Retailing

Retail Formats: Part 2

• Catalog Retailers – Retailers such as Lands’ End and LL Bean have built their business by having customers place orders after seeing products that appear in a mailed catalog.  Orders are then delivered by a third-party shipper. 
• e-tailers - Possibly the most publicized retail model to evolve in the last 50 years is the retailer that principally sells via the Internet.  There are thousands of online-only retail sellers of which Amazon.com is the most famous.  These retailers offer shopping convenience including being open for business all day, every day.  Electronic retailers or e-tailers also have the ability to offer a wide selection of product since all they really need in order to attract orders is a picture and description of the product.  That is, they may not need to have the product on-hand the way physical stores do.  Instead an e-tailer can wait until an order is received from their customers before placing their own order with their suppliers.  This cuts down significantly on the cost of maintaining products in-stock.
• Franchise – As noted in the Distribution Decisions Tutorial, a franchise is a form of contractual channel in which one party, the franchisor, controls the business activities of another party, the franchisee.  Under these arrangements, an eligible franchisee agrees to pay for the right to use the franchisor’s business methods and other important business aspects, such as the franchise name.  For instance, McDonalds is a well-known franchisor that allows individuals to use the McDonalds name and methods to deliver food to consumers.  Payment is usually in the form of a one-time, upfront franchise fee and also on-going percentage of revenue.  While the cost to the franchisee may be quite high, this form of retailing offers several advantages including: 1) allowing the franchisee to open a retail outlet that may already be known to local customers, and 2) being trained in how to operate the business, which may allow the franchisee to be successful much faster than if they attempted to start a business on their own.  For the franchisor, in addition to added revenue, the franchise model allows for faster expansion since funds needed to expand the business (e.g., acquiring retail space, local advertising) are often supported by the franchisee’s up-front franchise fee.
• Convenience Store – As the name implies these general merchandise retailers cater to offering customers an easy purchase experience.  Convenience is offered in many ways including through easily accessible store locations, small store size that allows for quick shopping, and fast checkout.  The product selection offered by these retailers is very limited and pricing can be high.
• Vending – Within this category are automated methods for allowing consumers to make purchases and quickly acquire products.  While most consumers are well aware of vending machines allowing customers to purchase smaller items, such as beverages and snack food, newer devices are entering the market containing more expensive and bulkier products.  These systems require the vending machine have either Internet or telecommunications access to permit purchase using credit cards.