Retail Institutions by Ownership

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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 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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 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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 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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 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 quality control,
agreeing to sell
products and/or accounting systems,
operate under the start-up practices,
franchisor name management training
 franchisee operates  Ex. McDonalds, Pizza
autonomously Hut, Subway
 2/3 of retail
franchising sales
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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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 Competitive State of Franchising
Advantages Disadvantages
 small capital required  oversaturation could
 acquire well-known occur
names  franchisors may
 operating/manageme overstate potential
nt skills taught  locked into contracts
 cooperative  agreements may be
marketing 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
 lack of uniformity may
 qualifications for
affect customer loyalty
franchisee/ operations
 ineffective franchised
are set and enforced
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
– Ex. In-store beauty, jewellery stores.
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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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