Chapter 4

Retail Institutions by Ownership

RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH,
 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

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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
McDonald’s 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 Franchisor’s Perspective
Benefits Potential Problems
 national or global  potential for harm to
presence possible reputation
 qualifications for  lack of uniformity may
franchisee/ operations are affect customer loyalty
set and enforced  ineffective franchised
 money obtained at units may damage
delivery resale value,
 royalties represent profitability
revenue stream  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 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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