1. Retail Institutions by Ownership
Chapter 4
Retail Institutions by Ownership
RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH
11th Edition
BERMAN EVANS 1

2. Chapter Objectives
To show the ways in which retail institutions can be classified
To study retailers on the basis of ownership type and to examine the characteristics of each
To explore the methods used by manufacturers, wholesalers, and retailers to exert influence in the distribution channel 2
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3. Figure 4-1: A Classification Method for Retail Institutions
Ownership II
Store-Based
Retail Strategy Mix
III
Nonstore-Based
Retail Strategy Mix 3

4. Ownership Forms Independent Chain Franchise Leased department
Vertical marketing system
Consumer cooperative 4
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5. Independent Retailers
2.2 million independent U.S. retailers
Account for one-third of total store sales
70% of independents operated by owners and their families
Why so many? Ease of entry 5
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6. 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 6

7. Figure 4-2: Useful Online Publications for Small Retailers7
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8. 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 8
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9. Competitive State of Chains
Advantages
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 9

10. Figure 4-3: Louis Vuitton – A Powerhouse of Upscale Retailing10
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11. 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 11
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12. 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 12

13. Figure 4-5: Business Qualifications Sought by McDonald’s for Potential Franchisees
Experience
Financial resources
Growth capability
Strong credit
Ideal
Franchisee
Planning ability
Customer and
employee focus
Ability to manage
finances
Willingness to
complete training
Full-time
commitment 13
Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

14. Figure 4-6: Structural Arrangements in Retail Franchising14
Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

15. 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 15
Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

16. Figure 4-7: Franchise and Business Opportunities16
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17. 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 17

18. 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 18

19. 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 19
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20. 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 20

21. Figure 4-8a: Vertical Marketing Systems
Independent Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
Independent Manufacturer
Independent Wholesaler
Independent Retailer 21

22. Figure 4-8b: Vertical Marketing Systems
Partially Integrated Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
Two channel members own all facilities and
perform all functions. 22

23. Figure 4-8c: Vertical Marketing Systems
Fully Integrated Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
All production and distribution functions
are performed by one channel member. 23

24. Figure 4-9: Sherwin-Williams’ Dual Vertical Marketing System24
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