4retal instbyownrship


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4retal instbyownrship

  1. 1. Chapter 4 Retail Institutions by Ownership RETAIL MANAGEMENT: A STRATEGIC APPROACH , 10th Edition BERMAN EVANS
  2. 2. Chapter Objectives <ul><li>To show the ways in which retail institutions can be classified </li></ul><ul><li>To study retailers on the basis of ownership type and examine the characteristics of each </li></ul><ul><li>To explore the methods used by manufacturers, wholesalers, and retailers to exert influence in the distribution channel </li></ul>
  3. 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. 4. Ownership Forms <ul><li>Independent </li></ul><ul><li>Chain </li></ul><ul><li>Franchise </li></ul><ul><li>Leased department </li></ul><ul><li>Vertical marketing system </li></ul><ul><li>Consumer cooperative </li></ul>
  5. 5. Independent Retailers <ul><li>2.2 million independent U.S. retailers </li></ul><ul><li>70% of these are run by owners and their families </li></ul><ul><li>Account for 35% of total stores and 3% of U.S. store sales </li></ul><ul><li>Why so many? Ease of entry </li></ul>
  6. 6. Competitive State of Independents <ul><li>Advantages </li></ul><ul><li>Flexibility in formats, locations, and strategy </li></ul><ul><li>Control over investment costs and personnel functions, strategies </li></ul><ul><li>Personal image </li></ul><ul><li>Consistency and independence </li></ul><ul><li>Strong entrepreneurial leadership </li></ul><ul><li>Disadvantages </li></ul><ul><li>Lack of bargaining power </li></ul><ul><li>Lack of economies of scale </li></ul><ul><li>Labor intensive operations </li></ul><ul><li>Over-dependence on owner </li></ul><ul><li>Limited long-run planning </li></ul>
  7. 7. Figure 4-2: Useful Online Publications for Small Retailers
  8. 8. Store-Based Retail Strategy Mixes <ul><li>Convenience store </li></ul><ul><li>Conventional supermarket </li></ul><ul><li>Food-based superstore </li></ul><ul><li>Combination store </li></ul><ul><li>Box store </li></ul><ul><li>Warehouse store </li></ul><ul><li>Specialty store </li></ul><ul><li>Variety store </li></ul><ul><li>Traditional department store </li></ul><ul><li>Full-line discount store </li></ul><ul><li>Off-price chain </li></ul><ul><li>Factory outlet </li></ul><ul><li>Membership club </li></ul><ul><li>Flea market </li></ul>
  9. 9. Chain Retailers <ul><li>Operate multiple outlets under common ownership </li></ul><ul><li>Engage in some level of centralized or coordinated purchasing and decision making </li></ul><ul><li>In the U.S., there are roughly 110,000 retail chains operating about 800,000 establishments </li></ul>
  10. 10. Competitive State of Chains <ul><li>Advantages </li></ul><ul><li>Bargaining power </li></ul><ul><li>Cost efficiencies </li></ul><ul><li>Efficiency from computerization, sharing warehouse and other functions </li></ul><ul><li>Defined management philosophy </li></ul><ul><li>Considerable efforts in long-run planning </li></ul><ul><li>Disadvantages </li></ul><ul><li>Limited flexibility </li></ul><ul><li>Higher investment costs </li></ul><ul><li>Complex managerial control </li></ul><ul><li>Limited independence among personnel </li></ul>
  11. 11. Figure 4-3: The Body Shop
  12. 12. Nonstore-Based Retail Strategy Mixes and Nontraditional Retailing <ul><li>Direct marketing </li></ul><ul><li>Direct selling </li></ul><ul><li>Vending machines </li></ul><ul><li>World Wide Web </li></ul><ul><li>Other emerging retail formats </li></ul>
  13. 13. Franchising <ul><li>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 </li></ul><ul><li>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 </li></ul>
  14. 14. Franchise Formats <ul><li>Product/Trademark </li></ul><ul><li>Franchisee acquires the identity of a franchisor by agreeing to sell products and/or operate under the franchisor name </li></ul><ul><li>Franchisee operates autonomously </li></ul><ul><li>2/3 of retail franchising sales </li></ul><ul><li>Business Format </li></ul><ul><li>Franchisee receives assistance: location, quality control, accounting systems, startup practices, management training </li></ul><ul><li>Common for restaurants, real-estate </li></ul>
  15. 15. Figure 4-5: Business Qualifications Sought by McDonald’s for Potential Franchisees Financial resources Customer and employee focus Strong credit Willingness to complete training Ability to manage finances Planning ability Growth capability Ideal Franchisee Experience Full-time commitment
  16. 16. Figure 4-6: Structural Arrangements in Retail Franchising
  17. 17. Wholesaler-Retailer Structural Arrangements <ul><li>Voluntary: A wholesaler sets up a franchise system and grants franchises to individual retailers </li></ul><ul><li>Cooperative: A group of retailers sets up a franchise system and shares the ownership and operations of a wholesaling organization </li></ul>
  18. 18. Figure 4-7: Franchise and Business Opportunities
  19. 19. Competitive State of Franchising <ul><li>Advantages </li></ul><ul><li>Low capital required </li></ul><ul><li>Acquire well-known names </li></ul><ul><li>Operating/ management skills taught </li></ul><ul><li>Cooperative marketing possible </li></ul><ul><li>Exclusive rights </li></ul><ul><li>Less costly per unit </li></ul><ul><li>Disadvantages </li></ul><ul><li>Oversaturation could occur </li></ul><ul><li>Franchisors may overstate potential </li></ul><ul><li>Locked into contracts </li></ul><ul><li>Agreements may be cancelled or voided </li></ul><ul><li>Royalties are based on sales, not profits </li></ul>
  20. 20. From the Franchisor’s Perspective <ul><li>Benefits </li></ul><ul><li>National or global presence possible </li></ul><ul><li>Qualifications for franchisee/operations are set and enforced </li></ul><ul><li>Money obtained at delivery </li></ul><ul><li>Royalties represent revenue stream </li></ul><ul><li>Potential Problems </li></ul><ul><li>Potential for harm to reputation </li></ul><ul><li>Lack of uniformity may affect customer loyalty </li></ul><ul><li>Ineffective franchised units may damage resale value, profitability </li></ul><ul><li>Potential limits to franchisor rules </li></ul>
  21. 21. Leased Departments <ul><li>A leased department is a department in a retail store that is rented to an outside party </li></ul><ul><ul><li>The proprietor is responsible for all aspects of its business and pays a percentage of sales as rent </li></ul></ul><ul><ul><li>The department store sets operating restrictions to ensure consistency and coordination </li></ul></ul>
  22. 22. Competitive State of Leased Departments <ul><li>Benefits </li></ul><ul><li>Provides one-stop shopping to customers </li></ul><ul><li>Lessees handle management </li></ul><ul><li>Reduces store costs </li></ul><ul><li>Provides a stream of revenue </li></ul><ul><li>Potential Pitfalls </li></ul><ul><li>Lessees may negate store image </li></ul><ul><li>Procedures may conflict with department store </li></ul><ul><li>Problems may be blamed on department store rather than lessee </li></ul>
  23. 23. Definition- vertical marketing system <ul><li>It consists of all the levels of independently owned business along a channel of distribution. Goods and services are normally distributed through one of these systems- independent, partially integrated, fully integrated. </li></ul><ul><li>There are three channels- manufacturing, wholesaling, retailing. </li></ul>
  24. 24. Figure 4-8a: Vertical Marketing Systems Independent Channel System Functions: Manufacturing Wholesaling Retailing Ownership: Independent Manufacturer Independent Wholesaler Independent Retailer
  25. 25. Figure 4-8b: Vertical Marketing Systems Partially Integrated Channel System Functions: Manufacturing Wholesaling Retailing Ownership: Two channel members own all facilities and perform all functions
  26. 26. Figure 4.8c: Vertical Marketing Systems Fully Integrated Channel System Functions: Manufacturing Wholesaling Retailing Ownership: All production and distribution functions are performed by one channel member
  27. 27. Figure 4-9: Sherwin-Williams’ Dual Vertical Marketing System