Chapter 4 Retail Institutions by Ownership RETAIL MANAGEMENT

Chapter Objectives þTo show the ways in which retail institutions can be classified þTo study retailers on the basis of ownership type and to examine the characteristics of each þTo explore the methods used by manufacturers, wholesalers, and retailers to exert influence in the distribution channel Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -22

Overview A retail institution is the basic format or structure of a business. 1. In the United States, there are 2. 3 million retail firms operating 3 million establishments. An institutional study of retailers does the following: 1. It shows the relative sizes and diversity of different kinds of retailing. 2. It indicates how various retailers are affected by the external environment. 3. It enables firms to better understand enact their own strategies when selecting an organizational mission, choosing an ownership alternative, defining the goods/service category, and setting objectives. 4 -3

Figure 4 -1: A Classification Method for Retail Institutions, are examined from the perspectives I Ownership II Store-Based Retail Strategy Mix III Nonstore-Based Retail Strategy Mix Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -4 4

Ownership Forms ¯Independent ¯Chain ¯Franchise ¯Leased department ¯Vertical marketing system ¯Consumer cooperative Retail Mgt.

Independent Retailers ¯ An independent retailer owns only one outlet ¯ 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 ¯ SBDC ¯ Advantages and Disadvantages Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -6 6

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 ¯Advantages and Disadvantages Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -77

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 ¯Wholesaler-Retailer Structural Franchising Arrangements ¯Competitive State of Franchising Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -8 8

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 Competitive State of Leased Departments Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -9 9

Figure 4 -8 a: Vertical Marketing Systems Independent Channel System Functions: Manufacturing Wholesaling Retailing Ownership: Independent Manufacturer Independent Wholesaler Independent Retailer Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -10 10

Figure 4 -8 b: Vertical Marketing Systems Partially Integrated Channel System Functions: Manufacturing Wholesaling Retailing Ownership: Two channel members own all facilities and perform all functions. Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -11 11

Figure 4 -8 c: Vertical Marketing Systems Fully Integrated Channel System Functions: Manufacturing Wholesaling Retailing Ownership: All production and distribution functions are performed by one channel member. Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -12 12

Figure 4 -9: Sherwin-Williams’ Dual Vertical Marketing System Retail Mgt. 11 e (c) 2010

Consumer cooperatives are owned by their customers, who invest, elect officers, manage operations, and share savings or profits. They account for a tiny piece of retail sales. Cooperatives are formed because consumers think they can do retailing functions, traditional retailers are inadequate, and prices are high. They have not grown because consumer initiative is required, expertise may be lacking, expectations have frequently not been met, and boredom occurs. 4 -14

APPENDIX ON THE DYNAMICS OF FRANCHISING Over the past two decades, annual U. S. franchising sales have more than tripled. U. S. franchisors are in over 160 countries worldwide. The number keeps rising due to these factors: The potential in foreign markets The acceptance of franchising as a retailing format in more nations Fewer trade barriers due to such pacts as NAFTA 4 -15