COMMERCE As LEVEL(FORM FIVE) NOTES – RETAIL TRADE

RETAIL TRADE

Introduction

The word retail comes from a French word meaning to cut a big lot into small lots. It describes the most important function of a retailer, which is buying goods in large quantities from wholesalers and selling them in small quantities to consumers.

Meaning

Retail trade is the process of buying goods in large quantities from producers, manufacturers, or wholesalers and selling them in small quantities to final consumers.

It includes all activities related to buying goods in large quantities from producers, manufacturers, or wholesalers and selling them in small quantities to the final consumers.

A Retailer

A retailer is a person or trader who buys goods in large quantities from wholesalers and sells them in small quantities to final consumers.

Necessity for Retailing

Retailing is necessary due to the following conditions:

• Impossibility for consumers to approach different manufacturers, producers, or wholesalers who are scattered over a large area.
• Inability of consumers to buy large stock due to inadequate funds.
• Impossibility for consumers to buy large stock and keep them in their houses, which may expire or be destroyed.

Functions of Retailer

A retailer performs the following functions:

1. Market survey / market research: A retailer is required to understand consumer preferences, i.e., what they like and dislike.
2. Buying: After surveying consumer preferences, the retailer must buy goods of good quality at a fair or cheap price.
3. Transport: A retailer arranges for the transfer of goods from the supplier’s warehouse to his premises or sometimes from his shop to customers’ places.
4. Storage: The retailer keeps goods for later use or delivery to avoid damage, oversupply, or scarcity.
5. Breaking (Bulk breaking): Buying in large quantities and selling in small quantities.
6. Selling: Selling goods to consumers usually in small quantities.
7. Advertising: Informing consumers about the products available in the shop.
8. Display and advice: Displaying goods to give customers the opportunity to select the most suitable items.
9. Selling and sales promotion: Selling goods along with promotional activities or motivation.
10. Financing: Providing credit facilities by allowing credit to customers.
11. Stock control and bookkeeping: Keeping records of receipts, closing stock balances in quantities, and maintaining books of account to control money movement.

The Qualities of a Good Retailer

The success of a retailer depends on several factors, especially personal qualities:

1. He should be pleasant in dealing with customers.
2. He should know how to communicate effectively with customers, using soft and polite language, e.g., “You are welcome.”
3. He should be a good buyer by knowing what to buy, how much to buy, where to buy, and the unit price.
4. He should be a good administrator and organizer to manage subordinates and control the inflow and outflow of money.
5. He should be able to forecast customer demands regarding quality, taste, fashion, packaging, changes in demand, and appropriate pricing.
6. He should be honest to customers; dishonest attitudes like “get rich quick” do not pay in the long run.
7. He should be cooperative with customers and pay suppliers promptly to earn maximum cash discounts.
8. He should be tactful in dealings with customers.

Importance of Retail Trade in Commerce

Retail trade is performed by retailers and is important to producers, wholesalers, and consumers.

Importance of Retailers to Producers and Wholesalers

• They act as specialists in selling.
• They finance wholesalers by buying from them and paying promptly.
• They offer storage facilities, helping to clear production.
• They provide feedback regarding public demand for different types of goods.
• Retailers sell in relatively small quantities and can keep varied stock.

Importance of Retailers to Consumers

Services provided by retailers to consumers include:

• Acting as consumers’ purchasing agents.
• Supplying the right kind of goods at reasonable prices.
• Assuring variety of goods for customers.
• Offering after-sales services.
• Financing customers by offering credit facilities.

Setting Up a Business in Retail Trade

Factors to consider before starting a retail business:

1. Capital

Capital is the money required to start the business. It includes:

• The required building, whether rented or built.
• Furniture and fittings.
• The amount of stock needed to start with.
• Working capital for daily operations.
• Money needed as reserves.

2. Source of Capital

Sources of capital include:

• Own savings.
• Finding a partner.
• Borrowing from friends, banks, and other financial institutions.
• Reinvesting profits from the business.

3. Location (Position)

Choosing a suitable location depends on:

• Availability of market.
• Good communication systems.
• Reliable security and banking facilities.

4. Purchasing of Stock

Buying stock is essential. Mistakes in purchasing can destroy the business. Consider:

• Quality: Good quality and updated goods attract customers.
• Quantity: Avoid overstocking because:

• Fashion may change, and goods may depreciate or become obsolete.
• Turnover may be very small.
• Prices may fall.

5. Sources of Supply

Retailers usually get supplies from:

• Wholesalers – common sources of supply.
• Manufacturers or producers – especially for large-scale retailers.

6. Attracting Customers

Retailers attract customers through:

• Personality and creativity.
• Keeping the shop tidy, attractive, and pleasant.
• Offering delivery and after-sales services.
• Ensuring free supplies.
• Offering cash discounts to prompt payers.
• Exhibiting goods in shows and displays.

7. Delivery

Delivery methods depend on the type of goods, urgency, quantity, and timing.

Forms / Types of Retail Trade

Retail trade is classified into two main categories:

• Small-scale retail operations.
• Large-scale retail operations.

Small-scale retail is conducted by small-scale retailers, and large-scale retail by large-scale retailers.

Forms (types) of retail trade are shown in the following chart:

Other Retail Outlets

• Market stalls
• Open market traders
• Kiosks
• Canteens
• Automatic vending machines

1. Small Scale Retail Operation

Characteristics of small-scale retailers:

• Small capital.
• Small volume of business.
• Small stock of goods.

Small-scale retailers are of two types:

1. Those without fixed shops, including:

• Itinerants (pedlars and hawkers).
• Roadside sellers.
• Mobile shops.

2. Those with fixed shops, including:

• Single shops / unit shops.
• Tied shops.

Itinerant Traders (Traveling Traders)

They move from place to place or house to house carrying goods on bicycles or heads. Itinerants include hawkers and pedlars.

Hawkers

They carry small cases holding items and visit densely populated residential areas house to house. Sometimes they carry merchandise on their heads.

Pedlars

They use bicycles or motor vans as means of transport.

Advantages of Itinerant Traders

• Offer personal services.
• Bring goods to the doorsteps of rural people.
• Provide convenience by saving customers from walking around.

Disadvantages of Itinerant Traders

• No fixed premises.
• Do not offer variety.
• Goods are expensive.
• Sometimes sell goods without interest in creating goodwill.

2. Roadside Sellers

These traders sit near bus stands, railway stations, and sell their goods.

Advantages of Roadside Sellers

• Provide personal services.
• Require little capital.
• Offer varieties of goods like cigarettes, sweets, water, juice.

Disadvantages of Roadside Sellers

• Limited variety of goods.
• Do not care much about quality.
• Goods may be defective.

3. Mobile Shops

Motor vans organized as shops where customers can enter to purchase goods.

• Mobile shops differ from itinerant traders in means of transport and volume of stock held.
• Mobile shops move according to a timetable.

Advantages of Mobile Shops

• Provide personal services.
• Offer slight variety.

Disadvantages of Mobile Shops

• Goods are expensive.
• Variety is very limited.
• Services are slow.

4. Single Shops / Unit Shops

Shops owned by one person or family managing the business. Called single shops because owners do not have other shops.

Advantages of Single Shops

• Conveniently situated near consumers.
• Give personal services.
• Can be open long hours.

Disadvantages of Single Shops

• Slow services.
• Usually sell at higher prices.
• Variety is limited.
• Have little capital.

5. Tied Shops / Tied Houses

Single shops that sell products of one manufacturer only, e.g., petrol stations tied to oil companies like BP, AGIP, CALTEX.

Advantages of Tied Shops

• Offer personal service to customers.
• Conveniently situated near customers.
• Offer services for long hours.

Disadvantages of Tied Shops

• Limited variety of goods.

Other Retail Outlets

Include market stalls, market traders, kiosks, and automatic vending machines.

1. Market Stalls

Found in markets, constructed by local authorities, rented to individual traders. Usually offer limited variety of products or services.

2. Open Market Traders

Business conducted in open spaces rather than buildings.

3. Kiosks

Small huts fixed on walls or in front of houses acting as small shops. Provide services similar to stalls and fixed shops.

4. Automatic Vending Machines

Machines designed for selling packed goods. Operate when a coin is inserted and a button pressed. Also used for selling postage stamps, telephone services, etc.

Advantages of Automatic Vending

• No need for a seller to be present for transactions.
• Available any time of day or week.
• More accurate.

Disadvantages of Automatic Vending

• Can sell only a few items.
• Very expensive method.
• Customers may cheat using fake coins.
• Inconvenient if machines are worn out.

Advantages of Small Scale Retailers

• Can satisfy the needs of customers by identifying them.
• Business premises usually conveniently situated.
• Can give personal attention to customers.

Disadvantages of Small Scale Retailers

• Greater risk due to lack of insurance against uncertainties like fire, theft, etc.
• Cannot undertake sustained advertising or promotional programs due to limited funds.
• Buy stocks on unfavorable terms compared to large firms; do not qualify for discounts due to small quantities.

2. Large Scale Retailers

Retail outlets operating on a large scale.

Distinctive Features of Large Scale Retailers

• Large capital base.
• Buy a wide variety of stock in large quantities, enjoying discounts.
• Buy goods at discounts and have large turnover, enabling sales at reduced prices.

Types of Large Scale Retailers

• Multiple chain stores
• Department stores
• Supermarkets
• Hypermarkets
• Co-operative retail stores

1. Multiple Shops / Chain Stores

Branch shops owned and managed by one organization, operating in similar product lines.

Main Features of Multiple Shops

• Under one ownership and control.
• Uniform premises, external shop front, and internal layout.
• Sell one type or related range of products.
• Profit distribution done at head office.
• Prices fixed by central organization.

Advantages of Multiple Shops

• Recognized easily due to standard premises design.
• Enjoy discounts due to bulk buying.
• Shortages in one branch can be solved by others.
• Can afford expensive advertising; branches advertise each other.
• High turnover due to numerous outlets.
• Stocks easily replaced from head office.

Disadvantages of Multiple Shops

• Usually located in urban centers, neglecting rural areas.
• Specialize in one product range, limiting variety.
• Large shops are inflexible and cannot easily change business.
• Errors in head office decisions affect all branches.
• Require more capital to start.

2. Departmental Stores

Collection of shops under one roof selling different types of goods, managed by one organization.

Each department is controlled by a department manager.

Department stores provide other services like restrooms, telephone, bank, photocopy services, e.g., shopping centers.

JEHOMA DEPARTMENTAL STORES

Advantages of Departmental Stores

• Big sales and big profit.
• Reduced advertising costs as one department advertises for all.
• Buy and sell all kinds of goods in one building, saving customers time.
• Wide choice for customers due to variety of goods.
• Provide all shopping services in one building.
• Loss in one department can be covered by gains in others.

3. Supermarkets (Self-Service Shops)

Operate under self-service system where customers pick what they want and pay at cashier.

Examples in Dar es Salaam include Imalaseko Supermarkets, Shoprite, Dar es Salaam Supermarket, Nakumati Supermarket.

Features of Supermarkets

• Offer self-service to customers.
• Prices are usually fixed.
• Goods of the same type are displayed to guide customers to shelves without attendants.

Advantages of Supermarkets

• Customers have freedom to make choices.
• Stocking more items increases sales.
• No credit facilities, avoiding bad debts.
• Customers tend to buy additional goods while moving around shelves.

Disadvantages of Supermarkets

• Do not allow customers to bargain.
• No physical contact between buyers and sellers except cashier.
• Customers may delay inside comparing goods.
• Require large shopping area.
• Holding goods up to checkout may discourage customers.

4. Hypermarkets

Similar to supermarkets but very large, with at least 5,000 square meters of selling space.

Advantages of Hypermarkets

• Offer easy and convenient parking.
• Carry a large variety of merchandise.
• Require fewer workers, reducing operational costs.
• Provide credit facilities.
• Open for longer hours than ordinary shops.

Disadvantages of Hypermarkets

• Require large capital to establish.
• Much working capital tied in slow-moving stock.
• Cater mainly to customers with cars as they are located far from town centers.
• Do not perform well where transport systems are undeveloped.

5. Co-operative Retail Societies

Retail outlets owned and managed by a group of members. Members elect people to manage the stores. Some serve members only.

Features of Co-operative Shops

• Open membership.
• Exist to serve members.
• Profits shared proportionally to shares bought.
• Democratic control with one vote per member.

Advantages of Co-operative Retail Shops

• Organized on democratic principles.
• Minimize prices of goods sold to members.
• Ensure good and genuine supply of goods.
• Increase economic well-being by sharing profits.
• Promote social understanding among members.

Disadvantages of Co-operative Retail Societies

• Lack of secrecy as many members must be informed of activities.
• Some members may dodge responsibilities due to lack of full commitment.

Differences Between Multiple Shops and Department Stores

Disadvantages of Department Stores

• High cost of establishment and running.
• Mostly located in towns where parking facilities are inadequate.
• Limited credit granted to customers.
• Do not know their customers well.
• Sufficient customers mainly found in big cities where rent is expensive.

Quiz

Suppose you are the chairman of Tuendelee Society and have the responsibility of establishing a Tuendelee co-operative unit. What major factors would you consider before starting the unit?

Answer:

1. Capital: Money or other resources used to start the co-operative society or trade.
2. Advertisement: Enables the chairman to inform people who would like to join.
3. A chairman should be a good leader and organizer to manage and control subordinates and financial plans.
4. A chairman should be polite, respectful, and honest to avoid conflicts within the unit.
5. Cooperation in decision-making among members.

This will help to establish the co-operative unit and qualify it for success.