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Chapter 44Retail Institutions by Ownership

RETAIL

MANAGEMENT:

A STRATEGIC

APPROACH, 9th Edition

  ERMAN

ERMAN

  EVANS

 EVANS

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4-2

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, andretailers to exert influence in the

distribution channel

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4-3

i!ure 4"# $ Classification

%ethod for &etail 'nstitutionsI

Ownership

II

Store-based

Retail Strategy Mix

III

 Nonstore-basedRetail Strategy Mix

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4-4

Ownership orms

Independent

Chain

Franchise

Leased department

Vertical marketing system

Consumer cooperative

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4-(

'ndependent &etailers

2. million independent !.". retailers

#$% o& these are run by owners and their

&amilies 'ccount &or ($% o& total stores and )% o&

!.". store sales

*hy so many+ ,ase o& entry

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4-)

Competitive *tate of 'ndependents

$dvanta!es

lexibility in formats,locations, and strate!y

Control over investmentcosts and personnelfunctions, strate!ies

+ersonal ima!e

Consistency and

independence *tron! entrepreneurial

leadership

isadvanta!es

ac. of bar!ainin!power 

ac. of economies ofscale

abor intensiveoperations

Over-dependence on

owner  imited lon!-run

plannin!

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4-/

i!ure 4"2 0seful Online

+ublications for *mall &etailers

http://www.sba.gov/

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4-1

*tore-based &etail *trate!y %ix

Convenience store

Conventional

supermar.et

ood-based

superstore

Combination store

ox store

arehouse store

*pecialty store

ariety store

Traditional

department store

ull-line discount

store

Off-price chain

actory outlet

%embership club

lea mar.et

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4-5

Chain &etailers

Operates multiple outlets under common

ownership

,ngages in some level o& centrali-ed orcoordinated purchasing and decision

making

In the !.". there are roughly $$$$$ retail

chains operating about /#$$$$

establishments

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4-#6

Competitive *tate of Chains

$dvanta!es

ar!ainin! power 

Cost efficiencies

7fficiency fromcomputeri8ation,sharin! warehouseand other functions

efined mana!ement

philosophyConsiderable efforts

in lon!-run plannin!

isadvanta!es

imited flexibility

9i!her investment

costsComplex mana!erial

control

imited

independence amon!personnel

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4-##

i!ure 4"3 Carrefour: The ar!est

orei!n-ased &etailer in the orld

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4-#2

;onstore-based &etail *trate!y

%ix and ;ontraditional &etailin!0irect marketing

0irect selling

Vending machine*orld *ide *eb

Other emerging retail &ormats

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4-#3

i!ure 4"4 %asterCuts: $ ell-efined

%ana!ement +hilosophy

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4-#4

ranchisin!

 ' contractual agreement between a

&ranchisor and a retail &ranchisee which

allows the &ranchisee to conduct businessunder an established name and according

to a given pattern o& business

Franchisee pays an initial &ee and a monthly

percentage o& gross sales in e1change &orthe e1clusive rights to sell goods and

services in an area

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4-#(

ranchise ormats

+roduct< Trademar.

franchisee ac=uiresthe identity of a

franchisor by a!reein!to sell products and

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4-#)

i!ure 4"( usiness >ualifications *ou!ht by

%conald?s for +otential ranchisees

Personal Integrity

Willingness to

complete training 

inancialreso!rces

Willingness to

de"ote time

#bility to manage

$inances

#bility to moti"ate

and train

Entreprene!rialSpirit

Ideal

Franchisee

http://www.mcdonalds.com/corporate/franchise

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4-#/

i!ure 4") *tructural $rran!ements in

&etail ranchisin!

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4-#1

holesaler-&etailer

*tructural $rran!ementsVoluntary: ' wholesaler sets up a &ranchise

system and grants &ranchises to individual

retailersCooperative: ' group o& retailers sets up a

&ranchise system and shares the ownership

and operations o& a wholesaling

organi-ation

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4-#5

i!ure 4"/ ranchises and

usiness Opportunities

http://www.ftc.gov/

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4-26

Competitive *tate of ranchisin!

$dvanta!es

small capital re=uired

ac=uire well-.nown

names operatin!

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4-2#

rom the ranchisor?s +erspective

enefits

national or global

presence possible

uali&ications &or&ranchisee3 operations

are set and en&orced

money obtained at

delivery royalties represent

revenue stream

+otential +roblems potential &or harm to

reputation

lack o& uni&ormity maya&&ect customer loyalty

ine&&ective &ranchisedunits may damageresale value

pro&itability potential limits to

&ranchisor rules

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4-22

eased epartments

4  ' leased department is a department in a

retail store that is rented to an outside party

 5 6he proprietor is responsible &or allaspects o& its business and pays a

percentage o& sales as rent

 5 6he department store sets operating

restrictions to ensure consistency and

coordination

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4-23

Competitive *tate of eased

epartmentsenefits

provides one-stop

shoppin! to

customers

lessees handle

mana!ement

reduces store costs

provides a stream of

revenue

+otential +itfalls

lessees may ne!ate

store ima!e

procedures may

conflict with

department store

problems may be

blamed on

department store

rather than lessee

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4-24

i!ure 4"1 ertical %ar.etin!

*ystemsIndependent Channel Syste

F!ncti"ns: 

Man!$act!ring

WholesalingRetailing

O#nership:

Independent Man!$act!rer 

Independent Wholesaler 

Independent Retailer 

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4-2(

i!ure 4"1 ertical %ar.etin!

*ystemsPartially Inte$rated Channel Syste

F!ncti"ns: 

Man!$act!ring

Wholesaling

Retailing

O#nership:

%wo channel members own all $acilities and per$orm all $!nctions

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4-2)

i!ure 4"1 ertical %ar.etin!

*ystemsF!lly Inte$rated Channel Syste

F!ncti"ns: 

Man!$act!ring

Wholesaling

Retailing

O#nership:

#ll prod!ction and distrib!tion $!nctionsare per$ormed by one channel member 

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4-2/

i!ure 4"5 *herwin-illiams? ual

ertical %ar.etin! *ystem

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4-21

eb-ased 7xercise

"ubway is one o& the largest retail

&ranchisors in the world

7ased on the in&ormation &ound underFranchise Opportunities on the "ubway

website would you be interested in

becoming a "ubway &ranchisee+

http://www.subway.com/