Chapter Two: Classification of Retail

Outlets

By Mulusew D.
 Chapter Objectives
• know the bases used to classify retail
outlets
• Understand and differentiate the d/t types
of retail outlets and examine the X’s of each
• Appreciate the advantage and disadvantage
of each retail outlets
 2.1 Bases for Classification of retail
institutions-format/structure
Why? To better understand and enact their own
strategies. The most commonly used basis are:
1. Ownership Format
– Independents, chain, franchisee, leased dep’t, vertical
integrations, consumer cooperatives
2. Retail Strategy Mix
• The store location
• The type of merchandise and/or services offered
• The variety and assortment of merchandise offered
• The level of customer service offered
• The price of the merchandise
2.2 Classification of retailers based on
ownership type
1. Independents: Single-Store Establishments
An Independent retailer owns a single retail
unit. The x’s are:
• They are run by the owner or his family
• high number b/c Low entry barrier—great
deal of competition--low market share– high
failure rate
• Low capital investment- relatively simple
licensing procedure
 Major Competitive Advantages &
Disadvantages of Independents
Advantages
• High flexibility in choosing retail formats,
locations, and devising strategy.
• low investments in terms of lease, fixtures,
workers and merchandise
Disadvantages
• limited bargaining power with suppliers as they
often buy in small quantities.
• High transportation, ordering, and handling costs
 2. Corporate Retail Chain
• A company that operates multiple retail units
under common ownership e.g. Walmart
• centralized purchasing and decision making.
Advantages
• Strong bargaining power with suppliers due to
the volumes of purchases.
• Wider geographic coverage of markets allows
chains to utilize all forms of media.
Draw-backs
• limited flexibility, and high investments
 3. Franchising
• a contractual arrangement which allows the
franchisee to conduct business under an
established name and according to a given
pattern of business.
• The franchisee pays an initial fee and a royalty fee
in exchange for the exclusive rights given.
• Advantage for the franchisee is acquiring well
known brand with small invest.
• Global presence is the advantage for the
franchisor.
• Draw backs
• Oversaturation and brand dilution
 4. Leased Department
• It is a department in a retail store—that is
rented to an outside party.
Advantages
• providing one-stop shopping and Revenue
• Enhance image by their r/h with popular
stores
Pitfalls
• Lessees may adversely affect stores’ images
• Low flexibility in setting hrs and style (lessee)
 5. Vertical Marketing System
• Consists of all the levels of independently owned
businesses along a channel of distribution.
• Products can be distributed in one of the ff three
types
1. Independent VMS, three levels of independently
owned firms: manu, wholesalers, and retailers.
2. Partially integrated system, two independently
owned businesses perform all production and
distribution functions
• often used by shopping goods sellers.
3. fully integrated system, one firm performs all
• Can be costly and requires a lot of expertise.
Dual marketing
 6. Consumer Cooperative
• It is a retail firm in which a group of
consumers invest in the enterprise.
• Most popular in food retailing.
• started mainly to guard against the
malpractice that many retailers indulge in
• the cost savings and low selling prices have
not been as expected in many cases.
• because they lack expertise
2.3 Classification of Retailers
Based on The Retail Mix
location
 2.3.1 Store based retailers

• Requires consumers to visit the outlets

physically.
• Advantage over non store retailers
– touching and feeling products,
– entertainment and social experiences
• categorized as food (6)and non-food/general
merchandize (8) retailers using the other mix
– size, average sales, variety and assortment
 Food vs non food retailers
Variables Food oriented Non-food retailers
retailers

Predominance of item to Food General

generate revenue merchandise

frequency of purchase High Low

Unit value of merchandise Low/average High/average

Variety of formats Less variety More variety

 [Link] Food- Oriented Retailers
1. Convenience Stores
• Provides a limited variety and assortment of
merchandise at a convenient location.
• usually they charge higher prices
• Stock Daily fill in- needs such as: Milk, eggs,
cigarettes,
2. Supermarkets: is a large, self-service store
• There are different variations of supermarket.
– box stores and Warehouse stores
– conventional supermarkets,
– food-based superstores,
– combination stores,
 2. Supermarkets
I. Box (Limited-Line) Store
• Food-based discounter focuses on a small
selection of items < 2000 items, few/no
services,
• simple and cost oriented store design
• size =400-800 m2
• stock fresh vegetables & fruits, dairy and eggs,
rice, pasta and beans, snack food, cereals,
• Prices are 20-30 %< supermarkets.
drawback:
• they cannot fulfill one-stop shopping needs.
 2. Supermarkets
II. Warehouse Store
• is a Food-Based Discounter offering a moderate
number of food items in a no-frills setting.
• It appeals to one-stop food shoppers,
• Offers little service, and locates in secondary
sites.
• High ceilings accommodate pallet loads of
groceries.
• Have gross margins far lower than for
conventional supermarkets.
• The leading super warehouse chain is Cub Foods.
 2. Supermarkets
III. Conventional Supermarket
• Departmentalized food store
• sales of general merchandise (5-10% of sale).
• size 1400-1,800 m2.
• Self-service- cut costs and increase volume.
• Low Personnel costs and high impulse buying.
• Low profit margins compared to convenience
stores
 2. Supermarkets
IV. Food-Based Superstore
• It is larger and more diversified than a
conventional supermarket
• Size= 2,800-4,650 m2 of space
• General merchandise= 20 to 25 percent of sales
• It caters to consumers’ complete grocery needs,
along with fill-in general merchandise.
• Advantage
– they are efficient,
– offer a degree of one-stop shopping,
– stimulate impulse purchases,
 2. Supermarkets
V. Combination Store
• It unites supermarket & general merchandise in one
facility,
• They are large, (from 2,800-10,000 m2) or more
• This leads to operating efficiencies and cost savings.
Advantage
• One-stop shopping,
• Impulse sales are high, Many general merchandise
items have better margins than food items.
Drawback
• Because of their big size, they are inconvenient
kinds of combination stores: supercenters &
Hypermarket.
 Combination store types
1. A supercenter:
• blend an economy supermarket with a discount
department store. [Link] 60%
• Size= 7,000-14,000 m2 & they stock >50,000 items
• Wal-Mart, Kmart, Kroger and Target have supercenters
2. Hypermarkets:
• are even large 9,000-30,000 m2)
• food (60- 70 %) & [Link].(30-40 %) stores.
• it stock fewer items (40,000 items)
• carry a larger proportion of food items than do
supercenters
• have a greater emphasis on perishables
[Link] General Merchandise Retailers
1. Speciality store
• a single/narrow pdt category with a deep
assortment
• E.g. drugstores, apparel, book, electronics, auto
• Category killer: large specialty store with
enormous selection in its category and relatively
low prices.
Advantage for consumers
• High services (b/c of tailored marketing )
Disadvantage to the company
• affected by seasonality or a decline in the dd
 2. Department Store
• Is a large retail unit with an extensive
assortment of product organized into separate
departments
• Sells different category of products with no
one merchandise line predominating
• It resembles a collection of specialty shops
• There are two types;
Pdt Pricing [Link]
Traditional dep’t store High qty Above Avr. Medium -hgh

Full line discount store Good Less Avrg Low

qty
 3. Variety Store

• handles an assortment of inexpensive &

popularly priced goods and services
• They primarily target low income consumers
• They offer broader variety but shallow
assortment of merchandise.
Types
• Dollar discount stores: those selling items in
plainer surroundings at much lower prices
• Closeout chains: those selling closeouts and
overruns
 4. Off-Price Chain closeout retailers
• Offer an inconsistent assortment of
merchandise at a significant discount (20 -60 %)
lower off the MSRP.
How?
• They bought opportunistically-merchandise having overruns
(forecasting mistakes), canceled orders, close-outs (end-of-
season merchandise), & irregulars (minor mistakes in
construction).
• they do not ask suppliers for advertising allowances, return
privileges, markdown adjustments, or delayed payments.
Draw back for consumers
• Inconsistency : merchandise will be in stock each time they
visit
 5. Factory outlet

• is a manufacturer-owned store
• selling closeouts, discontinued merchandise,
irregulars, cancelled orders, and, sometimes,
in-season, first-quality merchandise.
• It is a special type of off-price retailers owned
by manufacturers.
 6. Membership/warehouse Club
• Appeals to price-conscious consumers, who
must be members to shop there
• It straddles the line between wholesaling and
retailing
• Large in size, inexpensive, isolated or
industrial locations
• opportunistic buying, little advertising, limited
service, and very low price are their X’S.
challenge
• managing both business and individual
Customer.
 7. Flea Market - street selling
• Retail vendors sell a range of products at discount
prices in plain surroundings.
• Located at racetracks, stadiums, stations,
• Some flea markets impose a parking fee or
admission charge for shoppers.
• Many vendors gain their first real experience as
retail entrepreneurs.
In general, off-price chains, factory outlets,
membership clubs, and flea markets are low-cost
operators appealing to price-conscious consumers
2.3.2 Non-Store Retailers
 Characteristics
• sales are made to consumers without using
physical stores
• is patronized to time conscious consumers and
consumers who can’t easily go to stores,
Advantage over store based
• More convenience, and safety
• more timely information,
• personalized messages
Limitation
• Products cannot be examined before purchase
 Types
1. Direct Marketing
• a customer is first exposed to a product through a
non-personal medium (direct mail, TV, radio,
magazine, newspaper, or computer) and then
orders by mail, phone, or fax—and increasingly
by computer.
Advantages:
• Reduced costs of: start-up, inventories, stores
• Cover huge geographic area inexpensively
Limitation
• Delivery delays and shoddy goods
• Clutter exists
 2. Electronic Retailing: online
selling/e-tailing
• is another form of DM in which the offering of
products for sale is communicated to customers over
the Internet
Advantages
• Reach geographically dispersed consumers.
• Used to fully explain and demonstrate their features.
• Can be an interface to Provide information to
consumers
Examples : [Link], [Link], eBay, [Link]
 3. Direct Selling/ door to door selling

• includes both personal contact with consumers in their

homes (and other nonstore locations such as offices)
and phone solicitations initiated by a retailer
• The strategy mix emphasizes convenient shopping and
a personal touch, with detailed demonstrations.
Advantages
• Can get the attention of customers in promoting the
products, no destructions
• lower overhead costs because stores are not necessary.
Drawbacks
• limited market coverage
 4. Automated Retailing/ Vending
Machines
• is a cash- or card-operated retailing format that
dispenses goods and services (such as electronic
arcade games).
Advantage
• It eliminates the use of sales personnel
• allows 24-hour sales.
• Provide convenience
Disadvantage
• Prone to theft and vandalism,
 Multi- Channel strategy
• A retailer using multiple retail formats.
Advantage
• enables a firm to reach different customer
groups,
• share costs among various formats, and
• diversify its supplier base.
• E.g. Wal-Mart sells through stores (including Wal-
Mart stores, Sam’s Club, and Neighborhood
Market) and a Web site ([Link]).
 2.4 Services Retailing

• primarily sell services rather than merchandise

Examples:
– auto-repair services,
– cafeteria services,
– laundry services,
– home cleaning services,
– beauty aid services,
– fitness centres, health care services,
– movie and entertainment houses, DVD rental services and some
library services.
• intangibility, simultaneous production and consumption,
perishability, and inconsistency of the offering to
customers are the important difference from merchandise
retailers