Week 4 -5 Retail Institutions by Ownership and

Week 4 -5 Retail Institutions by Ownership and Store Type RETAIL MANAGEMENT: A STRATEGIC APPROACH 11 th Edition BERMAN Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall EVANS 4 -1 1

A Classification Method for Retail Institutions 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 -2 2

I. According to Ownership ¯Independent ¯Chain ¯Franchise Retail Mgt. 11 e (c) 2010 Pearson

Independent Retailers Small – Big (According to) 1. Store size (>1000 m 2 = Big) 2. Number of staff 3. Sales volume 4. Capital 5. 1 Cash machine (small), 8 or more>hypermarket Store-Non-store Independent stores= 18%, Bakkal & agents= 35 %, Total 53 % in Turkey Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -4 4

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 Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Disadvantages ¯ Lack of bargaining power ¯ Lack of economies of scale ¯ Labor intensive operations ¯ Over-dependence on owner ¯ Limited long-run planning 4 -5 5

Chain Retailers ¯Operate multiple outlets under common ownership ¯Engage in some level of centralized or coordinated purchasing and decision making ¯In Turkey: National and international chains 15 % Regional Chains 32% Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -6 6

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 Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Disadvantages ¯ Limited flexibility ¯ Higher investment costs ¯ Complex managerial control ¯ Limited independence among personnel 4 -7 7

Franchising ¯ A form of chains ¯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 Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -8 8

Franchise Formats Product/ Trademark Business Format ¯ franchisee acquires ¯ franchisee receives the identity of a assistance: location, franchisor by agreeing quality control, to sell products accounting systems, and/or operate under startup practices, the franchisor name management training ¯ franchisee operates ¯ common for autonomously restaurants, real¯ 2/3 of retail estate franchising sales Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4 -9 9

Competitive State of Franchising Advantages ¯ low capital required ¯ acquisition of wellknown names ¯ operating/ management skills taught ¯ cooperative marketing possible ¯ exclusive rights ¯ less costly per unit Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Disadvantages ¯ over-saturation could occur ¯ franchisors may overstate potential ¯ contractual confinement ¯ agreements may be cancelled or voided ¯ royalties are based on sales, not profits 4 -10 10

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 Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 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 4 -11 11

Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 4

II. According to Retailer Strategy Mix A strategy mix is the firm’s particular combination of: ¯ store location ¯ operating procedures ¯ goods/services offered ¯ pricing tactics ¯ store atmosphere ¯ customer services ¯ promotional methods Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 5 -13 13

Store-Based Retail Strategy Mixes Food-Oriented General Merchandise ¯ Convenience store ¯ Conventional supermarket ¯ Food-based superstore ¯ Combination store ¯ Box (limited-line) store ¯ Warehouse store ¯ Specialty store ¯ Traditional department ¯ Full-line discount store ¯ Variety store ¯ Off-price chain ¯ Factory outlet ¯ Membership club ¯ Flea market Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 5 -14 14

Convenience Store Strategy Mix (Bakkal) Location: Neighborhood Merchandise: Medium width and low depth of assortment; average quality Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Average to Above average Atmosphere and Services: Average Promotion: Moderate 5 -15 15

Conventional Supermarket Strategy Mix (Süpermarket) Location: Neighborhood Prices: Competitive Merchandise: Extensive width and depth of assortment; average quality; manufacturer, private, & generic brands Atmosphere and Services: Average Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Promotion: Heavy use of newspapers, flyers, and coupons 5 -16 16

Food-Based Superstore Strategy Mix (Kipa, 3 M+ Migros) Location: Community shopping center or isolated site Merchandise: Full assortment plus health and beauty aids and general merchandise Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Competitive Atmosphere and Services: Average Promotion: Heavy use of newspapers, flyers 5 -17 17

Combination Store Strategy Mix Location: Community shopping center or isolated site Merchandise: Full assortment plus health and beauty aids and general merchandise Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Competitive Atmosphere and Services: Average Promotion: Heavy use of newspapers, flyers 5 -18 18

Box Store Strategy Mix (Şok-Kipa Express) Location: Neighborhood Merchandise: Low width and depth of assortment; few perishables; few national brands Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Very low Atmosphere and Services: Low Promotion: Little or none 5 -19 19

Warehouse Store Strategy Mix (Bauhaus) Location: Secondary site, often in industrial area Merchandise: Moderate width and low depth of assortment; emphasis on manufacturer brands bought at discount Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Very low Atmosphere and Services: Low Promotion: Little or none 5 -20 20

Specialty Store Strategy Mix (Esse) Location: Business district or shopping center Merchandise: Very narrow width and extensive depth of assortment; average to good quality Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Competitive to Above average Atmosphere and Services: Average to excellent Promotion: Heavy use of displays Extensive sales force 5 -21 21

Traditional Department Store Strategy Mix (Yeni Konak, YKM) Location: Business district, shopping center or isolated store Merchandise: Extensive width and depth of assortment; average to good quality Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Average to Above average Atmosphere and Services: Good to excellent Promotion: Heavy ad and catalog use; direct mail; personal selling 5 -22 22

Full-Line Discount Store Strategy Mix Location: Business district, shopping center or isolated store Merchandise: Extensive width and depth of assortment; average to good quality Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Competitive Atmosphere/Services: Slightly below average to average Promotion: Heavy on newspapers; price-oriented; selling 5 -23 23

Variety Store Strategy Mix Location: Business district, shopping center or isolated store Merchandise: Good width and some depth of assortment; below-average to average quality Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Average Atmosphere/Services: Below average Promotion: Use of newspapers 5 -24 24

Off-Price Chain Strategy Mix (BİM, A-101, Tschibo) Location: Business district, shopping center or isolated store Merchandise: Moderate width and poor depth of assortment; average to good quality; low continuity Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Low Atmosphere/Services: Below average Promotion: Use of newspapers; brands not advertised; limited selling 5 -25 25

Factory Outlet Strategy Mix Location: Out of the way site or discount mall Merchandise: Moderate width and poor depth of assortment; low continuity Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Very Low Atmosphere/Services: Very low Promotion: Little 5 -26 26

Membership Club Strategy Mix (Metro) Location: Isolated store or secondary site Merchandise: Moderate width and poor depth of assortment; low continuity Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Prices: Very Low Atmosphere/Services: Very low Promotion: Little; some direct mail 5 -27 27

Flea Market Strategy Mix (Kemeraltı Dükkanı) Location: Isolated store Prices: Very Low Merchandise: Extensive width and poor depth of assortment; low continuity; variable quality Atmosphere/Services: Very low Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall Promotion: Limited 5 -28 28

III. Nonstore Retailing strategy that is not store-based Exceeds $410 billion annually 80% comes from direct marketing Web-based retailing is the fastestgrowing area ¯ Web retailing expected to reach $180 annually as of 2012 ¯ ¯ Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -29 29

Nontraditional Retailing ¯ Nontraditional retailing also includes formats that do not fit into store and nonstore-based categories: ¯ Video kiosks ¯ Airport retailing Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -30 30

Direct Marketing ¯Customer is initially exposed to a good or service through a non-personal medium and then orders by mail, phone, fax, or computer ¯Annual U. S. sales exceed $325 billion (including the Web) ¯Other leading countries include * Japan * France * Germany * Italy * Great Britain Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -31 31

Strategic Business Advantages of Direct Marketing ¯ ¯ ¯ ¯ Reduced costs Lower prices Large geographic coverage Convenient to customers Ability to pinpoint customer segments Ability to eliminate sales tax for some Ability to supplement regular business without additional outlets Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -32 32

Strategic Business Limitations of Direct Marketing ¯ Products often cannot be examined prior to purchase ¯ Costs may be underestimated ¯ Response rates to catalogs under 10% ¯ Clutter exists ¯ Long lead time required ¯ Industry reputation sometimes negative Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -33 33

Selection Factors by Customers ¯ Company reputation and image ¯ Ability to shop whenever consumer wants ¯ Types of goods and services ¯ Availability of toll-free phone number or Web site for ordering ¯ Credit card acceptance ¯ Speed of promised delivery time ¯ Competitive prices ¯ Satisfaction with past purchases and good return policy Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -34 34

Direct Selling ¯ Direct selling includes personal contact with consumers in their homes (and other nonstore locations such as offices) and phone solicitations initiated by retailer. ¯ Annual sales of $31 billion in the U. S. , where 15 million people are employed (more than 80 percent part-time). ¯ Annual foreign revenues of $85 billion, generated by 48 million salespeople. Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -35 35

Table 6 -1: U. S. Direct Selling Industry 6 -36

Vending Machines ¯ Vending machines are a cash- or cardoperated retailing format that sells goods and services. ¯ Eliminates the use of sales personnel and allows 24 -hour sales. ¯ Machines placed wherever convenient for consumers. ¯ 95 percent of the $50 billion in annual U. S. vending machine sales involve hot/cold beverages and food items. Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -37 37

Emergence of World Wide Web ¯ The World Wide Web (Web) is a way to access information on the Internet. ¯ People work with easy-to-use Web addresses (sites) and pages. ¯ Web users see words, charts, pictures, and video while hearing audio. ¯ Both “Internet” and “World Wide” Web convey the same central theme: online interactive retailing. Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -38 38

The Role of the Web ¯ ¯ ¯ ¯ Project a retail presence Enhance image Generate sales Reach geographically-dispersed customers Provide information to customers Promote new products Demonstrate new product benefits Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -39 39

The Role of the Web (cont. ) ¯ ¯ ¯ ¯ Provide customer service (e. g. E-mail) Be more “personal” with consumers Conduct a retail business efficiently Obtain customer feedback Promote special offers Describe employment opportunities Present information to potential investors, franchisees, and the media Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -40 40

Figure 6 -6: Web-Based Retail Sales Projections Retail Mgt. 11 e (c) 2010 Pearson

Reasons NOT to Shop Online Lack of trust Fear Lack of security Lack of

Recommendations for Web Retailers ¯ Develop or exploit a well-known, trustworthy retailer name ¯ Tailor the product assortment for Web shoppers ¯ Enable the shopper to “click” as little as possible ¯ Provide a solid search engine ¯ Use customer information Retail Mgt. 11 e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall 6 -43 43