channel System

Functions:

Manufacturing

WholesalingRetailing

Ownership:

Independent Manufacturer

Independent Wholesaler

Independent Retailer



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SystemsPartially Integrated Channel System

Functions:

Manufacturing

Wholesaling

Retailing

Ownership:

Two channel members own all facilities andperform all functions



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SystemsFully Integrated Channel System

Functions:

Manufacturing

Wholesaling

Retailing

Ownership:

All production and distribution functionsare performed by one channel member



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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?

http://www.subway.com/

18072760 retail institutions by ownership

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