O Level Revision : Commerce - The Retail Trade
Retailing is buying and selling of goods in small units or quantities. Retailers sell the goods in small units to the consumers. Retailing is the final link in the chain of production.
The Retail Trade
The traditional pattern of distribution of goods is as follows: Producer sells to wholesaler - wholesaler sells to retailer - retailer sells to consumer.
Determinants of distribution channels
- a) Nature of goods: Perishables such as bread and ice cream are sold directly to consumers through retail outlets and vendors.
- b) Size of market: The larger the market the greater the need for Goods are distributed to cater for the size of the market. Large markets need intermediaries. Small and exclusively clientele-designed goods like computers, phones and uniforms usually need specialist retail outlets.
- c) Quantity of goods: Producers get orders from large retailers and wholesalers.
- d) Size of producers: Producers may set up own retail outlets to sell in units to consumers and in large quantities to retailers and wholesalers.
The services of retailers
- Stock a variety of brands of goods from many local and foreign producers and wholesalers.
- Sell goods on credit.
- Are near the consumers and thus break the physical barrier of distance.
- Large retailers brand goods.
- Offer delivery services.
- Store small stocks of goods in own premises.
- Large retailers own warehouses and stock items in bulk.
- Break bulk and pack into single or small units.
- Give advice on brands, prices, durability, care and use of goods.
- Order goods for individual customers.
- Offer after-sales service and repairs.
- Provide manufacturers and wholesalers with information about the market size, customers’reaction to the product, consumer tastes, changes in tastes and technology and ultimate trend in demand.
Types of retail outlets
- Large-scale retailers
- Have sufficient capital to buy in bulk for cash and get discounts.
- Have adequate resources i.e fleet of vehicles to carry items and staff; expert specialist buyers, warehouses, and specialist staff that manage the business effectively and efficiently.
- Realise large turnover monthly.
- Sell at low prices to customers.
- Need large capital outlay and large assets.
- Normally buy in bulk direct from manufacturers and store the bulk.
- Multiple shops, department stores, variety chain stores, supermarkets, hypermarkets and mail order business are large scale retailers.
- a) Multiple shops
Examples include Bata, Mica Hardware and Transerve.
Features
- Consist of two or more similar branch shops owned by one company and distributed throughout the country.
- Has a central headquarters which controls the branches.
- Each branch is similarly decorated with similar shop layout.
- Branches have the same name.
- A branch manager controls each branch.
- Sell same products at the same clearly marked price.
- Uniformed shop assistants are nearby to serve customers.
- Goods are normally sold for cash.
- Usually sell one line of similar goods.
- Procure goods from one central manufacturer and send purchases to branches.
Advantages
- Can produce own goods for sale.
- Charge uniform prices nationally.
- Shops are easily identifiable.
- Staff and goods are transferable from one shop to another.
- Centralised buying enables bulk buying and may result in lower prices.
- Widely distributed goods,
- Can achieve all the economies of large-scale retailing e.g. on advertising, transport, warehousing and personnel.
- Losses at some branches can be absorbed by other branches.
Disadvantages
- Large capital outlay required to start and operate branches.
- Profit making branches sustain loss making ones.
- Centralised control causes delay in decision making, kills initiative.
- Central buying incurs storage and transport costs.
- b) Departmental stores
Examples include Meikles, H.M Barbours and Greatermans.
Features
- Have many departments under one building or roof.
- Each department specialises in a line of goods.
- A department can be for clothing, confectionary, electronic, furniture or grocery.
- Are usually located in city centres and busy suburban shopping centres.
- Each department has a manager or buyer who is accountable for profit and loss
of the department.
- Can sell their goods for cash, on credit or on hire purchase.
- Have luxurious appearances and facilities.
- Some have in-store restaurants or coffee bars.
Advantages
- Offer credit and hire purchase facilities.
- Have wide variety of customer goods under one roof.
- Buy in bulk and receive large discounts
- Departments advertise each other through the electronic and print media.
- Profit making departments cover up for loss making ones.
Disadvantages
- Large capital outlay is required.
- Need skilled buyers who demand high salaries.
- These shops are in expensive zones.
- Parking is limited and costly.
- Rentals are high in city centres.
- Their goods are expensive.
- c) Supermarkets
Examples include Pick n’ Pay, OK Zimbabwe and TM.
Features
- Are self-service retail outlets.
- Have at least two check-out/pay points towards the exit.
- Sell mainly foods staffs and daily household items.
- Consumers carry goods in trolleys or baskets.
- Consumers walk along wide aisles.
- Consumers carry goods in trolleys or baskets.
- Goods are usually pre-packed, branded, displayed and individually priced.
- Products are shelved under bakery, butchery, detergents etc.
- Information desk plays music, and informs customers of current items on stock.
- Sell at low prices on a cash basis only.
- Cover a minimum sales floor area of about 200m2.
Advantages
- Sell a wide variety of branded and pre-packed goods.
- Shops are in both residential areas and city centres for customer convenience.
- Can operate for 24 hours in busy areas.
- Self-service is quick and convenient.
- Bulk buying and high turnover results in goods being sold at low prices.
- Customers can shop at own pace, without being rushed.
- Customers can browse, see and handle the goods at leisure.
- Encourages impulse buying.
Disadvantages
- Limited personal contact between customers and shop assistants.
- Impulse buying often occurs.
- Goods are often soiled by customers through consistent handling.
- High rate of pilferage by both customers and workers.
- d) Hypermarkets
- Examples include TM Hyper in Bulawayo and Ivato Hypermarket at Long
Chen Plaza in Harare.
Features
- A hypermarket is a large supermarket and is normally twice as large as a supermarket.
- Large self-service one-stop shops.
- Sell a wide variety of goods.
- Situated on the outskirts of large towns – where land is available and fairly cheap, near customers and in a position where good road communications exist.
- Have several check-out points.
- Have wide aisles.
- Have large car-parks and facilities e.g. restaurants.
- Usually sell goods at lower prices.
(The advantages and disadvantages of hypermarkets are similar to those of supermarkets).
- e) Mail order business (MOB)
Features
- Manufacturers, department stores or specialist mail order warehouses run mail order business.
- Business is conducted through internet, televisions, video-phones, telephone and elaborately-printed catalogues.
- The catalogues show the pictures, sizes, colours and prices of items on sale.
- A buyer chooses the item, contacts the seller by email, phone or Facebook.
- Any goods e.g. cars, clothes, computers ordered through general mail or e-mail are sent by parcel post, road, rail or air.
- Goods are sent on approval.
- Agents advertise the goods, collect payment and remit to the mail order business and receive commission.
- Payment is made through the bank or mobile banking.
Advantages
- Customers choose and buy items while in the comfort of their homes.
- No travelling costs to shops incurred.
- Saves time on shopping.
- Unsuitable goods may be returned to seller.
- Goods are sold for cash and on credit.
- The customers buy goods of high quality.
Disadvantages
- Operational costs on catalogues, advertisements, phones, postage, commissions to agents.
- No personal contact with customers.
- Goods may be comparatively expensive and obsolete.
- Risk of bad debts.
- Delay on the delivery of goods.
- f) Retail co-operative societies
Features
- Controlled by their members i.e. the customers.
- Sell a wide range of goods.
- Membership is open and voluntary.
- Each member is allowed only one vote despite the size of capital.
- Managed by a management committee elected by the members.
- Profits are paid to members as dividends in proportion to their purchases.
Advantages
- Democratic control.
- All members have an equal voice in the running of the co-operative.
- Access to wide range of goods and skills.
- Members get benefits such as funeral aid.
- Lower prices and special offer due to bulk purchases from manufactures.
- Members are a ready- market for the sales.
Disadvantages
- Meet stiff competition from supermarkets.
- The management committee often lacks basic management skills.
- Inefficiently run.
- Conflict of interest among the members disrupts smooth running of the co-
operative.
- Limited sources of capital.
- Items tend to be expensive.
- g) Specialist shops
Features
- Sell one type, narrow product line e.g. uniforms, sportswear or jewellery.
- Have a wide choice of items within the line.
- Enbee and Mark Marnolis are examples of speciality shops.
Advantages
- Offer unique items.
- Provide expert services and wide choice of complementary items.
- Items build status image.
Advantages of large-scale retailing
- Bulk-buying results in large cash discounts, thus lowers cost price of the goods.
- Can employ specialists, technically experienced buyers who choose quality, quantity goods at low prices.
- Insist on their specifications, designs and brands and thus easily market their products and eliminate wholesalers. Bata, both a manufacturer and large retailer, designs and brands its products.
Disadvantages of large-scale retailing
- Large capital outlay is required to stock a great variety of goods, buy in bulk and as large working capital.
- Administration challenges as control is expensive.
- No personal contact with the employer
- Right calibre of managers are difficult to get
- High overheads such as rentals, wage bill etc.
- Large losses through bad debts
- Small-scale retailers
- Peddlers, hawkers, stall traders, flea market traders, vendors and general dealers
are small scale retailers.
- These sell varieties of products.
- Their capital is very small; can only make orders for a small clientele.
- To survive in the retail trade, small scale retailers stock unique items, sell a variety of goods, deliver, offer personal advice and supply customized items to customers.
- Customers may buy on credit and in smaller units.
- Small scale retailers are located near customers.
- They open for long hours.
- Recently small retailers join cooperatives so as to buy in bulk from manufacturers and sell at competitive prices.
Setting up a retail business
- A retail business is easy to operate. Some knowledge of the business is crucial.
- The business needs premises that meet the area’s law and regulations.
- A licence is a must.
- The area should at least be away from stiff, aggressive, actual and potential competitors; but must be a potential market with a high demand of the envisaged items.
- Sources of supplies of items should be checked to ascertain frequency and terms of delivery and payment.
- Basic, adequate capital is required to buy premises, pay for the goods and other expenses.
- Experience and knowledge of the business is important. This might be acquired
by working as an employee first.
Trends in retailing
Developments in technology have resulted in customers relying less on the retailer for information and advice. These trends lower the costs of goods; save time; lower production costs per unit; reduce processes; boost sales and increase profits.
- Self-service
- Self-service is a help yourself system of selling goods and services.
- Automated machines are installed at accessible positions of the business.
- Customers pay by slotting money into the machine or swiping with an ATM/
debit card.
- Goods are branded, labelled, priced, barcoded, packaged and displayed.
- Customers put the items in baskets or trolleys and move freely along aisles.
- If there are no automated service machines, payment is made at checkout points.
- Banks, hotels, fuel depots, car entry at airport bays, and supermarkets use the self-service facility.
Advantages
- Economical.
- Cuts down the costs of employing shop assistants.
- Increased turnover.
- Promotes quick service.
- Promotes shopping at ease.
Disadvantages
- Much capital outlay required.
- Needs large floor space.
- More variety of products required.
- Capital tied up in stocks.
- Pilfering or shop lifting occurs.
- Lacks personal service.
- Suitable for branded, pre-packaged or standardised items.
- Branding and Packaging
- a) Branding
- It is the giving of a trademark, name or label of the manufacture, wholesaler or retailer to a product.
- Goods are identifiable.
- Differentiates goods of t manufacturers.
- The goods are basically the same and are used for the same purpose but are by different manufacturers.
- For example, soap powders such as Boom, Omo, Sunlight and Surf.
- Loyalty captures the consumer to the product brand.
- Branded goods are of uniform mass, quality, size, and different prizes
- Enables self-service.
- b) Packaging
- It is the putting of products into standard containers - packets, bottles, tubes or cans – before they are sold.
- Protects the product from soiling.
- Products are easily identifiable.
- Gives products an attractive appearance.
- Makes products appeal to potential customers.
- Facilitates self-service.
Advantages of branding and packaging
(i) To the producer/manufacturer
- Advertises and creates brand loyalty among customers.
- Captures a monopoly of the market.
- Labels can be registered among the Trade Marks.
- No other manufacturer can use the same label.
- Increases sales.
- Realises economies of scale.
(ii) To the seller/wholesaler/retailer
- Goods are uniformly packaged.
- Goods are in sizes and masses easy to handle.
- Clear instructions are inscribed on goods.
- Manufacturer advertises the goods and bears the cost of advertising.
- Enable self-service to take place.
- Price of a brand is normally fixed.
- Barcode gives the price of the product instantly.
(iii) To the buyer/customer/consumer
- Adverts inform about the product.
- Labels give clear instructions on how to use the product.
- Asks for a code or brand name for the goods of uniform quality.
- Pays a competitively lower price for the product.
- Product is of uniform quality, price and mass.
- Has a wider choice from many brands.
Disadvantages of branding and packaging
- Large capital is required to introduce a brand.
- Imitation products often produced.
- Many different brands stocked to meet consumer demand.
- More storage space for various brands.
- Consumers pay high prices for imitations.
- Vending machines
- Machines are located at busy areas like bus stops, railway stations, airports, and leisure zones.
- Sweets, snacks, newspapers, soft drinks and hot beverages are sold.
- The retailing outlets are self-service.
- Operate 24 hours.
- Are conveniently situated in busy areas.
- Vending machines are costly to run: often vandalised.
- Affected by stock outs.
- Only coins are slotted to access items or service.
- Do-it-yourself (D.I.Y) products
- Products are semi-assembled and are in kits.
- Instructions to assemble the parts are attached.
- The consumer puts the parts together to make a finished product.
- Products are sold in self-service retail outlets.
- Kits on dress patterns, phone handsets, children`s toys are the common kits.
- Saves money.
- The consumer drives satisfaction from putting together own goods.
- Develops motor skills.
- Shopping complex
- Also known as mall/centre/arcade/precinct
- A large enclosed shopping area from which traffic is excluded
- Located in town centres or town outskirts.
- Private individuals or companies own the units.
- Each shop may sell one line of goods or different types of goods.
- A wide range of goods and services are on offer.
- Provides conveniences e.g. escalators, lifts, music
- Dangamvura Shopping Complex, Nkulumane Shopping Complex, Eastgate, Westgate, High Glen and Sam Levi Village are examples of local malls.
- Bar coding
- An optical machine-readable representation of product details.
- Bar codes are a set of black parallel lines of varied widths accompanying numbers usually of thirteen digits.
- Bar codes give details of goods.
- Bar codes show producer`s name, price of product.
- A scanner, at the checkout, reads the price and transmits the price to the computer screen and on to the electronic cash till.
- Cash till produces list of items purchased.
- The computer is reprogrammed if prices change.
Benefits
- Fast service to customers.
- Decrease in operating costs.
- Are an intrusive surveillance technology.
- Most products other than fresh produce are barcoded.
- Reduces shoplifting involving price tag swapping.
- Gives details about sales of individual products.
Multiple choice questions
- What promotes self-service in retailing?
- Allowing credit to all B. Branding of goods
- Having yearly sales D. Reducing prices of goods
- In self-service outlets, items are
(i) priced.
(ii) prepacked. (iii) branded.
- (i) and (ii) B. (i) and (iii)
- (ii) and (iii) D. (i), (ii) and (iii)
- What is the similarity between hypermarkets and supermarkets?
- Same size B. Offer self-service facility
- Stock branded items D. Have same operational costs
- Who recommends the maximum price for goods?
- The consumer B. The government
- The manufacturer D. The retailer
- Branded goods have
(i) consistent quality.
(ii) marks exclusive to makers.
(iii) maximum retail prices fixed by consumers.
- (i) and (ii) B. (i) and (iii)
- (ii) and (iii) D. (i), (ii) and (iii)
- Branding is giving a product a
- copyright. B. franchise.
- licence. D. mark.
- The distribution channel of goods is via
- wholesaler – manufacturer – retailer. B. wholesaler – retailer – producer.
- producer – retailer – manufacturer. D. producer – wholesaler – retailer.
- The small scale retailers
- stabilise prices of goods.
- sell items in small units.
- own fleets of vehicles for business use.
- buy items on credit from manufacturers.
- In retail trade, goods are
- sold to the final users. B. bought for resale by wholesalers.
- sold by producers. D. for barter.
- Which is a feature of supermarkets?
- Wide aisles B. Buy from wholesalers
- Deliver items for customers D. Have personal customer contacts
Essay questions
- Distinguish between a supermarket and a department store.
- Explain the main advantages of branding and packaging of goods.
- What are the features of a self-service store?
- Explain Retail Co-operatives under:
- a) Features
- b) Advantages to consumers.
- Why is the number of small shops likely to decrease in future?
- Explain how small retailers remain in business.
- Explain the functions of retailers.
- Describe how to set up a retail shop.
- Why do supermarkets buy direct from manufacturers?
- What is a mail order business?
- 1 Explain the advantages of shopping malls.
Outline answer to question 5
- Increase in large scale retailing: supermarkets and hypermarkets:- give their features and advantages e.g. low prices, speedy services, wide range of goods ...
- Small shops: higher prices; limited choice of goods; less capital for advertising