Home Trade: The Retail Trade
Home trade consists of buying and selling of goods with the aim of making profit among people of the same country. Home trade can be divided into wholesale trade and retail trade.
Wholesale trade deals with the bulk buying of goods from various manufacturers and the breaking down of this bulk into smaller quantities which is then sold to the retailer. Wholesaler is a intermediary distributer.
Retail trade deals with the buying of goods in small quantities from the wholesaler and selling of goods in yet smaller quantities to the final consumer. A Retailer is a intermediary distributer.
Channel of Distribution
- This is the way in which goods are delivered from the producer to the customer.
- Channel of distribution ends when goods are delivered to the point of consumption.
- Ends when the form of good is changed.
Different Channels of Distribution
- Producer to the consumer
Expensive, technical, perishable, exclusively made for one customer.
- Producer to retailer to consumer
Large scale retailer, producer’s own outlet, suitable for perishable items for example bakery.
- Producer to wholesaler to retailer to consumer
Standardized, consumer items, low value and high shelf life, suitable when demand of products are seasonal or the production is seasonal.
- Producer to agent to wholesaler to retailer to consumer
Only incase of international trade. Overseas producer appoints a agent in home market. For example imported cars and cosmetics
Factors affecting choice of Channel of Distributions
- Producer capabilities
Can producer open his own retail outlets?
- Producer philosophy
Exclusive distribution (distribution at certain shops)
Extensive distribution (distribution at every shop)
- Type of customer
Own use: from retailer
Business use: from producer
- Size of order
Small: from retailer
Large: from producer
- Nature of product
Perishable: small channel
Long shelf life: long channel
- Value of product
Expensive: small channel
Cheap: long channel
- Size of market
Small: small channel
Large: long channel
- Nature of market
Home or International
Functions of Retailer
- Always looking for good source of supply.
- Further bulk breaking, and selling in smaller quantities.
- Offers variety of goods from different producers.
- They sell to the end customer.
- Might be involved in branding and packing.
- Might provide home delivery (small scale retailers).
- Might provide informal credit to trustworthy customers (small scale retailers).
- Provides after sale services to the customers.
- Provides information to the customers about the new products and schemes.
- Inform the wholesaler or producer about the reaction of market towards a certain product.
- Deals with complaints from customers.
- Display products to the customers.
Large Scale Retailers
- Purchase from the producer in bulk.
- Normally work on the basis of public or private limited companies.
- Involve a lot of capital.
- Invest heavily in the fixed assets.
- Employ specialist staff.
- Arrange transportation from the producer.
- Pay cash to the producer at the time of purchase.
- Sell on cash to end customers (i.e. no credit is offered).
- Provide impersonalized services to the customers.
- Do not provide home delivery.
Types of Large Scale Retailers
- Many similar looking outlets distributed all over the country under the same head.
- Same product line is sold through all the shops.
- Losses in one store may be offset by profits in another.
- Stock is bought centrally.
- Stock can be moved between branches.
- Most operate as public limited companies.
- Goods are usually on open display.
- Prices are clearly marked.
- Many departments or specialist shops in one building, located in the centre of the city.
- Each department specializes in particular line of goods.
- Main aim is to provide complete range of goods under one roof.
- Operates as limited companies.
- Prices are clearly marked.
Variety chain store
- Contains features of both multiple shops and department store.
- Offers variety of goods, with similar looking outlets spread all over the country.
- Sells by self-service, goods openly displayed and prices clearly marked.
- Big department store, specialized in selling kitchen related and daily household goods.
- Offers self-service.
- High Rate of turnover.
- Are very large supermarket.
- Sited outsides large towns.
- Offers low prices, as they buy in bulk.
- Suitable for those who want to buy in bulk and have own transport.
Mail order business
- Run by manufacturers or the owners of departmental stores.
- Only one office and a large warehouse is required.
- Business will advertize extensively in newspapers.
- They have printed catalogue and price lists.
Catalogue contains diagram, specifications and reference number of goods available. And telephone, fax number, email address and postal address of the company.
Price lists contains the prices of goods mentioned in catalogue against its reference number.
- Goods are ordered by mail, e-mail or telephone.
- Goods are delivered via mail.
- Orders accepted either by C.O.D.(cash on delivery) or C.W.O.(cash with order)by credit card.
- Mail order business sells under money back guarantee.
- It can make use of inexpensive premises e.g. warehouse rather than use shop premises in a busy street.
- It saves on other retail costs e.g. shop fittings, window displays, extra services for
- It can serve customers all over the country and probably in many parts of the world.
- It can target those who are unable to visit shops e.g. working women, the housebound.
Advantages of Large Scale Retailers
- High Rate of Turnover-Economy of scale can be achieved.
- Business can employ specialist staff – Efficient business.
- Low competition due to high capital requirement.
- Business can save on transportation.
- They will get discounts because they purchase in bulk.
- Have state of art warehousing techniques.
- Variety is available
Horizontal = Different brands
Vertical = Different products of same brand.
- Generally customers can get low rates.
- Benefit of one stop shopping.
- Extra facilities like ATM and post office.
- Since items are displayed openly on shelves, customers have freedom of choice.
- Mail order business sell under money back guarantee.
- Generally items of good repute and quality is sold.
- Customers can enjoy arm chair shopping via mail order.
Disadvantages of Large Scale Retailers
- High capital requirement.
- High fixed cost (large expenses).
- Greater risks attached (stock damage).
- Management problems.
- Business has to give incentives to customers which can be a burden on the business.
- Business has to allocate certain area for non-productive activity (play area, parking lot).
- Normally self service is offered and there are chances of shop lifting.
- Mail order business can expect refund claims which is loss to the business.
- Not conveniently located.
- All these are located in main commercial area their can be traffic, congestion and parking problems.
- Customers get standardized items.
- Impersonalized services.
- Self service sometimes leads to impulse buying and irrational buying.
- Do not provide home delivery.
- Don not provide credit facility.
Small Scale Retailers/Independent Retailer
- Dependant on wholesaler for their supply.
- Limited capital is involved.
- Capital can be raised from personal sources (savings and loans).
- Normally do not employ specialist staff.
- Normally do not employ latest equipment.
Why Small Scale Retailers are dependant on wholesalers
- Small scale retailers purchase in smaller quantities.
- They need variety (different brands).
- Needs credit.
- Transport to the shop is provided by the wholesaler.
- Wholesaler advices small scale retailers on different selling issues.
- Wholesaler advices small scale retailers on shop layouts.
Why Small Sale Retailers are still surviving
- Nearness to the customers (saves travel costs and time).
- Personal services.
- Credit facility.
- Opening hours (open early in morning and closed late at night).
- Some shoppers do not like change so they go to the small shop because they have always done.
- Free home delivery.
How Retailers can improve their Profits.
- By improving the quality of products.
- By offering variety.
- By offering competitive prices.
- By properly advertizing and giving incentives.
- By improving shop layout.
- By changing location.
- By controlling costs of routine operation.
Points to be remembered before starting retail business
- Knowledge about retailing.
- Knowledge about the industry.
- Knowledge about prevailing law.
- Capital requirement.
Aggressive: Locating with the competition.
Defensive: locating away from competition.
- Good source of supply.