Chapter 4

Retail Institutions by Ownership

RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH,
9th Edition

BERMAN EVANS
 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
I
Ownership

II
Store-based
Retail Strategy Mix
III
Nonstore-based
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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 Competitive State of Independents
Advantages Disadvantages
Flexibility in formats, Lack of bargaining
locations, and strategy power
Control over investment Lack of economies of
costs and personnel scale
functions, strategies Labor intensive
Personal image operations
Consistency and Over-dependence on
independence owner
Strong entrepreneurial Limited long-run
leadership planning

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 Figure 4.2 Useful Online
Publications for Small Retailers

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 Store-based Retail Strategy Mix

Convenience store Variety store

Conventional Traditional
supermarket department store
Food-based Full-line discount
superstore store
Combination store Off-price chain
Box store Factory outlet
Warehouse store Membership club
Specialty store 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 Disadvantages
Bargaining power Limited flexibility
Cost efficiencies Higher investment
Efficiency from costs
computerization,
sharing warehouse Complex managerial
and other functions control
Defined management Limited
philosophy independence among
Considerable efforts personnel
in long-run planning

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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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 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 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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 Franchise Formats
Product/ Trademark Business Format
franchisee acquires franchisee receives
the identity of a assistance: location,
franchisor by agreeing
to sell products and/or
quality control,
operate under the accounting systems,
franchisor name start-up practices,
franchisee operates management training
autonomously common for
2/3 of retail restaurants, real
franchising sales estate

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 Figure 4.5 Business Qualifications Sought by
McDonalds for Potential Franchisees

Personal Integrity

Entrepreneurial Financial
Spirit resources
Ideal
Ability to motivate Franchisee Willingness to
and train complete training
Ability to manage Willingness to
finances devote time

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 Figure 4.6 Structural Arrangements in
Retail Franchising

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 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

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 Figure 4.7 Franchises and
Business Opportunities

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 Competitive State of Franchising
Advantages Disadvantages
small capital required oversaturation could
acquire well-known occur
names franchisors may
operating/managemen overstate potential
t skills taught locked into contracts
cooperative marketing agreements may be
possible cancelled or voided
exclusive selling
royalties are based
rights
on sales, not profits
less costly per unit

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 From the Franchisors Perspective
Benefits Potential Problems
national or global potential for harm to
presence possible reputation
qualifications for lack of uniformity may
franchisee/ operations affect customer loyalty
are set and enforced ineffective franchised
units may damage
money obtained at resale value,
delivery profitability
royalties represent potential limits to
revenue stream 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 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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 Competitive State of Leased
Departments
Benefits Potential Pitfalls
provides one-stop lessees may negate
shopping to store image
customers procedures may
lessees handle conflict with
management department store
reduces store costs problems may be
provides a stream of blamed on
revenue department store
rather than lessee

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 Figure 4.8 Vertical Marketing
Systems
Independent Channel System
Functions:
Manufacturing
Wholesaling
Retailing

Ownership:
Independent Manufacturer
Independent Wholesaler
Independent Retailer

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 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

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 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

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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?

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