Retail Institution

Week 2 and 3

Learning Objectives
When you complete this
chapter you should be able to:
Categorized retail institution by
1. Ownership
2. Store-based
3. Web, Nonstore-based, and other
forms of nontraditional retailing

LO 1: OWNERSHIP
1. INDEPENDENT
2. CHAIN
3. FRANCHISING
4. LEASED DEPARTMENT
5. VERTICAL MARKETING
SYSTEM
6. CONSUMER COOPERATIVE

1. Independent Retailers
An independent retailer owns one retail
unit
2.2 million independent U.S. retailers
70% of independents operated by owners
and their families
Why so many? Ease of entry
Capitalize on a very targeted customer
base and please shoppers in a friendly,
folksy way. WOM communication is very
important

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

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
Benefit from their widely known image and from
economies of scales and mass promotion
possibilities.

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

4-7

Disadvantages
Limited flexibility
Higher
investment costs
Complex
managerial
control
Limited
independence
among personnel
7

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
Franchisors have strong geographic coverage-due
to franchisee investments- and the motivation of
franchisees as owner operators
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice

4-8

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
4-9

Business Format
franchisee
receives
assistance:
location, quality
control,
accounting
systems, startup
practices,
management
training
common for
restaurants, real9
estate

Competitive State of Franchising

Advantages
low capital required
acquisition of wellknown names
operating/
management skills
taught
cooperative
marketing possible
exclusive rights
less costly per unit

4-10

Disadvantages
over-saturation
could occur
franchisors may
overstate
potential
contractual
confinement
agreements may
be cancelled or
voided
royalties are
based on sales,
not profits
10

From the Franchisors Perspective

Benefits
national or global
presence possible
qualifications for
franchisee/operations
are set and enforced
money obtained at
delivery
royalties represent
revenue stream

4-11

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
11

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
Exe: department, discount, or specialty
Retail Mgt. 11e (c) 2010 Pearson
4-12
Education, Inc. publishing as
store
Prentice Hall

12

Competitive State of Leased

Departments
Benefits
provides one-stop
shopping to
customers
lessees handle
management
reduces store costs
provides a stream
of revenue

4-13

Potential Pitfalls
lessees may
negate store
image
procedures may
conflict with
department store
problems may be
blamed on
department store
rather than lessee
13

Business Qualifications Sought by

McDonalds for Potential Franchisees
Experience

Financial resources

Growth capability

Planning ability

Strong credit
Ideal
Franchisee

Ability to manage
finances

Customer and
employee focus
Willingness to
complete training

Full-time
commitment

14

Vertical Marketing Systems

Consists of all the levels of
independently owned business
along a channel of distribution
Goods and services are normally
distributed through one of these
systems: independently, partially
integrated, and fully integrated
A vertical integrated channel gives
a firm greater control over sources
of supply
4-15

15

Figure 2.1: Vertical Marketing

Systems
Independent Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
Independent Manufacturer
Independent Wholesaler
Independent Retailer

4-16

is used if manufacturers,
wholesalers or retailers
are
small, intensive
distribution is
sought, customers are
widely
dispersed, unit sales are
high,
company resources are
low,
channel members seek
to share
costs and risks, and task
specialization is
desirable.
Exe: stationary stores,
16
gift shops

Figure 2.2: Vertical Marketing

Systems
is used if manufacturers
Partially Integrated Channel System and retailers are large,
selective or exclusive,
distribution is sought,
Functions:
unit sales are moderate,
Manufacturing
company resources are
Wholesaling
high, greater channel
Retailing
control is desired, and
existing wholesalers are
Ownership:
Two channel members own all facilities andtoo expensive or
unavailable.
perform all functions.
Exe: furniture stores,
appliances stores,
restaurants, computer
retailers, and mail-order
firms.
4-17

17

Figure 2.3: Vertical Marketing

Systems
Fully Integrated Channel System
Functions:
Manufacturing
Wholesaling
Retailing
Ownership:
All production and distribution functions
are performed by one channel member.

4-18

The firm has total control

over its strategy, direct
customer contact, and
exclusivity over its
offering; and it keeps all
profits.
This system is costly and
requires a lot of
expertise.

18

Consumer Cooperative
It is a retail firm owned by its
customer members.
A group of consumers invests, elects
officers, manages operations, and
shares the profits or savings that
accrue.
Most popular in food retailing.

WHY Consumer
Cooperative?
They feel they can operate stores as well
as or better than traditional retailers
They think existing retailers
inadequately fulfill customer needs for
healthful, environmentally safe products
They assume existing retailers make
excessive profits and that they can sell
merchandise for lower price

QUESTIONS FOR
DISCUSSION
What are the characteristics of each of the ownership forms?
Why does the concept of ease of entry usually have a greater
impact on independent retailers than on chain retailers?
What are the similarities and differences between chains and
franchising?
Why would a department store want to lease space to an
outside operator rather than run a business, such as shoes,
itself?
How could a small independent restaurant increase its
channel power?
Why have consumer cooperatives not expanded much?

LO 2: STORE-BASED
1. FOOD-ORIENTED
RETAILERS
2. GENERAL MERCHANDISE
RETAILERS

Store-Based Retail Strategy Mixes

Food-Oriented

General
Merchandise

Convenience store
Conventional supermarket
Specialty store
Food-based superstore Traditional
Combination store
department
Box (limited-line) store Full-line discount
Warehouse store
store

5-23

Variety store
Off-price chain
Factory outlet
Membership club
Flea market
23

Convenience Store Strategy Mix

Location:
Neighborhood

Merchandise:
Medium width
and low depth
of assortment;
average quality

5-24

Prices:
Average to
Above average
Atmosphere and
Services:
Average

Promotion:
Moderate

24

Conventional Supermarket
Strategy Mix
Location:
Neighborhood

Merchandise:
Extensive width
and depth
of assortment;
average quality;
manufacturer,
private, & generic brands

5-25

Prices:
Competitive

Atmosphere and
Services:
Average
Promotion:
Heavy use of
newspapers, flyers,
and coupons

25

Food-Based Superstore Strategy

Mix
Location:
Community shopping
center or isolated site

Merchandise:
Full assortment plus
health and beauty aids
and general
merchandise

5-26

Prices:
Competitive

Atmosphere and
Services:
Average

Promotion:
Heavy use of
newspapers, flyers

26

Combination Store Strategy Mix

Location:

Community shopping center

or isolated site

Merchandise:
Full assortment plus
health and beauty aids
and general merchandise

5-27

Prices:
Competitive

Atmosphere and
Services:
Average

Promotion:
Heavy use of
newspapers, flyers

27

Box Store Strategy Mix

Location:
Neighborhood

Merchandise:
Low width and depth of
assortment; few
perishables; few national
brands

5-28

Prices:
Very low

Atmosphere and
Services:
Low

Promotion:
Little or none

28

Warehouse Store Strategy Mix

Location:
Secondary site, often in
industrial area

Merchandise:
Moderate width and
low depth of
assortment; emphasis on
manufacturer brands
bought at discount

5-29

Prices:
Very low

Atmosphere and
Services:
Low

Promotion:
Little or none

29

Specialty Store Strategy Mix

Location:
Business district or
shopping center

Merchandise:
Very narrow width and
extensive depth of
assortment; average to
good quality

5-30

Prices:
Competitive to
Above average
Atmosphere and
Services:
Average to excellent

Promotion:
Heavy use of displays
Extensive sales force

30

Traditional Department Store

Strategy Mix
Location:
Business district, shopping
center or isolated store

Merchandise:
Extensive width and
depth of
assortment; average to
good quality

5-31

Prices:
Average to
Above average
Atmosphere and
Services:
Good to excellent
Promotion:
Heavy ad and catalog
use; direct mail;
personal selling

31

Full-Line Discount Store Strategy

Mix
Location:
Business district, shopping
center or isolated store

Merchandise:
Extensive width and
depth of
assortment; average to
good quality

5-32

Prices:
Competitive

Atmosphere/Services:
Slightly below
average to average

Promotion:
Heavy on newspapers;
price-oriented; selling

32

Variety Store Strategy Mix

Location:
Business district, shopping
center or isolated store

Merchandise:
Good width and
some depth of
assortment;
below-average
to average quality

5-33

Prices:
Average

Atmosphere/Services:
Below average

Promotion:
Use of newspapers

33

Off-Price Chain Strategy Mix

Location:
Business district, shopping
center or isolated store

Merchandise:
Moderate width and
poor depth of
assortment;
average to good quality;
low continuity

5-34

Prices:
Low

Atmosphere/Services:
Below average

Promotion:
Use of newspapers;
brands not advertised;
limited selling

34

Factory Outlet Strategy Mix

Location:
Out of the way site
or discount mall

Merchandise:
Moderate width and
poor depth of
assortment;
low continuity

5-35

Prices:
Very Low

Atmosphere/Services:
Very low

Promotion:
Little

35

Membership Club Strategy Mix

Location:
Isolated store or
secondary site

Merchandise:
Moderate width and
poor depth of
assortment;
low continuity

5-36

Prices:
Very Low

Atmosphere/Services:
Very low

Promotion:
Little;
some direct mail

36

Flea Market Strategy Mix

Location:
Isolated store

Merchandise:
Extensive width and
poor depth of
assortment;
low continuity;
variable quality

5-37

Prices:
Very Low

Atmosphere/Services:
Very low

Promotion:
Limited

37

LO 3: WEB, NONSTORED-BASED, AND

OTHER FORMS OF NONTRADITIONAL
RETAILING

1. DIRECT MARKETING
2. DIRECT SELLING
3. VENDING MACHINES
4. ELECTRONIC RETAILING
5. OTHER NONTRADITIONAL
FORMS OF RETALING

Characteristics of Direct
Marketing Customers

To whom

Married
Upper middle class
35-50 years old
Desire convenience, unique
items, good prices
Retail Mgt. 11e (c) 2010 Pearson
Education, Inc. publishing as
Prentice Hall

6-39

Selection Factors by
Customers
Company reputation and image
Ability to shop whenever consumer wants
Types of goods and services
Availability of toll-free phone number or
Web site for ordering
Credit card acceptance
Speed of promised delivery time
Competitive prices
Satisfaction with past purchases and good
return policy
6-40

Retail Mgt. 11e (c) 2010 Pearson

Education, Inc. publishing as
Prentice Hall

40

Media Selection

HOW
Printed catalogs
Freestanding

displays
Direct-mail ads and
brochures
Inserts with monthly
credit card and other
bills (statement
stuffers)

6-41

Ads or programs
in mass media
Banner ads or hot
links on the Web
Video kiosks

41

Advantages of Direct Marketing

Reduced costs
Lower prices
Large geographic coverage
Convenient to customers
Ability to pinpoint customer segments
Ability to eliminate sales tax for some
Ability to supplement regular
business without additional outlets

6-42

Retail Mgt. 11e (c) 2010 Pearson

Education, Inc. publishing as
Prentice Hall

42

Limitations of Direct Marketing

Products often cannot be
examined prior to purchase
Costs may be underestimated
Response rates to catalogs
under 10%
Clutter exists
Long lead time required
Industry reputation sometimes
negative
6-43

Retail Mgt. 11e (c) 2010 Pearson

Education, Inc. publishing as
Prentice Hall

43

Direct Selling
Direct selling includes
personal contact with
consumers in their homes
(and other nonstore locations
such as offices) and phone
solicitations initiated by
retailer.
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice

6-44

44

Vending Machines
Vending machines are a cash- or
card-operated retailing format
that sells goods and services.
Eliminates the use of sales
personnel and allows 24-hour
sales.
Machines placed wherever
convenient for consumers.
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice

6-45

45

Emergence of World Wide

Web
The World Wide Web (Web) is a way to
access information on the Internet.
People work with easy-to-use Web
addresses (sites) and pages.
Web users see words, charts, pictures,
and video while hearing audio.
Both Internet and World Wide Web
convey the same central theme: online
interactive retailing.

6-46

Retail Mgt. 11e (c) 2010 Pearson

Education, Inc. publishing as
Prentice Hall

46

The Role of the Web

Project a retail presence
Enhance image
Generate sales
Reach geographically-dispersed
customers
Provide information to customers
Promote new products
Demonstrate new product benefits

Retail Mgt. 11e (c) 2010

Pearson Education, Inc.
publishing as Prentice

6-47

47

The Role of the Web (cont.)

Provide customer service (e.g. E-mail)
Be more personal with consumers
Conduct a retail business efficiently
Obtain customer feedback
Promote special offers
Describe employment opportunities
Present information to potential
investors, franchisees, and the media

Retail Mgt. 11e (c) 2010

Pearson Education, Inc.
publishing as Prentice

6-48

48

Figure 2.5:
Five Stages of
Developing a
Retail Web
Presence

Retail Mgt. 11e (c) 2010

Pearson Education, Inc.
publishing as Prentice

6-49

49

Web Strengths
Using the Web

Shopping Online

information
entertainment
interactive
communications

6-50

selection
prices
convenience
fun

50

Reasons NOT to Shop Online

Lack of trust
Fear
Lack of security
Lack of personal communication

Retail Mgt. 11e (c) 2010

Pearson Education, Inc.
publishing as Prentice

6-51

51

Recommendations for
Web Retailers
Develop or exploit a well-known,
trustworthy retailer name
Tailor the product assortment
for Web shoppers
Enable the shopper to click as
little as possible
Provide a solid search engine
Use customer information
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice

6-52

52

Video Kiosks
A video kiosk is a freestanding,
interactive, electronic computer
terminal that displays products
and related information.
Some kiosks are located in
stores to enhance customer
service; others let consumers
place orders.
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice

6-53

53

Airport Retailing
Large group of prospective
shoppers
Captive audience
Strong sales-per-square-foot of
retail space
Strong sales of gift and travel items
Difficulty in replenishment
Longer operating hours
Duty-free shopping possible
Retail Mgt. 11e (c) 2010
Pearson Education, Inc.
publishing as Prentice

6-54

54