berman ch 04 11e
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-1
Retail Institutions by Ownership
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RETAIL MANAGEMENT: A STRATEGIC APPROACH 11th Edition
BERMAN EVANS
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 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 to 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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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-3
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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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-4
Ownership Forms Independent Chain Franchise Leased department Vertical marketing system Consumer cooperative
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-5
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-6
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-7
Figure 4-2: Useful Online Publications for Small Retailers
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-8
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-9
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-10
Figure 4-3: Louis Vuitton A Powerhouse of Upscale Retailing
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-11
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-12
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-13
Figure 4-5: Business Qualifications Sought by McDonalds for Potential Franchisees
Financial resources
Customer and employee focus
Strong credit
Willingness to complete training
Ability to manage finances
Planning ability
Growth capability
Ideal Franchisee
Experience
Full-time commitment
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-14
Figure 4-6: Structural Arrangements in Retail Franchising
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-15
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-16
Figure 4-7: Franchise and Business Opportunities
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-17
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-18
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
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-19
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-20
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
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-21
Figure 4-8a: Vertical Marketing Systems
Independent Channel System
Functions: Manufacturing Wholesaling
Retailing
Ownership: Independent Manufacturer Independent Wholesaler
Independent Retailer
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-22
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.
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-23
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.
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-24
Figure 4-9: Sherwin-Williams Dual Vertical Marketing System
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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4-25
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United
States of America.
Chapter 4Chapter ObjectivesFigure 4-1: A Classification Method for Retail InstitutionsOwnership FormsIndependent RetailersCompetitive State of IndependentsFigure 4-2: Useful Online Publications for Small RetailersChain RetailersCompetitive State of ChainsFigure 4-3: Louis Vuitton A Powerhouse of Upscale RetailingFranchisingFranchise FormatsFigure 4-5: Business Qualifications Sought by McDonalds for Potential FranchiseesFigure 4-6: Structural Arrangements in Retail FranchisingWholesaler-Retailer Structural Franchising ArrangementsFigure 4-7: Franchise and Business OpportunitiesCompetitive State of FranchisingFrom the Franchisors PerspectiveLeased DepartmentsCompetitive State of Leased DepartmentsFigure 4-8a: Vertical Marketing SystemsFigure 4-8b: Vertical Marketing SystemsFigure 4-8c: Vertical Marketing SystemsFigure 4-9: Sherwin-Williams Dual Vertical Marketing SystemSlide Number 25
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