RETAIL TRADE

Definition

Retail trade is a type of trade that involves buying goods from wholesalers or manufacturers in large quantities and selling them in reasonable quantities to the final consumers or users.

A trader who sells goods to consumers is known as a retailer.

Functions of a Retailer

In the process of buying from wholesalers or manufacturers and selling to the final consumers, retailers perform the following functions:

• Buying goods/purchasing: A retailer purchases goods from manufacturers or wholesalers.
• Selling goods: He sells to consumers, usually in reasonable quantities.
• Transportation of goods: A retailer usually arranges transport of goods from the manufacturer’s place to his/her premises. Sometimes, he may also transport goods to customers’ premises.
• Storage: He stores goods until they are wanted by customers.
• Sales promotion: This involves advertising and displaying goods to be sold to consumers.
• Marketing survey: Also known as market research, which a retailer undertakes to know the kind, quality, and quantity of goods consumers want before buying them.
• Stock control and bookkeeping: This involves setting up a system to plan purchases and keep them in reasonable balance with sales. It also includes handling transaction records and accounting books to ensure proper use of finance, assets, equipment, and premises.

Qualities of a Good Retailer

The success of a retailer depends on several factors, the most important being personal qualities. To be successful, a retailer should possess the following qualities:

1. He should be pleasant and courteous in dealings with customers.
2. He should be a good buyer, knowing what to buy, where, in what quantities, when, and at what price. Profit largely depends on buying economically.
3. He should be able to forecast customer demands regarding quality, quantity, price, brand, and packaging, and foresee changes in taste and fashion.
4. He should be a good administrator, controlling stock movement, properties, and staff activities.
5. He should be honest with customers.
6. He should cooperate with suppliers and pay them promptly.

Advantages of Retailers

Retailers have the following advantages:

• They are available in almost all residential areas, making it easy for consumers to access goods without traveling far.
• They offer a wide range of choices by buying goods from different producers.
• They maintain close contact with customers, assisting them in making correct choices.
• They assist producers and wholesalers in market research by interpreting and forecasting consumer needs.
• They offer credit facilities to customers, enabling them to maintain their standard of living.

Sources of Capital for a Retailer

Before starting retail trade, a retailer needs working capital for buying goods and capital for fixed assets like weighing machines and furniture. Capital can be raised through:

• Loan from the bank: You can apply for a loan at a reasonable interest rate if you have bulk goods as security.
• Borrowing from friends or relatives: Money can be borrowed from friends or relatives to start the business.
• Saving over a long period: Saving small amounts weekly or monthly over several years can accumulate enough capital.
• Admitting a partner: Accepting a partner or shareholder in the retail business.

Types of Retailers

1. Small scale retailer
2. Large scale retailer

1. Small Scale Retailers

These retailers operate on a small scale with limited capital and sell small amounts of goods.

Examples include:

• Street traders
• Itinerant traders
• Small fixed shops/single shops
• Tied shops
• Automatic vending machines

a) Street Traders / Roadside Sellers

These traders offer small items like sweets, matches, and fresh fruits by sitting near bus stops or marketplaces waiting for buyers. Little capital is required to start these businesses.

Advantages of Street Traders / Roadside Traders

1. Low overheads/expenses.
2. Goods sold at low prices.
3. Small capital needed to start.

Disadvantages of Street Traders

1. No fixed premises.
2. Often sell defective or inferior quality goods.
3. Cannot get regular customers; sales fluctuate.

b) Itinerant Traders / Mobile Traders

These traders, such as peddlers and hawkers, have no fixed premises and carry little stock, operating on minimal capital.

Examples:

Peddlers

Itinerants who carry goods on their shoulders and travel on foot to sell.

Hawkers

Door-to-door salesmen who carry stock on vehicles, bicycles, or motorcycles.

Market Stall Holders

Hire stalls at open-air markets during market days and travel between markets.

Mobile Shops

Motor vehicles designed as shops selling groceries.

Advantages of Itinerant Traders

1. Small capital needed to start.
2. Low overheads/expenses.
3. Some permanent customers, facilitating sales.

Disadvantages of Itinerant Traders

1. Inconvenient to move from place to place.
2. Sales affected during rainy season.
3. Often sell defective or inferior goods.

c) Small Fixed Shops / Single Shops

Shops with fixed premises, usually owned and run by one person (sole trader). Unit shops have no branches.

Advantages of Small Fixed Shops

1. Low overheads/expenses.
2. Personal contact with customers.
3. Credit facilities can be provided.
4. Can operate permanently.

Disadvantages of Small Fixed Shops

1. Greater competition due to many similar shops in one area.
2. Some credit customers may default on payments.
3. More capital needed to stock a variety of goods to attract customers.

d) Tied Shops

A tied shop sells products of only one manufacturer. For example, petrol stations tied to companies like Shell, Total, Oilcom, or Caltex.

e) Automatic Vending Machines

Sale of goods to final consumers through coin-operated machines.

2. Large Scale Retailers

These retailers have large capital, buy stock in great quantities, and have bigger sales volumes. They operate from well-established fixed premises.

Examples include:

• Multiple shops
• Departmental stores
• Supermarkets
• Hypermarkets
• Co-operative stores
• Mail order business

a) Multiple Shops or Chain Stores

Multiple shops are several shops owned and managed by one concern, found in different places, stocking the same class of goods, often similar in appearance and price, with central management.

Example in Tanzania: Shoprite.

b) Departmental Stores

An organization of several shops under one roof, owned by one management, with each department handling a particular class of goods separately.

Departments are managed independently and the store may include restaurants, reading rooms, cinemas, hairdressing and beauty salons, and information bureaus.

Differences between Departmental Stores and Multiple Shops

c) Supermarkets

A supermarket is a large self-service store selling a wide variety of consumer goods, especially small articles. Customers pick items from shelves and pay at exit counters.

Advantages of Supermarkets

1. Offer goods and services at lower prices.
2. Sell standardized or higher quality goods.
3. Provide supply sources to small scale retailers.
4. Offer a wider range of choices.
5. Create employment for many people.

Disadvantages of Supermarkets

1. No personal contact between buyer and seller.
2. Risk of theft (pilfering) from dishonest customers.
3. Less accessible to common people as they are located in big cities.
4. Bargaining is less applicable.
5. Inconvenience at checkout counters during peak hours.
6. High initial and operating costs compared to small retailers.

d) Hypermarkets

Large self-service stores located away from town or city centres.

e) Cooperative Society

Retail shops owned and controlled by members who elect representatives to manage the store. Sales priority is given to members, sometimes restricted to members only.

f) Mail Order Business

Retail trade conducted by post. Customers place orders and receive goods through the mail. Business depends on advertising and catalogues.

Advantages of Mail Order Business to the Seller

1. No need for expensive showrooms.
2. No need for a large transport fleet.
3. No need to employ salesmen as selling is done by post.
4. No losses from bad debts as goods are sold for cash.
5. Low capital required to start.

Advantages to the Customer

• Saves the trouble of visiting the retailer’s shop.
• Orders goods by post and receives them at home.

Disadvantages of Mail Order Business

1. No personal contact between trader and customer.
2. Customers may be misled by false or exaggerated advertisements.
3. No credit facility.
4. High advertising expenses.
5. Limited range of goods suitable for mail order.

Installment Selling

This is a form of customer credit where the purchaser pays a deposit and the balance plus interest in regular installments over months or years.

Products sold on installments or hire purchase are usually comfort items, e.g., furniture, radios, refrigerators, cars.

Goods may be sold on installments in two ways:

a) Hire Purchase

Hire purchase is a system where a person buys an item by regular payments while using it.

Payment terms include a down payment and equal installments over an agreed period.

Other Features of Hire Purchase

1. The buyer acquires possession immediately after the down payment.
2. Ownership remains with the seller; goods are “on hire” to the buyer.
3. The buyer cannot sell the goods until all payments are completed.
4. If the buyer defaults, the seller can repossess the goods.
5. The seller must display both cash and hire purchase prices on items.

Advantages of Hire Purchase

To the Buyer

1. Allows acquisition of expensive goods not affordable on cash terms.
2. Possession and use of goods immediately.
3. Provides a predetermined budget for planning.

To the Seller

1. Increases sales volume.
2. Higher profit margins.
3. Goods can be repossessed if payments defaulted.
4. Ownership retained until payment completion.

b) Deferred Payment / Credit Sale

The buyer becomes owner of the goods as soon as the first installment is paid. No down payment is required.

Other Features of Deferred Payment

1. Ownership and possession pass to buyer immediately after first installment.
2. Goods cannot be repossessed if buyer defaults.
3. Seller can seek compensation through court if buyer defaults.

Disadvantages of Installment Selling (Hire Purchase and Deferred Payments)

1. Higher prices due to interest.
2. Limited variety of goods offered.
3. High risk of bad debts from defaulting customers.
4. Large capital needed to operate.
5. Repossessed goods are usually second-hand, reducing resale value.
6. Extensive record keeping, which is costly.

Difference Between Hire Purchase and Deferred Payments

Problems and Challenges Facing Retail Traders in Tanzania

Retail traders in Tanzania face several problems, including:

• Poor transport and communication.
• Lack of storage facilities.
• Limited areas and buildings for business location.
• Limited possibilities for expansion.
• Uncertainty of business continuity.
• Lack of training.

Factors to Consider When Setting Up a Retail Business

• Experience and knowledge of the business.
• Location of premises, considering demand and competition.
• Source of supply of goods.
• Adequate capital.
• Relevant laws and regulations governing the business.

Organization of a Large Scale Retail Shop

1. Purchase department
2. Sales department
3. Accounts department
4. Administration department

Modern Trends in Retailing

Recent years have seen great development in retail trade in East Africa, expanding volume and improving living standards.

Two key developments contributing to large scale retailing growth are Branding and Pre-packing.

a) Branding

Branding is the process of giving a particular name to a product.

Examples: Lux, Rexona, Imperial Leather, Lifebuoy are different brands of bathing soaps.

b) Pre-packing

Pre-packing means wrapping or packaging a product before marketing.

Except for meat and vegetables, most products are sold pre-packed, such as tea leaves, cooking fat, and oils.

Pre-packaging facilitates handling and convenience for retailers and is a main factor in large scale retailing development.