Download - BA 336 Retail Operations Strategic Planning in Retailing (Cont’d) & Retail Institutions by Ownership
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BA 336 Retail Operations
Strategic Planning in Retailing (Cont’d)&
Retail Institutions by Ownership
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Ownership and Management Alternatives
• Sole proprietorship is an unincorporated retail firm owned by one person
• A partnership is an unincorporated retail firm owned by two or more persons, each with a financial interest
• A corporation is a retail firm that is formally incorporated under state law; it is a legal entity apart from its officers
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Checklist to Consider When Starting a New
Business
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Checklist for Purchasing an Existing Retail
Business
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Selected Kinds of Retail Goods and Service Establishments
Durable Goods Stores:Automotive groupFurniture and appliances groupLumber, building, and hardware groupJewelry stores
Nondurable Goods Stores:Apparel groupFood groupGeneral merchandise groupGasoline service stations
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Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall
Selected Kinds of Retail Goods and Service Establishments
Service Establishments (Personal):Laundry and dry cleaningBeauty/barber shopsFuneral servicesHealth-care services
Service Establishments (Amusement):Movie theatersBowling alleysDance hallsGolf courses
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Selected Kinds of Retail Goods and Service Establishments
Service Establishments (Repair):Automobile repairCar washesConsumer electronics repairAppliance repairs
Service Establishments (Hotel):HotelsMotelsTrailer parksCamps
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Image and Positioning
An image represents how a given retailer is perceivedby consumers and others.
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Positioning Approaches
• Mass merchandising is a positioning approach whereby retailers offer a discount or value-oriented image, a wide or deep merchandise selection, and large store facilities.
• Niche retailing occurs when retailers identify specific customer segments and deploy unique strategies to address the desires of those segments rather than the mass market.
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Niche Retailing by Babies “R” Us
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Selected Retail Positioning Strategies
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Target Market Selection
• Three techniques• Mass marketing• Concentrated marketing• Differentiated marketing
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La Boqueria
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Strategic Implications of Target Market Techniques
• Retailer’s location• Goods and service mix• Promotion efforts• Price orientation• Strategy
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Developing an Overall Retail Strategy
RetailStrategy
Uncontrollable Variables:• Consumers• Competition• Technology• Economic conditions• Seasonality• Legal restrictions
Controllable Variables:• Store location• Managing business• Merchandise management and pricing• Communicating with customer
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Retail Strategy– Low Costs
• Removal of bad costs• Use of private label products to
reduce costs of national/manufacturer brands
• Reduce product proliferation• Obtain best net price instead of focus
on promotional monies, trade incentives and forward buying
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Retail Strategy– Low Costs (cont.)
• Supply chain initiatives• Low promotional expense (everyday low
pricing)• Proper employee utilization
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Retail Strategy--Differentiation
• Well-thought out private labels• Hiring right employees (value-profit chain)• Empowering employees• Use of a fun atmosphere• “Little things that mean a lot”• Money-back guarantees
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Legal Environment and Retailing
Store Location• zoning laws• blue laws• environmental laws• direct selling laws• local ordinances• leases and
mortgages
Managing the Business• licensing provisions• personnel laws• antitrust laws• franchise
agreements• business taxes• recycling laws
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Sample Strategic Plan
Sally’s is a small, independently owned, high-fashion ladies clothing shop located in a suburban strip mall. It is a full-price, full-service store for fashion-forward shoppers. Sally’s carries sportswear from popular designers, has a personal shopper for busy executives, and has an on-premises tailor. The store is updating its strategic plan as a means of getting additional financing for an anticipated expansion.
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Additional Concerns for Global Retailing
• In addition to the strategic planning process:• assess your international potential• get expert advice and counseling• select your countries• develop, implement, and review an
international retailing strategy
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Factors Affecting the Success of a Global Retailing Strategy
• Timing• A balanced international program• A growing middle class• Matching concept to market• Solo or partnering• Store location and facilities• Product selection
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Factors to Consider When Engaging in Global Retailing
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A Classification Method for Retail Institutions
I Ownership
IIStore-Based
Retail Strategy Mix
IIINonstore-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• 2.2 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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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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Useful Online Publications for Small Retailers
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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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Competitive State of ChainsAdvantages• 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• Excessive standardization
due to extreme concern for bargaining power
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Louis Vuitton – A Powerhouse of Upscale Retailing
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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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Franchise FormatsProduct/ 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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Business Qualifications Sought by McDonald’s for Potential Franchisees
Financial resources
Customer and employee focus
Strong credit
Willingness to complete training
Ability to manage finances
Planning ability
Growth capability
IdealFranchisee
Experience
Full-timecommitment
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Franchise Disclosure Document Contents
• The Franchisor and Any Predecessors • Litigation History • Bankruptcy (i.e., any franchisees who may
have filed) • Listing of the Initial Franchise Fee and Other
Initial Payments • Other Fees and Expenses • Statement of Franchisee's Initial Investment • Obligations of Franchisee to Purchase or
Lease from Designated Sources • Obligations of Franchisee to Purchase or
Lease in Accordance with Specifications or from Authorized Suppliers
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Franchise Disclosure Document Contents (cont)
• Financing Arrangements • Obligations of the Franchisor; Other Supervision,
Assistance or Services• Exclusive/Designated Area of Territory • Trademarks, Service Marks, Trade Names,
Logotypes and Commercial Symbols • Patents and Copyrights • Obligations of the Franchisee to Participate in the
Actual Operation of the Franchise Business• Restrictions on Goods and Services Offered by Franchisee
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Franchise Disclosure Document Contents (cont)
• Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
• Arrangements with Public Figures • Actual, Average, Projected or Forecasted
Franchise Sales, Profits or Earnings • Information Regarding Franchises of the
Franchisor • Financial Statements • Contracts • Acknowledgment of Receipt by Respective
Franchisee
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Dunkin’ Donuts Franchise Disclosure Document
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Pros and Cons of Dunkin’ Donuts Franchise
• Pros:– No company owned stores– Outside suppliers can be approved– No markup on approved signs – Of 4,543 franchises 16 terminated, none reacquired
by franchisor and 80 ceased operations– A failure rate of 2.1 percent
– Average sales in Metro NY $914,992– 41.4 percent at or above average
– 19 day initial training program
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Pros and Cons of Dunkin’ Donuts Franchise
• Cons• No exclusive territory, can license other retailers to sell
donuts, seek to convert other donut shops to Dunkin’ Donuts, can sell donuts in supermarkets, convenience stores, airports, universities
• Referral incentives to existing franchises, franchise brokers
• Pages 12-34 litigation history. In one case DD settled with payment of $780,000 to plaintiff; in another repurchased franchise for $1.1 million
• Continuing franchise fees 5.9 percent of sales, continuing advertising fee 5.0 percent of sales, loan guarantee fee 1 percent of loan amount + net, net, net lease
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Pros and Cons of Dunkin’ Donuts Franchise
• Cons– Board member sells eggs– DD has right to approve advertising– DD can appoint additional members to Brand
Advisory Council, can dissolve council, council is only advisory
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Structural Arrangements in Retail Franchising
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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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Franchise and Business Opportunities
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Competitive State of FranchisingAdvantages• 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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From the Franchisor’s 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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Potential Conflicts Between Franchisor and Franchisee
• High power of franchisor relative to franchisee. Franchisee needs franchisor approval to sell business, and to extend franchise. Lease is generally in name of franchisor
• Franchisor obtains profit based on gross sales, not on franchisee’s profitability
• Franchisor requires goods and services to be purchased from itself or approved vendor
• Franchisor can break up territory of existing franchisee, reducing its sales and profitability
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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• 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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Common Leased Departments for Department Stores
• Cosmetics/Fragrances• Beauty Salon/Spa• Fine Jewelry• Furs• Photography studio (CPI)• Optical
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Vertical Marketing Systems
Independent Channel System
Functions: ManufacturingWholesaling
Retailing
Ownership:Independent ManufacturerIndependent Wholesaler
Independent Retailer
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Partially Integrated Channel System
Functions: ManufacturingWholesaling
Retailing
Ownership:Two channel members own all
facilities and perform all functions.
Vertical Marketing Systems
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Vertical Marketing Systems
Fully Integrated Channel System
Functions: ManufacturingWholesaling
Retailing
Ownership:All production and distribution functions are performed by one channel member.