Retailing and Buying

Factory outlet retailing

Discount/warehouse clubs

Franchising

Prof.C.Vignali PhD

Introduction

• Two of the most recent developments in retail formats are warehouse clubs and factory outlets, both of which have been highly successful in the USA and which are now developing in the UK (Fernie, 1995). The warehouse format is reaching maturity in the USA and key operators such as Sam’s, Price Club and Costco are seeking opportunities to expand outside the USA. Warehouse outlets operate on the basis of scrambled merchandising which means that they sell everything from car tyres to baked beans. Stock is sold in bulk and at significantly lower prices than in traditional retail outlets.

Factory outlet retailing

• Centres offer an attractive, modern accessible retail environment from which manufactures sell their brand name products to the public at discount prices.

• The product lines are mainly fashion clothing, footwear, sport & household goods.

• First opened in Pennsylvania, USA. 1970’s

Factory outlet retailing

• First factory outlet centre in the UK was developed at Hornsea on Humberside (Hornsea Freeport) which opened in 1992.

• More recent developments were “Cheshire Oaks” opened in 1995, with 16,700 square metres, it is the largest in the UK.

• More recent developments include the Lowry Designer Outlet in M/cr.

Development & management process• Important in influencing the location, and

trading characteristics.

• Number of planning issues.

• Viability of town centres

• Wide range of shops

• Means of transport

Location retailing issues

cost location of the target market kinds of products being sold availability of public transportation customer characteristics competitors location relative ease of traffic flow, including pedestrians parking and major thorough fares complementary stores

Strategy

• Many companies in the discount retailing market are following a strategy of expansion. This development can be seen in both the increased number of store openings and in the movement into overseas markets by several companies. However, care must be taken with regard to how such strategies are handled, developed and communicated.

Conclusion

• Shopping at out-of-town outlet centres is a totally different shopping experience. Not only is the experience new, but it brings within the reach of the discounters a new type of customer, who perhaps does not fit the stereotypical less-affluent consumer profile. Attracting and keeping these customers is a key challenge for discount clothing retailers

Discount/warehouse clubs

• A warehouse club offers its members low prices on a limited selection of nationally branded and private label merchandise within a wide range of product categories.

• Rapid inventory turnover, high sales volumes and reduced operating costs enable warehouses clubs to operate at lower margins.

Examples of warehouse clubs

• The following are warehouse clubs which operate in the UK.

• Booker

• Makro

• Tradex

• Readmens

• Cactus

Discount/warehouse clubs

• Nearly all warehouse clubs trade as ‘members only’ club.

• A concept that is successfully utilised by UK Market operators (Flea markets) and retail warehouses to avoid UK planning rules and Sunday trading laws regarding the use of industrial land or buildings for retail use.

Reducing costs

• In order to reduce costs, the clubs have minimal sales help in each location.

• Do not spend a lot of capital on advertising.

• Therefore the clubs primarily stock brand names products that do not require promotion through advertising or explanations by sales people

Appeal to target market

• To appeal to both business and retail members, the warehouse clubs a wide range categories.

• Dry grocery, office supply, automotive, books, computer supplies, hardware and sports equipment.

• The clubs strive to be “one stop” shopping experience.

Competitive Price Evaluation

• Competitive Price Evaluation - When analysing competitors who have merchandise in the clubs, manufacturers should pay attention to the price range of the category and the retail prices of non-club operators. Knowing the category price range helps to develop a package size that meets the buyer's needs and helps to understand the competitor's cost of goods.

Product Rotation Plan

• Product Rotation Plan - Club buyers constantly rotate new and interesting products into their merchandise mix. A vendor that has a number of items that meet the buyer's needs should create a rotation plan, instead of trying to sell all of the products at once. By developing an in-and-out strategy that is centred around a theme, the vendor may be able to generate sales across a larger number of items, even though they are not stocked at the same time. Additionally, there is always the possibility that an item will perform beyond expectations and warrant everyday consideration by the buyer.

Strategies

• Discount warehouse clubs must meet the needs of the club buyers. These include the following, along with key tasks for some:

• 1. Product Sales - product volume plan for manufacturing and broker management.2. Marketing - margin plan and brand or product development.3. Strategic Alliances - usually with contract manufacturers or packagers.4. Sales Administration - customer service, monitor warehousing and actual sales

Conclusion

• Warehouse clubs purchase products directly from manufactures to it’s distribution centres. Due to the volume that the clubs generate, and especially buying in bulk the savings are passed on to its members.

Franchising

• In America over one-third of all retail sales are made through firms operating under the Franchise system. It is becoming increasingly popular in the UK.

• Franchising is really the ‘hiring out’ or licensing products to other companies. A franchise gives permission to sell a product and trade under a certain name in a particular area.

Examples of Franchising

• McDonalds/Burger king

• Pizza Hut

• KFC

• Dyno rod

• Shell

• Body shop

Benefits

• The franchisee benefits from trading under a well known name.

• Enjoys a local monopoly• Training is usually arranged by the

franchisor.• Use of well-known trademark or trade

name

• Few start up problems

Disadvantages

• On going reporting requirements.

• Costs of supplies or materials may be more expensive

• Inflexibility due to restrictions imposed by franchisor

Long term relationship

• Franchisors must view franchising as the establishment of a series of long-term relationships, and the ongoing success of the company as a franchisor depends on the harmony of these relationships.

Shared goals

• Common, but not essential, features of franchised businesses are group purchasing arrangements, an exclusive territory for each franchisee, group advertising programs, initial and ongoing training and support from the Franchisor, and assistance from the Franchisor with equipment specification, site selection and premises fit-out and signage

Conclusion

• While franchising is mostly used in the fast food industry it can be applied to hotels, automotive services,etc, but every company still uses franchising for the same reason - to achieve outlet growth and maximise profits