LOG 561 RETAIL INSTITUTIONS BY OWNERSHIP 1. ©2013 Pearson Education Inc. publishing as Prentice...
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Transcript of LOG 561 RETAIL INSTITUTIONS BY OWNERSHIP 1. ©2013 Pearson Education Inc. publishing as Prentice...
LOG 561
RETAIL INSTITUTIONS BY OWNERSHIP
1
©2013 Pearson Education Inc. publishing as Prentice Hall 4-2
I Ownership
IIStore-Based
Retail Strategy Mix
IIINonstore-Based
Retail Strategy Mix
©2013 Pearson Education Inc. publishing as Prentice Hall 4-3
Ownership Forms
• Independent• Chain• Franchise• Leased department• Vertical marketing system• Consumer cooperative
©2013 Pearson Education Inc. publishing as Prentice Hall 4-4©2013 Pearson Education Inc. publishing as Prentice Hall 4-4©2013 Pearson Education Inc. publishing as Prentice Hall 4-4
Competitive State of Independents
• Advantages• Flexibility in formats,
locations, and strategy• Control over investment
costs, personnel functions, and 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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-5
Useful Online Publications for Small Retailers
©2013 Pearson Education Inc. publishing as Prentice Hall 4-6
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 900,000 establishments
©2013 Pearson Education Inc. publishing as Prentice Hall 4-7©2013 Pearson Education Inc. publishing as Prentice Hall 4-7©2013 Pearson Education Inc. publishing as Prentice Hall 4-7
Competitive State of ChainsAdvantages• Bargaining power• Cost efficiencies• Efficiency maintained by
computerization, warehouse sharing, 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• Excessive standardization
due to extreme concern for bargaining power
©2013 Pearson Education Inc. publishing as Prentice Hall 4-8
Louis Vuitton – A Powerhouse of Upscale Retailing
©2013 Pearson Education Inc. publishing as Prentice Hall 4-9
Franchising• A contractual agreement between a
franchisor and a retail franchisee that 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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-10©2013 Pearson Education Inc. publishing as Prentice Hall 4-10©2013 Pearson Education Inc. publishing as Prentice Hall 4-10
Franchise FormatsProduct/ 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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-11
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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-12©2013 Pearson Education Inc. publishing as Prentice Hall 4-12©2013 Pearson Education Inc. publishing as Prentice Hall 4-12
Franchise Disclosure Document Contents
• The Franchisor and Any Predecessors • Litigation History • Bankruptcy (i.e., any franchisees who may
have filed) • Listing of the Initial Franchise Fee and Other
Initial Payments • Other Fees and Expenses • Statement of Franchisee's Initial Investment • Obligations of Franchisee to Purchase or
Lease from Designated Sources • Obligations of Franchisee to Purchase or
Lease in Accordance with Specifications or from Authorized Suppliers
©2013 Pearson Education Inc. publishing as Prentice Hall 4-13©2013 Pearson Education Inc. publishing as Prentice Hall 4-13©2013 Pearson Education Inc. publishing as Prentice Hall 4-13
Franchise Disclosure Document Contents (cont)
• Financing Arrangements • Obligations of the Franchisor; Other Supervision,
Assistance or Services• Exclusive/Designated Area of Territory • Trademarks, Service Marks, Trade Names, Logotypes and
Commercial Symbols • Patents and Copyrights • Obligations of the Franchisee to Participate in the Actual
Operation of the Franchise Business• Restrictions on Goods and Services Offered by
Franchisee
©2013 Pearson Education Inc. publishing as Prentice Hall 4-14©2013 Pearson Education Inc. publishing as Prentice Hall 4-14©2013 Pearson Education Inc. publishing as Prentice Hall 4-14
Franchise Disclosure Document Contents (cont)
• Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
• Arrangements with Public Figures • Actual, Average, Projected or Forecasted
Franchise Sales, Profits or Earnings • Information Regarding Franchises of the
Franchisor • Financial Statements • Contracts • Acknowledgment of Receipt by Respective
Franchisee
©2013 Pearson Education Inc. publishing as Prentice Hall 4-15
Structural Arrangements in Retail Franchising
©2013 Pearson Education Inc. publishing as Prentice Hall 4-16
Wholesaler-Retailer Structural Franchising 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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-17
Franchise and Business Opportunities
©2013 Pearson Education Inc. publishing as Prentice Hall 4-18©2013 Pearson Education Inc. publishing as Prentice Hall 4-18©2013 Pearson Education Inc. publishing as Prentice Hall 4-18
Competitive State of Franchising
Advantages• low capital required• acquisition of well-
known names• operating/ management
skills taught• cooperative marketing
possible• exclusive rights• less costly per unit
Disadvantages• over-saturation could
occur• franchisors may
overstate potential• contractual confinement• agreements may be
cancelled or voided• royalties are based on
sales, not profits
©2013 Pearson Education Inc. publishing as Prentice Hall 4-19©2013 Pearson Education Inc. publishing as Prentice Hall 4-19©2013 Pearson Education Inc. publishing as Prentice Hall 4-19
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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-20
Potential Conflicts Between Franchisor and Franchisee
• High power of franchisor relative to franchisee. Franchisee needs franchisor approval to sell business, and to extend franchise. Lease is generally in name of franchisor
• Franchisor obtains profit based on gross sales, not on franchisee’s profitability
• Franchisor requires goods and services to be purchased from itself or approved vendor
• Franchisor can break up territory of existing franchisee, reducing its sales and profitability
©2013 Pearson Education Inc. publishing as Prentice Hall 4-21
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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-22©2013 Pearson Education Inc. publishing as Prentice Hall 4-22©2013 Pearson Education Inc. publishing as Prentice Hall 4-22
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
©2013 Pearson Education Inc. publishing as Prentice Hall 4-23
Common Leased Departments for Department Stores
• Cosmetics/Fragrances• Beauty Salon/Spa• Fine Jewelry• Furs• Photography studio (CPI)• Optical
©2013 Pearson Education Inc. publishing as Prentice Hall 4-24
Independent Channel System
Functions: ManufacturingWholesaling
Retailing
Ownership:Independent ManufacturerIndependent Wholesaler
Independent Retailer
©2013 Pearson Education Inc. publishing as Prentice Hall 4-25
Partially Integrated Channel System
Functions: ManufacturingWholesaling
Retailing
Ownership:Two channel members own all
facilities and perform all functions.
©2013 Pearson Education Inc. publishing as Prentice Hall 4-26
Fully Integrated Channel System
Functions: ManufacturingWholesaling
Retailing
Ownership:All production and distribution functions are performed by one channel member.