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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
blamed on
provides a stream of
department store
revenue
rather than lessee
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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?

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