Retailing and Buying
Factory outlet retailing
Discount/warehouse clubs
Franchising
Prof.C.Vignali PhD
Introduction
• Two of the most recent developments in retail
formats are warehouse clubs and factory
outlets, both of which have been highly
successful in the USA and which are now
developing in the UK (Fernie, 1995). The
warehouse format is reaching maturity in the
USA and key operators such as Sam’s, Price
Club and Costco are seeking opportunities to
expand outside the USA. Warehouse outlets
operate on the basis of scrambled
merchandising which means that they sell
everything from car tyres to baked beans.
Stock is sold in bulk and at significantly lower
prices than in traditional retail outlets.
Factory outlet retailing
• Centres offer an attractive, modern
accessible retail environment from which
manufactures sell their brand name
products to the public at discount prices.
• The product lines are mainly fashion
clothing, footwear, sport & household
goods.
• First opened in Pennsylvania, USA. 1970’s
Factory outlet retailing
• First factory outlet centre in the UK was
developed at Hornsea on Humberside
(Hornsea Freeport) which opened in 1992.
• More recent developments were “Cheshire
Oaks” opened in 1995, with 16,700 square
metres, it is the largest in the UK.
• More recent developments include the
Lowry Designer Outlet in M/cr.
Development & management
process
• Important in influencing the location, and
trading characteristics.
• Number of planning issues.
• Viability of town centres
• Wide range of shops
• Means of transport
Location retailing issues
 cost
 location of the target market
 kinds of products being sold
 availability of public transportation
 customer characteristics
 competitors location
 relative ease of traffic flow, including pedestrians
 parking and major thorough fares
 complementary stores
Strategy
• Many companies in the discount retailing
market are following a strategy of
expansion. This development can be seen
in both the increased number of store
openings and in the movement into
overseas markets by several companies.
However, care must be taken with regard
to how such strategies are handled,
developed and communicated.
Conclusion
• Shopping at out-of-town outlet centres is a
totally different shopping experience. Not
only is the experience new, but it brings
within the reach of the discounters a new
type of customer, who perhaps does not fit
the stereotypical less-affluent consumer
profile. Attracting and keeping these
customers is a key challenge for discount
clothing retailers
Discount/warehouse clubs
• A warehouse club offers its members low
prices on a limited selection of nationally
branded and private label merchandise
within a wide range of product categories.
• Rapid inventory turnover, high sales
volumes and reduced operating costs
enable warehouses clubs to operate at
lower margins.
Examples of warehouse clubs
• The following are warehouse clubs which
operate in the UK.
• Booker
• Makro
• Tradex
• Readmens
• Cactus
Discount/warehouse clubs
• Nearly all warehouse clubs trade as
‘members only’ club.
• A concept that is successfully utilised by
UK Market operators (Flea markets) and
retail warehouses to avoid UK planning
rules and Sunday trading laws regarding
the use of industrial land or buildings for
retail use.
Reducing costs
• In order to reduce costs, the clubs have
minimal sales help in each location.
• Do not spend a lot of capital on
advertising.
• Therefore the clubs primarily stock brand
names products that do not require
promotion through advertising or
explanations by sales people
Appeal to target market
• To appeal to both business and retail
members, the warehouse clubs a wide
range categories.
• Dry grocery, office supply, automotive,
books, computer supplies, hardware and
sports equipment.
• The clubs strive to be “one stop” shopping
experience.
Competitive Price Evaluation
• Competitive Price Evaluation - When
analysing competitors who have
merchandise in the clubs, manufacturers
should pay attention to the price range of
the category and the retail prices of nonclub operators. Knowing the category price
range helps to develop a package size that
meets the buyer's needs and helps to
understand the competitor's cost of goods.
Product Rotation Plan
• Product Rotation Plan - Club buyers constantly rotate
new and interesting products into their merchandise mix.
A vendor that has a number of items that meet the buyer's
needs should create a rotation plan, instead of trying to
sell all of the products at once. By developing an in-andout strategy that is centred around a theme, the vendor
may be able to generate sales across a larger number of
items, even though they are not stocked at the same time.
Additionally, there is always the possibility that an item
will perform beyond expectations and warrant everyday
consideration by the buyer.
Strategies
• Discount warehouse clubs must meet the
needs of the club buyers. These include the
following, along with key tasks for some:
• 1. Product Sales - product volume plan for manufacturing
and broker management.
2. Marketing - margin plan and brand or product
development.
3. Strategic Alliances - usually with contract
manufacturers or packagers.
4. Sales Administration - customer service, monitor
warehousing and actual sales
Conclusion
• Warehouse clubs purchase products
directly from manufactures to it’s
distribution centres. Due to the volume that
the clubs generate, and especially buying
in bulk the savings are passed on to its
members.
Franchising
• In America over one-third of all retail sales are
made through firms operating under the
Franchise system. It is becoming increasingly
popular in the UK.
• Franchising is really the ‘hiring out’ or licensing
products to other companies. A franchise gives
permission to sell a product and trade under a
certain name in a particular area.
Examples of Franchising
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McDonalds/Burger king
Pizza Hut
KFC
Dyno rod
Shell
Body shop
Benefits
• The franchisee benefits from trading under
a well known name.
• Enjoys a local monopoly
• Training is usually arranged by the
franchisor.
• Use of well-known trademark or trade
name
• Few start up problems
Disadvantages
• On going reporting requirements.
• Costs of supplies or materials may be more
expensive
• Inflexibility due to restrictions imposed by
franchisor
Long term relationship
• Franchisors must view franchising as the
establishment of a series of long-term
relationships, and the ongoing success of
the company as a franchisor depends on
the harmony of these relationships.
Shared goals
• Common, but not essential, features of
franchised businesses are group purchasing
arrangements, an exclusive territory for
each franchisee, group advertising
programs, initial and ongoing training and
support from the Franchisor, and assistance
from the Franchisor with equipment
specification, site selection and premises
fit-out and signage
Conclusion
• While franchising is mostly used in the fast
food industry it can be applied to hotels,
automotive services,etc, but every
company still uses franchising for the same
reason - to achieve outlet growth and
maximise profits