This chapter discusses different types of retail ownership structures. It covers independent retailers, chains, franchises, leased departments, and vertical marketing systems. For each type, the chapter describes characteristics, competitive advantages and disadvantages, and provides examples. It emphasizes that ownership structure has important implications for issues like bargaining power, economies of scale, flexibility, and long-term planning. Overall, the chapter provides a framework for classifying retailers according to their ownership and examines strategic implications of different structures.
This chapter discusses different types of retail ownership structures. It covers independent retailers, chains, franchises, leased departments, and vertical marketing systems. For each type, the chapter describes characteristics, competitive advantages and disadvantages, and provides examples. It emphasizes that ownership structure has important implications for issues like bargaining power, economies of scale, flexibility, and long-term planning. Overall, the chapter provides a framework for classifying retailers according to their ownership and examines strategic implications of different structures.
This chapter discusses different types of retail ownership structures. It covers independent retailers, chains, franchises, leased departments, and vertical marketing systems. For each type, the chapter describes characteristics, competitive advantages and disadvantages, and provides examples. It emphasizes that ownership structure has important implications for issues like bargaining power, economies of scale, flexibility, and long-term planning. Overall, the chapter provides a framework for classifying retailers according to their ownership and examines strategic implications of different structures.
This chapter discusses different types of retail ownership structures. It covers independent retailers, chains, franchises, leased departments, and vertical marketing systems. For each type, the chapter describes characteristics, competitive advantages and disadvantages, and provides examples. It emphasizes that ownership structure has important implications for issues like bargaining power, economies of scale, flexibility, and long-term planning. Overall, the chapter provides a framework for classifying retailers according to their ownership and examines strategic implications of different structures.
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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 4-2
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 4-6
Figure 4.2 Useful Online
Publications for Small Retailers
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Store-based Retail Strategy Mix
Convenience store Conventional supermarket Food-based superstore Combination store Box store Warehouse store Specialty store 4-8
Variety store Traditional department store Full-line discount store Off-price chain Factory outlet Membership club Flea market
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 4-9
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 4-10
Disadvantages Limited flexibility Higher investment costs Complex managerial control Limited independence among personnel
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 4-14
Franchise Formats Product/ Trademark Business Format franchisee acquires franchisee receives the identity of a assistance: location, franchisor by agreeing quality control, to sell products and/or accounting systems, operate under the start-up practices, franchisor name management training franchisee operates autonomously common for 2/3 of retail restaurants, real franchising sales estate 4-15
Figure 4.5 Business Qualifications Sought by
McDonalds for Potential Franchisees
Personal Integrity Entrepreneurial Spirit Ability to motivate and train
Ideal Franchisee
Ability to manage finances 4-16
Financial resources Willingness to complete training Willingness to devote time
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 small capital required acquire well-known names operating/managemen t skills taught cooperative marketing possible exclusive selling rights less costly per unit 4-20
Disadvantages oversaturation could occur franchisors may overstate potential locked into contracts agreements may be cancelled or voided royalties are based on sales, not profits
From the Franchisors Perspective
Benefits
Potential Problems
national or global presence possible qualifications for franchisee/ operations are set and enforced money obtained at delivery royalties represent revenue stream
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 4-22
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 blamed on provides a stream of department store revenue rather than lessee 4-23
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?
