The Retail Trade 1

Retailer
A retailer is a person or organisation who buys goods from the manufacturers and wholesalers and
sells them to the consumer.

Types of retailers:
Retailer

Small-Scale Large-scale

1. Pedlars & Hawkers 1. Department stores

2. Roadside services/trader 2. Multiple chain stores
3. Street market/retail 3. Supermarkets
market traders 4. Hypermarkets (superstores)
4. Small-scale retailer/Unit 5. Mail order business
retailers
5. Vending Machines

Features of Small-Scale retailers

 They normally run as a sole proprietorship (sole trader) or a partnership
 The capital is usually small and it is raised from personal saving, borrowed from friends or family
or loan from banks
 Small retailers obtain a great variety of goods in small quantities from wholesaler
 The sole proprietorship normally serves his customers with the help of some assistants.
Therefore, he has the opportunity to get to know his regular customers well.

Types of Small – Scale Retailers

1. Pedlars and Hawkers
 The Pedlar is a trader who walks from place to place carrying his wares or goods on his head
or in baskets suspended at both ends of a pole slung over his shoulder.
 A Hawker is a trader who goes from place to place or stays in a spot but uses some sort of
vehicle to carry his goods.
 There are two types of hawkers;
(i) The Itinerant Hawkers who move from one place to another.
(ii) The Non-itinerant Hawkers who sells his goods from a selected spot.

2. Roadside services/traders:
 Many people work on the pavement outside the shops to provide individual services to
customers.
 They may repair or clean shoes, cut hairs, make or alter clothes.
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3. Mobile shops
 These itinerant sales people using specially adapted vans, buses or small trucks often serve
rural areas or housing suburbs of towns and cities. Such as milkmen, greengrocers,
fishmongers, bakers etc.

4. Street market/retail market traders

 Market may be held in particular street or open space in a town or village once or twice a
week.
 They may be permanent markets held every day on an established site.
 They are usually dependent on the weather for their success.
 They usually hire stalls from local council.

5. Small scale retailers/Unit retailers/Independent retailers

 Unit retailers are the businesses that are privately owned. They are usually thought of as
single-store operation with only one branch.
 They are sometimes known as unit retailers or independent retailers.
 May be run by a family.
 Who may employ staff
 Many sale one kind of product or a variety of products
 Maybe located in neighbourhood.

Advantages to the consumers:

(i) They provide a personal, friendly service to people who live locally and are well-known to
them.
(ii) They often offer informal credit to their customers i.e. purchases made during the
week/month are paid for at the end of the week/month when the customers receive their
wages.
(iii) Small scale retailers often open to suit their customers i.e. they may have long opening
hours e.g. 7 to 11 shops.
(iv) They may also offer special offers, reduced prices and delivery services to encourage
consumer loyalty.
(v) They may offer a variety of goods that they sell in small quantities.
(vi) They usually provide after-sales service to customers.

Disadvantages to the consumers:

(i) They may sell only a limited range of goods.
(ii) Prices are often high than those charged by large scale retailers because they are unable of
take advantage of purchase economies of scale.

Disadvantages to the owner:

(i) They may face price competition from large scale retailers.
(ii) They may find it difficult to conform to health, safety and hygiene regulations.
(iii) They may have difficulties in raising capital for shop improvement
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(iv) They will have unlimited liability if they are sole trader i.e. responsibility for all the losses of
the business if it fails.
(v) If they allow credit, there may be the danger of bad debts.

6. Automatic Vending Machine:

 This refers to the sale of goods from machines.
 These machines can sold cold bottled drinks, hot drinks, cigarettes and sweets.
 Often placed cinemas, airports, parks and super markets.
 Customers enter the money into the machine and press a button and desired item comes
out.

Advantages to the retailer

(i) Requires minimum space so rental cost is low
(ii) Offer 24 hours service.
(iii) They sell at a set price ensuring that a set profit margin is gained by the retailer.
(iv) Customers serve themselves thus save the retailer’s time and also labour cost.
(v) They may attract additional customers, e.g. children.

Disadvantages to the retailer

(i) Available only for the sale of limited range of products.
(ii) There is the capital cost or the cost of hiring the machine.
(iii) Maintenance costs
(iv) There may be a problem with the machine running out of supplies.
(v) It is expensive to adapt the machines for price changes.

Advantages to the consumers

(i) Available for use 24 hours a day.
(ii) They offer small quantities of goods to satisfy immediate need.
(iii) Self-service less time is required.

Disadvantages to the consumers

(i) Only limited range of products are available.
(ii) Inconvenience if machine out of order.
(iii) They charged higher prices.
(iv) Customer may lose money because the machine does not work properly.
(v) The goods offered may be of poor quality, e.g. hot drinks
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Reasons why Small – Scale Retailers buy from Wholesalers

Small Capital: The small-scale retailer has only small capital and cannot afford to buy in bulk
directly from the manufacturer therefore he can only make small order at a particular time.

Limited Market: The small retailer has mainly a regular customer therefore the markets is only
limited to the people living in the area near their shop.

Small Turnover:
 The total sales per month is small
 If they buy in bulk, the goods will be laying around and have to pay the rent for storing the goods
 Furthermore they can go bad in the case of foodstuff or may go out of fashion in the case of
goods like clothing and furniture.
 That’s why they only needs to pay in small amounts for a great variety of goods produced by the
manufacturers.
 This is exactly what the wholesaler does for them.

Need for Credit:

 Trade credit is one of the greatest sources of funds for a small retailer
 Manufacturers are often unwilling to give credit but the wholesalers are willing to give trade
credit to small retailers in order to secure business.

Variety of Goods:
 A wholesaler stocks a great variety of brands of a particular goods like Lux, Palmolive, and
Imperial Leather Soap.
 And they also stock a wide range of related goods, for example foodstuff and household items.

Survival of Small – Scale Retailers

Although large scale retailers have more success and serve a great attraction to the customers then
the small-scale retailer but they still can survive. The main reasons are as follows;
(i) Small scale businesses require a small capital with no need for knowledge and experience.
(ii) A small shop is easier to manage and usually the family members help in running of the
business, thus no need for hiring assistants.
(iii) Small scale retailers give personal advice and service. The customers prefer to buy goods from
such retailer who provides a personal touch in the dealings.
(iv) Many small scale retailers provide for home delivery service for example daily newspaper and
fresh bread.
(v) They’re open for longer hours thus making it convenient for customers to buy goods at odd
hours.
(vi) They usually located close to the homes of his customers making it very convenient for them
to call whenever they run out of supplies
(vii) They provide credit facilities to regular customers.
(viii) The goods sold at lower prices as the overhead expenses are nil or minimal when compared to
large retailer.
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How Small – Scale Retailers can make his business more successful?
To be more successful means to increase one’s net profit. This could be achieved by increasing
turnover (increase in sales and reduce in expenses). Therefore the retailer has to re-examine the
following point concerning his business.
 The location of the shop?
 Can the service be improved in order to build up some goodwill to secure regular market?
 Are prices competitive enough?
 Is the quality of his goods worth the prices charge for them?
 Does he have a good variety of goods to provide for the needs of all his customers?
 Is there still room for improvement in the layout and display of goods and in the cleanliness of
his shop?
 Can he find better source of supply where he is able to obtain better discounts and terms of
credit?
 Is it economically possible to increase the advertising expenses?

Factors to consider in setting up a retail business:

(a) Experience and knowledge of the business : Lack of such expertise may lower the success of
the business as you would not be able to cope with the problems occurs to that branch of
retailing.
(b) The brand of retailing contemplated: you have to bear in mind whether your financial
resources are sufficient and whether you know enough about the business. For example, to set
up a coffee house you may need something like $20,000 whereas to set up a small eating stall
you may only need $2,000.
(c) Location of premises: The demand for your product e.g. if you open a jewelry shop, it would
be more profitable to have one in the town area.
(d) Sufficiency of capital: Rent in the town area would be higher than in the suburbs. If you tend
to buy the premises then you would certainly need more capital.
(e) Sources of supply of goods: It is important that you are able to now which wholesalers to go
to. Some may give better discounts and other may give longer credit.
(f) The law of comparative advantage: Is it more profitable to remain in your present job
earning your monthly salary? Remember that if you become a retailer, you have to forgo your
salary. Therefore your net profit from retailing must be greater than your salary.
(g) Laws and regulations: You should make a study of the commercial laws regarding the line of
retailing you want to go into. May you get a license? Can you trade in the goods specified and in
the place selected by you?

Features of Large – Scale Retailers

 The Retail Trade 6

 Normally runs as a private or public limited company.

 Normally buys in bulk directly from the producer or manufacturer.
 Sometime may even have their own factories.
 Capital needed is very large.
 Invest heavily in the non-current assets (fixed assets)
 Employ specialists’ stuff.
 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

1. Department Store:
 It’s a large building divided into sections or departments, each selling one type of good,
located in the Centre of the city.
 Each department store is run by a general manager and each section in the department
store is handled by a manager.
 Main aim is to provide wide range of goods under one roof
 Department stores also provide facilities for the convenience of their customers like
escalators, lifts, car park, trolleys, etc.

2. Multiple Chain Store:

 A multiple chain store is usually defined as one with ten or more branches all over the
country under the direct control of central headquarter
 If it has less than ten branches, it is a Chain Store.
 Every branch shop looks very similar since it is decorated in the same manner, has the same
name and sells the same goods at standard prices which is fixed by headquarters.
 Goods are sold usually on open display so customer may personally examine and select the
goods.
 Terms of sale normally cash.
 There are two types of multiple chain stores:
i. A Specialist Multiple Chain Store: concentrating on one main product line, e.g. Bata
selling footwear in many parts of the world.
ii. A Variety Chain Store: selling wide variety of goods, e.g. W H Smith based in UK.

3. Supermarket:
 Big department stores, specialised in selling kitchen and daily household goods.
 Goods are attractively displayed and within the easy reach of shoppers.
 Prices are fixed and printed on each item. Since the manager buys in bulk directly from the
producers therefore the goods ae sold at a lower prices.
 Supermarkets also provide many facilities to the shoppers like air conditioner, car parking,
toilets, baskets, trolleys, etc.
4. Hypermarket:
 The Retail Trade 7

 Hypermarkets are normally twice as large as a supermarket where the floor space can be
greater than 2500 sq. meter and often sited outside large town.
 It offer a wide range of goods and a great variety of foodstuff.
 It attracts shopper who want to buy large amount of goods.

5. Mail Order Business:

 Mail order refers to shopping by post.
 Mail order business are run by manufacturers, department stores or specialist mail order
companies.
 Only one office and a large warehouse is required
 Business will extensively advertise in newspapers
 They have printed catalogue and price lists
i. Catalogue contains diagram, specifications and reference number of goods
available. And telephone, fax number, email address and postal address of the
company.
ii. Price lists contains the prices of goods mentioned in catalogue against
its reference numbers.
 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
customers.
 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/Disadvantages of Large – Scale Business

Advantages of Large – Scale retailer:
(a) To Business:
 Large scale retailer with many branches have a large turnover. This enables them to achieve
purchase economies of scale i.e. bulk buying discount.
 Charge lower prices than average prices to consumer this will also increase turnover.
 They can also offer special promotions and lose leaders to their customers.
 They can afford specialist employees.
 Enables greater use of computerized system i.e. stock control may be more accurate and
money is not wasted on surplus stock.
 They can afford to have their own delivery vehicles. These will be used to supply their shops.
 They may be public limited companies. This makes it possible for them to raise the large
amounts of capital necessary for setting up and expanding their retail business.
(b) To consumers:
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 Competitive price: the customer is assured to get the same quality goods at the same price
at any other smaller retailers. Sometimes, the price is lower when large retailer gives
“special offer” to attract customers.
 One stop shopping: Customers finds it very convenient as they can do all their shopping
under one roof due to the wide range of goods offered by the various departments.
 Convenience:
i. Self-service in large stores makes goods easy to collect and customers can go round on
their own.
ii. Prices are clearly marked and goods are packed in very convenient packages.
iii. The facilities offered enable the customers to shop in comfort. For example: air
conditioning, escalators and restaurants.

Disadvantages of Large – Scale retailer

(a) To Business:
 Large capital required: A larger amount of capital is needed since the business stocks a great
variety of goods. Working capital is also very high.
 Decline in personal services: customers have to forgo the “personal touch” when they buy
goods from a larger retailer where self-service is offered.
 Products are standardised: A large retailer will stock only those items which are in regular
demand and which can be sold quickly. Customers miss the individuality in the product for
sale.
 Administrative difficulties: As the number and size of branches increases, control from the
headquarters become quite difficult and expensive. The staff lose their personal contact with
the employer.
 High overheads: A large staff means high wage bills even if the wage bill can be kept down
through self-service, it involves losses through theft therefore they need to install devices
and employ store detectives.
 Greater risk of loss: since the overheads (e.g. rents, advertising, wages, maintenance cost)
are very high and if turnover does not come up to expectations, profit will fall even faster.

(b) To Consumers:
 Loss of personal touch: customers have to forgo the “the personal touch” when they buy
goods from a larger retailer where self-service is offered.
 Only standard goods are stock: A large retailer will stock only these items which are in
regular demand and which can be sold quickly. A customer with an eye for individuality must
look to the small retailer who may cater to their individual taste.
 No credit facility: since a large retailer serves many customers who normally strangers,
therefore they won’t offer any credit. However, customers are able to buy on credit if they
have credit or debit card.
 Not conveniently located: All these are located in main commercial area (which are far from
residential areas) there can be traffic, congestion and parking problems.
 Do not provide home delivery.