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Transcript of Chapter 4
Chapter 44Retail Institutions by Ownership
RETAIL MANAGEMENT:A STRATEGICAPPROACH,
10th Edition
BERMANBERMAN EVANS EVANS
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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, and retailers to exert influence in the distribution channel
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Figure 4-1: A Classification Method for Retail Institutions
I Ownership
IIStore-Based
Retail Strategy Mix
IIINonstore-Based
Retail Strategy Mix
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Ownership Forms
IndependentChainFranchiseLeased departmentVertical marketing systemConsumer cooperative
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Independent Retailers
2.2 million independent U.S. retailers70% of these are run by owners and their
familiesAccount for 35% of total stores and 3% of
U.S. store salesWhy so many? Ease of entry
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Competitive State of Independents
Advantages Flexibility in formats,
locations, and strategy Control over
investment costs and personnel functions, strategies
Personal image Consistency and
independence Strong entrepreneurial
leadership
Disadvantages Lack of bargaining
power Lack of economies of
scale Labor intensive
operations Over-dependence on
owner Limited long-run
planning
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Figure 4-2: Useful Online Publications for Small Retailers
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Store-Based Retail Strategy Mixes
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
Operate multiple outlets under common ownership
Engage in some level of centralized or coordinated purchasing and decision making
In the U.S., there are roughly 110,000 retail chains operating about 800,000 establishments
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Competitive State of Chains
Advantages Bargaining power Cost efficiencies Efficiency from
computerization, sharing warehouse and other functions
Defined management philosophy
Considerable efforts in long-run planning
Disadvantages Limited flexibility Higher investment
costs Complex managerial
control Limited
independence among personnel
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Figure 4-3: The Body Shop
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Nonstore-Based Retail Strategy Mixes and Nontraditional Retailing
Direct marketingDirect sellingVending machinesWorld Wide WebOther emerging retail formats
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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 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, startup practices, management training
Common for restaurants, real-estate
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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
IdealFranchisee
Experience
Full-timecommitment
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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: Franchise and Business Opportunities
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Competitive State of Franchising
Advantages Low capital required Acquire well-known
names Operating/
management skills taught Cooperative marketing
possible Exclusive rights Less costly per unit
Disadvantages Oversaturation could
occur Franchisors may
overstate potential Locked into contracts Agreements may be
cancelled or voided Royalties are based on
sales, not profits
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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 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
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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 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 4-8a: Vertical Marketing Systems
Independent Channel SystemFunctions:
ManufacturingWholesaling
Retailing
Ownership:Independent ManufacturerIndependent Wholesaler
Independent Retailer
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Figure 4-8b: Vertical Marketing Systems
Partially Integrated Channel SystemFunctions:
ManufacturingWholesaling
Retailing
Ownership:Two channel members own all facilities and
perform all functions
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Figure 4.8c: Vertical Marketing Systems
Fully Integrated Channel SystemFunctions:
ManufacturingWholesaling
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