Chapter 14
Retailing
Canadian Retailing
TIM HORTONS
• In 2007:
• 2,700 locations coast-to-coast
• $4 billion in restaurant sales
• Accounts for 70% of Canadian quick service
restaurant traffic.
• In 2013:
• 3,500 locations coast-to-coast
• $2 billion in restaurant sales
• Accounts for 42% of Canadian quick service
restaurant traffic.
• In 2014: Burger King; a new partner.
D. Kernaghan 2019
Ownership, Service, Products
Prior to opening a retail business, the future owner will need to
decide on each of the following general formats (which are often
driven by initial market research):
• Who will own the business?
• What level of customer service will be offered?
• Will be products being offered have substantial breadth (several
different products, but a minimal variety) or depth (a limited
product line, but with substantial variety).
D. Kernaghan 2019
Common Ownership Structures
• Independent Retailer – owned by one person (or a small group of
partners). Their advantage is usually based on good service and
convenient location.
• Corporate Chain – several retail outlets are owned by a single entity
(such as a corporation). They typically use a centralized decision-making
process which has both advantages (consistent management standards)
and disadvantages (unable to react to local preferences).
• Contractual System – independent stores that operate based on a
contract with a ‘parent’ organization. A common example is the
franchise agreement.
D. Kernaghan 2019
Common Ownership Structures
Shown are some of the largest franchises in Canada (2010)
Franchise
Type of Business
Start-Up Costs
Number of
Franchises
(Global)
H & R Block
Tax Preparation
$27,000 - $85,000
11,000
Hampton by Hilton
Hotel
$3,700,000 - $15,000,000
2,000
7-Eleven
Convenience Store
$50,000 - $775,000
56,000
McDonalds
Sandwich Restaurant
$1,000,000 - $2,000,000
36,000
Subway
Sandwich Restaurant
$84,000 - $258,000
42,000
D. Kernaghan 2019
Different Levels of Service
The level of service offered at a retail business is often a function of a
client’s ability to be taught a specific level of independence (to ‘serve
themselves’). A retailer also needs to be aware that every additional level
of service offered will increase operating costs (which either reduces
profits or increases prices).
The most common formats are:
• Self-Service.
• Minimal Service.
• Full-Service.
D. Kernaghan 2019
Different Levels of Service (cont’d)
Self-Service – minimal cost; successful for
products that don’t include complex service
requirements.
• Advantage: labour cost savings.
• Disadvantage: there is an initial training
cost related to teaching the Clients how to
provide the service for themselves
(assuming the process is simple and
‘teachable’).
D. Kernaghan 2019
Different Levels of Service (cont’d)
Minimal Service – the
number of staff (and
related training) are kept
at absolute minimum
levels. This popular
model is often not
effective because it leaves
the customers with the
impression that staff are
not familiar with their
store’s product line.
D. Kernaghan 2019
Different Levels of Service (cont’d)
Full-Service – expensive but effective. This
model is used for products that are highvalue (expensive make-up or jewelry) or
complicated and require instruction to
convince the potential buyer of its benefits.
D. Kernaghan 2019
The Value and Scope of Retailing:
Merchandise Line
Breadth of Line: refers to the number of different types of products
offered in a store. Example: typical country or suburban ‘general store’.
The intent is to offer one or two types of anything a local resident might
require (i.e.: 10,000 unrelated products in one store).
D. Kernaghan 2019
The Value and Scope of Retailing:
Merchandise Line (cont’d)
Depth of Line: refers to an extensive assortment of a limited product line
offered in a store. Example: a store that is located in a competitive area
will become the ‘expert’ in one category by offering a maximum variety of
products that are focused on a niche market (i.e.: 10,000 related products
in one store).
D. Kernaghan 2019
The Value and Scope of Retailing
Depth: Number of Items
within each Product Line
Breadth: Number of Different Product Lines
Shoes
• Running Shoes
• Dress Shoes
• Boat Shoes
• Tennis Shoes
• Sandals
• Boots
Appliances
• Dishwashers
• Microwave
Ovens
• Washers
• Refrigerators
• Freezers
Books
• Mystery
• Romance
• Science Fiction
• History
• Poetry
• Entertainment
Men’s Clothing
• Suits
• Ties
• Jackets
• Overcoats
• Socks
• Shirts
D. Kernaghan 2019
Non-Store Retailing
High
Direct Selling
Active Customer Involvement
Forms of
non-store
retailing.
Telemarketing
Online Retailing
Television Home Shopping
Direct Mail and Catalogues
Automatic Vending
Low
Low
Active Retailer Involvement
High
D. Kernaghan 2019
Retailing Strategy
One common model
uses a ‘Retail
Positioning Matrix’.
The chart balances
investment in staff
and training vs
depth/breadth. The
intent is to select the
quadrant that meets
your customer’s
expectations (based
on market research).
Broad
Walmart
Hudson’s
Bay
Shoe
Warehouse
Birks
Breadth of
Product Line
Narrow
Low
Value Added
High
D. Kernaghan 2019
Retailing Strategy (cont’d)
Shown is an overview of a retailing strategy
Retailing Strategy
Retail Store Positioning Statement
Retail Communication
Retailing Mix
Merchandise Management
Pricing
Store Location
Staffing & Training
Store Image
Product Line
D. Kernaghan 2019
Retail Pricing
In addition to the criteria used for selecting a suggested selling price (as
discussed in an earlier chapter), the final retail price will also be affected by:
• Shrinkage: this cost is a function of two sources: (i) internal (employee)
theft, and (ii) external (customer) theft. Different solutions are required
for each source.
• Off-Price Retailing: these are stores that buy products (for resell) from
suppliers outside of the normal wholesale distribution system. They will
resell them at lower-than-average profit margins. This model is often
profitable by minimizing wholesale prices (by purchasing factory stock
‘overruns’ or ‘outdated’ stock) or by reducing traditional operational costs
(by using less-expensive retail locations and fewer staff).
D. Kernaghan 2019
Retail Location
High
Central Business District
Exposure
Regional Shopping Centres
Community Shopping Centre
Strip Location
Low
Low
Cost
High
D. Kernaghan 2019
The Small Business ‘Success Cycle’
The business will either: (i)
restructure to resemble an
organization, (ii) divide into separate
individual businesses, (iii) collapse
due to inadequate management.
4. Business now has
multiple products and
services that are all being
managed by the original
owner.
The business is now too large
to successfully manage under
its original model.
1. Business opens with:
Low prices and margins
Low status
Based on Client
demands, the store
adds
products/services
Passage
of Time
2. Business now has:
Higher prices and margins
Higher status
Increased variety
3. Business now has:
Still higher prices and margins
Still higher status
Multiple product/service offerings
Based on Client
demands, the store
adds more
products/services
D. Kernaghan 2019
General Stores
Business-District Retailers
Catalogue Retailers
Department Stores
Supermarkets
Convenience Stores
Fast-Food Outlets
Warehouse Clubs
Factory Outlet Stores
Single-Price Stores
Single-Brand Stores
Online Retailers
Value-Retail Centres
The Retail Store Model (Applied to a Life Cycle)
D. Kernaghan 2019
A Retailer’s Current Challenges
• Merging ‘bricks-and-mortar’ investments with virtual opportunities
(i.e.: integrated multi-channels).
• Using technology as a profit-driver; not an expense.
• Continuous research to understand expectations.
• Leveraging (in real terms or through imagery) society’s expectations in
regard to social and environmental responsibility.
• Effective human resource management, ranging from: (i) hiring
experience, (ii) training new staff, (iii) replacing staff with self-serve
automation/technology.
D. Kernaghan 2019
To Summarize
We have discusses retailing in terms of:
• Explaining the alternative ways to classify retail outlets.
• Describing the many methods of non-store retailing.
• Classifying retailers in terms of the retail positioning matrix.
• Developing a retailing strategy based on a store’s position in its
life cycle.
• Identifying the challenges retailers face as they pursue
sustainable growth.
D. Kernaghan 2019