Home Trade: The Retail Trade

Home 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

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

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

Different Channels of Distribution

  1. Producer to the consumer
    Expensive, technical, perishable, exclusively made for one customer.

  2. Producer to retailer to consumer
    Large scale retailer, producer’s own outlet, suitable for perishable items for example bakery.

  3. 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.

  4. 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

  1. Producer capabilities
    Can producer open his own retail outlets?

  2. Producer philosophy
    Exclusive distribution (distribution at certain shops)
    Extensive distribution (distribution at every shop)

  3. Type of customer
    Own use: from retailer
    Business use: from producer

  4. Size of order
    Small: from retailer
    Large: from producer

  5. Nature of product
    Perishable: small channel
    Long shelf life: long channel

  6. Value of product
    Expensive: small channel
    Cheap: long channel

  7. Size of market
    Small: small channel
    Large: long channel

  8. Nature of market
    Home or International

Functions of Retailer

  1. Always looking for good source of supply.
  2. Further bulk breaking, and selling in smaller quantities.
  3. Offers variety of goods from different producers.
  4. They sell to the end customer.
  5. Might be involved in branding and packing.
  6. Might provide home delivery (small scale retailers).
  7. Might provide informal credit to trustworthy customers (small scale retailers).
  8. Provides after sale services to the customers.
  9. Provides information to the customers about the new products and schemes.
  10. Inform the wholesaler or producer about the reaction of market towards a certain product.
  11. Deals with complaints from customers.
  12. Warehousing.
  13. Display products to the customers.

Large Scale Retailers

  1. Purchase from the producer in bulk.
  2. Normally work on the basis of public or private limited companies.
  3. Involve a lot of capital.
  4. Invest heavily in the fixed assets.
  5. Employ specialist staff.
  6. Arrange transportation from the producer.
  7. Pay cash to the producer at the time of purchase.
  8. Sell on cash to end customers (i.e. no credit is offered).
  9. Provide impersonalized services to the customers.
  10. Do not provide home delivery.

Types of Large Scale Retailers

Multiple Shops

Department Store

Variety chain store

Super market

Hyper Market

Mail order business

Advantages of Large Scale Retailers

To Business

  1. High Rate of Turnover-Economy of scale can be achieved.
  2. Business can employ specialist staff – Efficient business.
  3. Low competition due to high capital requirement.
  4. Business can save on transportation.
  5. They will get discounts because they purchase in bulk.
  6. Have state of art warehousing techniques.

To Customers

  1. Variety is available
    Horizontal = Different brands
    Vertical = Different products of same brand.
  2. Generally customers can get low rates.
  3. Benefit of one stop shopping.
  4. Extra facilities like ATM and post office.
  5. Since items are displayed openly on shelves, customers have freedom of choice.
  6. Mail order business sell under money back guarantee.
  7. Generally items of good repute and quality is sold.
  8. Customers can enjoy arm chair shopping via mail order.

Disadvantages of Large Scale Retailers

To Business

  1. High capital requirement.
  2. High fixed cost (large expenses).
  3. Greater risks attached (stock damage).
  4. Management problems.
  5. Business has to give incentives to customers which can be a burden on the business.
  6. Business has to allocate certain area for non-productive activity (play area, parking lot).
  7. Normally self service is offered and there are chances of shop lifting.
  8. Mail order business can expect refund claims which is loss to the business.

To Customers

  1. Not conveniently located.
  2. All these are located in main commercial area their can be traffic, congestion and parking problems.
  3. Customers get standardized items.
  4. Impersonalized services.
  5. Self service sometimes leads to impulse buying and irrational buying.
  6. Do not provide home delivery.
  7. Don not provide credit facility.

Small Scale Retailers/Independent Retailer

Why Small Scale Retailers are dependant on wholesalers

Why Small Sale Retailers are still surviving

  1. Nearness to the customers (saves travel costs and time).
  2. Personal services.
  3. Credit facility.
  4. Opening hours (open early in morning and closed late at night).
  5. Some shoppers do not like change so they go to the small shop because they have always done.
  6. Free home delivery.

How Retailers can improve their Profits.

  1. By improving the quality of products.
  2. By offering variety.
  3. By offering competitive prices.
  4. By properly advertizing and giving incentives.
  5. By improving shop layout.
  6. By changing location.
  7. By controlling costs of routine operation.

Points to be remembered before starting retail business