Organizational Patterns in Retailing

An independent retailer has a simple organization. It operates only one store, the owner/manager usually supervises all employees, and workers have access to the owner/manager if there are prob­lems. In contrast, a chain must specify how tasks are delegated, coordinate multiple stores, and set common policies for employees. As examples, the organizational arrangements used by inde­pendent retailers, department stores, chain retailers, and diversified retailers are discussed next.

1. Organizational Arrangements Used by Small Independent Retailers

Small independents use uncomplicated arrangements with only two or three levels of personnel (owner/manager and employees), and the owner/manager personally runs the firm and oversees workers. There are few employees, little specialization, and no branch units. This does not mean fewer activities must be performed but that many tasks are performed relative to the number of workers. Each employee must allot part of his or her time to several duties.

Figure 11-6 shows the organizations of two small firms. In A, a boutique is organized by func­tion. Merchandising personnel buy and sell goods and services, plan assortments, set up displays, and prepare ads. Operations personnel are involved with store maintenance and operations. In B, a furniture store is organized on a product-oriented basis, with personnel in each category respon­sible for selected activities. All products get proper attention, and some expertise is developed. This is important because different skills are necessary to buy and sell each type of furniture.

2. Organizational Arrangements Used by Department Stores

Many department stores continue to use an organizational arrangement that is an adaptation of the Mazur plan, which divides all retail activities into four functional areas.² In twenty-first century terms, these are store management, communications, merchandising, and financial accounting. Figure 11-7 shows the modern version of the Mazur plan, as devised by the authors of this book:

1. Store management: Operations, customer service, human resources, inventory, “backroom” activities, and store maintenance
2. Communications: Public relations, advertising, window and interior displays, promotions, and online efforts
3. Merchandising: Buying, selling, stock planning and forecasting, and product-positioning (image-related) with regard to the mix of goods and services offered by the retailer
4. Financial accounting (overseen by controller): Accounting, inventory control, credit, and auditing

These areas are organized into line (direct authority and responsibility) and staff (advisory and support) components. Thus, in Figure 11-7, the omnichannel manager reports directly to the general manager and is a staff person; and a controller and a communications manager often staff services for merchandisers; but in their disciplines, personnel are organized on a line basis.

The merchandising division is responsible for buying and selling. It is headed by a merchandising manager, who is often viewed as the most important of the area executives. She or he supervises buyers, devises financial goals for each department, coordinates merchandise plans (so there is a consistent image among departments), and interprets the effects of economic data. In some cases, divisional merchandise managers are utilized, so the number of buyers reporting to a single manager does not become unwieldy.

In the basic Mazur plan, the buyer has complete accountability for expenses and profit goals within a department. Duties include preparing preliminary budgets, studying trends, negotiat­ing with vendors over price, planning the number of salespeople, and informing sales personnel about the merchandise purchased. Grouping buying and selling activities into one job (buyer) may present a problem. Because buyers are not constantly on the selling floor, training, scheduling, and supervising personnel may suffer.

Branch store growth has led to three Mazur plan derivatives: main store control, by which headquarters executives oversee and operate branches; separate store organization, by which each branch has buying responsibilities; and equal store organization, by which buying is centralized and branches become sales units with equal operational status. The latter is the most popular format.

In the main store control format, most authority remains at headquarters. Merchandise planning and buying, advertising, financial controls, store hours, and other tasks are centrally managed to standardize the performance. Branch store managers hire and supervise employees, but daily opera­tions conform to company policies. This works well if there are few branches and the preferences of customers are similar to those at the main store. As branch stores increase, buyers, the advertising manager, and others may be overworked and give little attention to branches. Because headquarters personnel are not at the branches, differences in customer preferences may be overlooked.

The separate store format places merchandise managers in branches, which have autonomy for merchandising and operations. Customer needs are quickly noted, but task duplication is pos­sible. Coordination can also be a problem. Transferring goods between branches is more complex and costly. This format is best if stores are large, branches are dispersed, and/or local customer tastes vary widely.

In the equal store format, the benefits of both centralization and decentralization are sought. Buying—forecasting, planning, purchasing, pricing, distribution to branches, and promotion—is centralized. Selling—presenting merchandise, selling, customer services, and operations—is man­aged locally. All stores, including headquarters, are treated alike. Buyers are freed from managing so many workers. Data gathering is critical since buyers have less customer contact.

3. Organizational Arrangements Used by Chain Retailers

Various chain retailers use a version of the equal store organization, as depicted in Figure 11-8. Although chains’ organizations may differ, they generally have these attributes:

• There are many functional divisions, such as merchandise management, distribution, omnichannel, operations, real-estate, personnel, information systems, and sales promotion.
• Overall authority is centralized. Store managers have selling responsibility.
• Many operations are standardized (fixtures, store layout, building design, merchandise lines, credit policy, and store service).
• An elaborate control system keeps management informed.
• Some decentralization lets branches adapt to locales and increases store manager responsibili­ties. Although large chains standardize most items their outlets carry, store managers often fine-tune the rest of the strategy mix for the local market. This empowers the store manager.

4. Organizational Arrangements Used by Diversified Retailers

A diversified retailer is a multi-line firm operating under central ownership. Like other chains, a diversified retailer operates multiple stores; unlike typical chains, a diversified firm is involved with different types of retail operations. Here are two examples:

• Kroger Co. (www.kroger.com) operates supermarkets, warehouse stores, supercenters, con­venience stores, and jewelry stores; it also has a manufacturing group. The firm owns multiple store chains in each of its retail categories. See Figure 11-9.
• Japan’s Aeon Co. (www.aeon.info/en) comprises superstores, supermarkets, discount stores, home centers, specialty stores, convenience stores, financial services stores, restaurants, and more. Besides Japan, Aeon has facilities in numerous other countries. It is also a shopping center developer.

Due to multiple strategy mixes, diversified retailers face complex organizational consider­ations. Interdivision control is needed, with operating procedures and goals clearly communicated. For example, (1) interdivision competition must be coordinated, (2) resources must be divided among divisions, (3) potential image and advertising conflicts must be avoided, and (4) manage­ment skills must adapt to different operations.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.