Week 5 Retail by Ownership

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

Independent Retailers Example

Boisson, a Non-Alcoholic Specialty Shop In New York City

Independent retailers advantages

Flexibility in formats, locations, and strategy
Control over investment costs, personnel functions, and strategies
Easier to manage personal image
Consistency and independence
Strong entrepreneurial leadership

Independent Retailers disadvantages

Lack of bargaining power
Labor intensive operations
Over-dependence on owner

Ex: Hearth and soul vs best buy

Chain Retailers 

Operate multiple outlets under common ownership
Engage in some level of centralized or coordinated purchasing and decision making

Chain vs Franchise

Chain: parent company owns location

Franchise: different stores or branches are owned by separate individuals who are solely responsible for daily operations

Largest chain retailers

1. Walmart
2. Kroger
3. Costco
4. Walgreens
5. Home Depot

Chain retailer advantages

Bargaining power
Efficiency maintained by computerization, warehouse sharing, and other functions
Defined management philosophy

Ex: macy’s

Chain retailer disadvantages 

Limited flexibility
Higher investment costs
Complex managerial control
Limited independence among personnel
Excessive standardization due to extreme concern for bargaining power

Chain retailers with changes in retail operations

Target, Harry’s, Hunter, Missoni, etc

Retail Franchising

Contractual agreement between a franchisor and a retail franchisee

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

Franchisee financial requirements (Jimmy John’s)

Initial Investment: $329,000 - $557,500
Net-worth requirement: $300,000
Liquid cash requirement: $80,000

Franchisee financial requirements (Mcdonald’s)

Initial Investment: $1.8 Million - $2.2 Million
Liquid cash requirement: $500,000

Franchisee financial requirements (Wingstop)

Initial Investment: $300,000 - $922,000
Net-worth requirement: $1.2 Million
Liquid cash requirement: $600,000

Franchisee Financial requirements (jazzercise)

Initial Investment: $2,500 - $35,000
Net-worth requirement: No minimum
Liquid cash requirement: No minimum

Unique franchise opps

Christmas decor, doody calls, cereality bar and cafe, anger room

Retail franchising advantages

low capital required
acquisition of well-known names
operating/ management skills taught
cooperative marketing possible
exclusive rights

Ex: Subway

Retail franchising disadvantages 

over-saturation could occur
franchisors may overstate potential
contractual confinement
royalties are based on sales, not profits

Leased departments

a department/space in a retail store that is rented to an outside party

The outside party (lessee) is responsible for all
aspects of its business and pays a percentage of sales as rent

The retail store sets operating restrictions to
ensure consistency and coordination

Leased departments examples

Walmart, Jackson Hewitt, Regal nails, smartstyle, bloomingdales, prada, paul smith, gucci,

Leased departments advantages

provides one-stop shopping to customers
lessees handle management
reduces store costs
provides a stream of revenue

Leased departments disadvantages

lessees may negate store image
procedures may conflict with department store
problems may be blamed on department store rather than lessee

Changes in retail chain operations

Target:

Designer brand collabs

Limited edition rereleases

Inclusive sizing for women

Product mix expansion

Consumers want design, differentiation, identity, more designer brands