A retail institution refers to basic format or structure of a business.

Classification of Retail Institutions

a) Based on Ownershipb) Store-based retail strategy mixc) Non store-based retail strategy mix and Non-traditional retailing

These classifications are not mutually exclusive.

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 location.Devising a strategy becomes easier.Investment costs are low.They are able to sustain consistency in their work.Better customer relationship management.

DisadvantagesIn 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.Limited advertisements.Unequal distribution of work. Limited time given to planning because of over-involvement of owner into daily operations.

A chain retailer operates multiple outlets under common ownership. It usually engages in some level of centralized purchasing and decision making.

AdvantagesThey 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, centralized decision making etc. Can advertise in variety of media, from TV to magazines to newspapers.

DisadvantagesMay or may not be consistent in their strategy.Investments are high.Personnel may have limited independence.

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.

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.

Personal IntegrityWillingness to complete training FinancialresourcesWillingness to devote timeAbility to manage financesAbility to motivateand trainEntrepreneurialSpiritIdealFranchisee

Advantages to the franchisee: Franchisees can own retail enterprise with relatively lower capital investment. Franchisees acquire well known name and good service lines. Cooperative marketing used , that could not be afforded otherwise.

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. Ineffective franchised units affect the profitability of the franchisor.

A leased department is a department in a retail store that is rented to an outside partyThe proprietor is responsible for all aspects of its business and pays a percentage of sales as rentThe department store sets operating restrictions to ensure consistency and coordination

Benefitsprovides one-stop shopping to customerslessees handle managementreduces store costsprovides a stream of revenuePotential Pitfallslessees may negate store image procedures may conflict with department storeproblems may be blamed on department store rather than lessee

Well Know StoreReduced CostsEconomies of Scale

Inflexibility in HoursProduct Line RestrictionsRaised RentSales Expectations Not Met

Owned by ConsumersMost Popular in Grocery Retailing

Subway is one of the largest retail franchisors in the worldBased on the information found under Franchise Opportunities on the Subway website, would you be interested in becoming a Subway franchisee? Why or why not?