Retail Institutions and Types of Retailers

About Retail Institutions

A retail institution refers to basic format or structure of a business. Classification of Retail Institutions a) Based on Ownership b) Store-based retail strategy mix c) Non store-based retail strategy mix and Non-traditional retailing

Contd..
Ownership Independent Chain Franchise

Store-based retail strategy mix

Food Oriented Retailers: Convenience store, Conventional Supermarket, Supercenter, Hypermarket, Warehouse store

General Merchandise Retailer: Specialty store, Category Specialists, Department store, Discount stores, Off-price chain, Factory Outlet, Drug Stores

Non store-based retail strategy mix and Non-traditional retailing

Direct Marketing Direct Selling Vending Machine World Wide Web

These classifications are not mutually exclusive.

Ownership based Retail Institutions

Independent
An independent retailer owns only one retail unit. The management has direct contact with the customers and can quickly respond to their needs. Advantages: Flexibility of choosing the retail format and retail location. Devising a strategy becomes easier. Investment costs are low. They are able to sustain consistency in their work. Better customer relationship management.

Contd..
Disadvantages
In bargaining with distributors, they do not posses much power because they buy in small quantities. Cannot gain economies of scale in buying and maintaining inventory because they have financial constraints. Operations are often handled manually with little computerization. Limited advertisements. Unequal distribution of work. Limited time given to planning because of over-involvement of owner into daily operations.

Chain Stores
A chain retailer operates multiple outlets under common ownership. It usually engages in some level of centralized purchasing and decision making. Advantages
They have the bargaining power due to their volume of purchase. Achieve cost efficiency due to performing the wholesale functions themselves. Efficiency in multiple stores is attained by shared warehousing facilities; large purchases, SOPs, centralized decision making etc. Work faster with the use of computers while ordering merchandise, forecasting etc. Can advertise

Contd..
Disadvantages
May or may not be consistent in their strategy. Investments are high. Loose control of the management. Personnel may have limited independence.

Franchising
It involves a contractual arrangement between a franchisor and a retail franchisee, which allows the franchisee to conduct a given business under established name and according to a given pattern of business. The franchisee pays an initial fee and a monthly share of gross sales in exchange for the exclusive rights to sell goods and services in a specified area. Franchising is a retail organizational form in which small businesses can benefit being a part of a large retail institution.

Types of Franchising
Product/Trademark franchising:
In this type franchisees operate independently of their franchisors. The franchisee adhere to certain rules and regulations but sets store operating hours, store location criteria, store facilities and display etc.

Business format franchising:

Involves more interactive relationship between the franchisee and franchisor. Franchisees receives assistance on site location, quality control, start-up practices, management training and responding to problems.

Advantages to the franchisee: Franchisees can own retail enterprise with relatively lower capital investment. Franchisees acquire well known name and good service lines. SOPs and management skills may be taught to the franchisees. Cooperative marketing used , that could not be afforded otherwise. Franchisee purchases may be less costly per unit due to the volume bought by the overall franchise. Disadvantages to the franchisee: Over saturation can occur if there are too many franchisees situated at one location. Franchisee may get locked into contract provisions whereby the purchases must be made through franchisors or certain approved vendors. Franchisee agreement can be of short duration. Under most of the contracts, royalties are percentage of gross sales, regardless of franchisee profits.

Advantages to the franchisor: Global presence Less investment After franchisee have paid for their franchised outlets, franchisor still receive royalties Franchisees are not owners, they have greater incentive to work hard. Thus, benefiting the franchisor Disadvantages to the franchisor: Franchisee could harm the overall reputation, if they do not adhere to the company standards. Lack of uniformity among the outlets can adversely affect the customer loyalty. Intra-franchise competition is not desirable Ineffective franchised units affect the profitability of the franchisor.

Store Based Retail Strategy Mixes

Food Oriented Retailers

Type of Retailer
Convenience Store

Size
(000 sq. ft.)

Location Neighbourhood

Merchandise

Prices

Services Promotion Average Moderate

2-3

Medium width Average and low depth of assortment; average quality Extensive width and depth of assortment; average quality; manufacturer, and generic brands Average

Conventional Supermarket

20 50

Neighbourhood

Average

Heavy use of newspaper, flyers and coupons, self-service

Contd..
Type of Retailer Supercenters Size (000
sq. ft.)

Location Community shopping centre or isolated site Community shopping centre or isolated site Secondary site, often in industrial area

Merchandise Wide variety of food (30-40 %) and non-food merchandise (60-70%) Wide variety of food (60 70 %) and general merchandise (30-40%)

Prices Low

Services Average to high

Promotion Moderate

150220

Hypermarket

100 300

Low

Average

Low

Warehouse store

100 150

Moderate width Very and low depth; low emphasis on manufacturer brands bought at discounts

Low

Little or none

General Merchandise Retailers

Type of Retailer Specialty Stores Size
(000 sq. ft.)

Location Business district or shopping centers

Merchandise Very narrow width of assortment; extensive depth of assortment; average to good quality Narrow variety but very deep assortment

Prices Competitive to above average

Services Average to excellent

Promotion Heavy use of displays, may have extensive sales force.

412

Category Specialists

50 120

Stand alone, power strip centers

Low

Low to high

Low to Moderate

Department Store

100 - Regional Broad variety, 200 Malls, Stand average to alone deep assortment

Average to high

Average to high

Average to high, direct mail, catalog use

Contd..
Type of Retailer Discount Store Size
(000 sq. ft.)

Location Stand alone, power strip centers Outlet malls

Merchandise Broad variety, Low to average assortment

Prices Low

Services Low

Promotion Heavy use of newspaper ads, price oriented messages Use of newspapers, brands not advertise, limited workforce Average to high

60 80

Factory outlets

20 30

Average variety, Low deep but varying assortment

Low

Value retailers

7 - 15 Urban, strip Average variety, Low average and varying assortment 3 - 15 Stand alone, strip centers Narrow variety, Averag average to deep e to assortment high

Low

Drug Stores

Average

Low to average

Non Store-based Retail Strategy Mix

Direct Marketing
It is a form of retailing in which a customer is first exposed to a good or service through a non-personnel medium (such as direct mail, broadcast or cable TV, radio, magazine, newspaper etc.) and then orders by mail, phone (usually a toll free number), fax or by computer. Direct marketing can be divided into two broad categories: General: General marketing firms offer a full line of products from clothing to house ware.

Specialty: Specialty firms focus on narrow product lines.

Advantages of Direct Marketing

Reduced costs: startup cost, inventory cost, location cost, sales force cost. Possibility of offering lower prices. Shopping convenience for the customers. Specific consumer segments can be pin pointed using mailers. A store based retailer can supplement its regular business and expand its geographic area.

Disadvantages
Products cannot be examined prior to purchase. Prospective entrants may underestimate the costs. Catalog preparation, printing and mailing can be an expensive job. The most popular catalogues draw purchases from less than 10% of recipients. Clutter exists Some firms have given a bad name to the industry due to late deliveries and providing damaged goods.

Direct Selling
It includes both personal contact with consumers in their homes (and other non-store locations such as offices) and phone solicitations initiated by a retailer. Examples: Carpet selling, vacuum cleaner, other household products, cosmetics, books, encyclopedia etc. It emphasizes convenience in shopping and a personal touch.

Vending Machine
It is a retailing format involving the coin or card operated dispensing of hot and cold beverages and food or snacks items. It eliminates the use of sales personnel. It allows round the clock sales. Location of the machines can be done according customers convenience.

World Wide Web

WWW in the field of retailing relates to online retailing.

It enables retailers world wide presence.

Enhances the retailers brand. Provides information to the consumers. Promotes new products. Furnish customer service. Cost efficient Can announce special offers and also employment opportunities.

Single and Multi Channel Retailing

Single-Channel Retailing: If a firm sells to consumers through one format.

Multi-Channel Retailing: If a firm sells to consumers by combining store and nonstore retailing- as well as using multiple store formats.

Issues
What multi-channel cross-selling opportunities exists?

How should the product assortment strategy be adapted to each channel? How much merchandise overlap should exist across channels?
Should prices be consistent across channels? How can a consistent image be devised and sustained across all channels?

What is the role of each channel?

Ensuring the distribution of products to the stores as well as directly to the customer.

Advantages
The retailer can use the most appropriate channel to sell particular goods. Enable to reach different target markets. Enable to fulfill the customers desires. A store based retailer can leverage tangible assets by using excess capacity in its warehouse to service catalog or web sales. A firm can also leverage its well known brand name (an intangible asset) by selling online in geographical areas where it does not have its stores. There is an opportunity for increased sales.

Integrated Multi-Channel Strategy

Integrated promotions across channels. Ensuring product consistency across channels. Having an effective information system that can share data across channels. Enacting a store pickup process for items purchased on the web or through a catalog. Searching for multi-channel opportunities with appropriate partners.

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