Chapter 15: Retail Trade

A manufacturer of soap produces it by the lakh. A household buys one cake at a time, near home, and often late in the evening. Somebody has to stand between the two and break a large supply into single sales. That work is retail trade, and the trader who does it is the last link in the chain of distribution. Retailing decides how goods actually reach the people who use them. A retailer holds small stock close to the customer, offers choice, extends credit or home delivery where needed, and carries the risk that goods will not sell. The form this takes varies widely — a vendor pushing a cart from street to street, a neighbourhood shop, a large store with many departments, a network of identical branded outlets, and now warehouses that serve only online orders. This chapter explains what retail trade means, how a retailer differs from a wholesaler, how retail organisations are classified into itinerant and fixed shop types, and how digital and omnichannel retailing have reshaped the way Indian consumers buy.

Figure

Fig. 15.0-1 — Goods Displayed At A Neighbourhood Retail Shop Photograph of a small neighbourhood shop with everyday goods stacked and displayed for customers.

15.1 Meaning And Definitions Of Retail Trade

A manufacturer produces goods in bulk and a wholesaler buys them in bulk, but no household consumes in bulk. Somebody must therefore break large lots into single sales, hold them close to where people live, and part with them one unit at a time. This is the business problem that retail trade exists to solve.

Retail trade means the sale of goods in small quantities to consumers for their own final use. The trader who carries on this business is called a retailer. He buys in fairly large quantities from wholesalers and manufacturers, stocks a mixed range of articles, and sells them in the small lots that a household actually needs.

Origin Of The Term

The word ‘retail’ has a French origin. It comes from the word ‘retailler’, in which ‘re’ means again and ‘tailler’ means to cut or divide into parts. The sense of the word is therefore cutting a large quantity into smaller ones, which is exactly what a retailer does with the stock he buys.

Position In The Chain Of Distribution

The retailer is the last trader in the chain of distribution. Goods pass from the manufacturer to the wholesaler, from the wholesaler to the retailer, and from the retailer to the consumer. Beyond the retailer there is no further sale, because the buyer at that point purchases for consumption and not for resale.

This position gives the retailer a double role. Towards the wholesaler and manufacturer he is a buyer who provides a steady outlet and passes back information about what customers are asking for. Towards the consumer he is a seller who supplies small quantities, offers a choice of brands, and provides services such as credit, home delivery and the return of unsuitable goods.

Definition

Retail Trade Retail trade is the sale of goods in small quantities directly to consumers for their personal use, and not for resale.

Definition

Retailer According to James Stephenson, a retailer is a trader who resells goods to consumers, collecting different goods at his shop so that customers may buy them according to their needs and convenience.

To conclude, a retailer purchases goods of many kinds in small quantities, often on credit, and sells them to consumers mostly for cash. He is the final link through which production reaches consumption.

Try Yourself

Note down the last five things bought for your home and identify which of them were bought from a retailer.

15.2 Characteristics Of Retail Trade

A retailer works at the end of the distribution chain, facing a large number of small buyers who purchase frequently and in tiny quantities. Everything that marks retail trade out as a distinct form of business follows from that position, and the features listed below should be read as the consequences of it.

Sale of goods in very small quantities — a household buys for its immediate need, so the retailer must be willing to sell a single unit at a time and to keep a wide assortment in small lots rather than a deep stock of a few items.
Credit purchase and cash sale — the retailer usually buys from the wholesaler on credit but sells to consumers largely for cash. This pattern suits him, because money comes in from daily sales before the wholesaler’s bill falls due.
Small capital requirement — since both purchases and sales are on a small scale and the area served is local, the amount of capital blocked in stock and premises is limited. This is why retailing is easy to enter and why the number of retailers is very large.
Direct sale to consumers — the retailer sells to the person who will actually use the goods. There is no further trader after him, which is why he is described as the last link in the chain of distribution.
Local area of operation — a retail shop draws its customers from the neighbourhood around it. Its scope of business is therefore narrow, but its contact with each customer is close and repeated.
Emphasis on display and window dressing — because customers decide at the counter and often compare shops, the retailer spends on decoration, lighting and the arrangement of goods in order to attract attention and encourage purchase.
Maximum satisfaction to consumers — the retailer depends on the same customers returning, so he offers services such as home delivery, sale on approval, the exchange of unsuitable goods and small free repairs.

Why These Features Matter

Taken together, these characteristics explain why a retailer earns a higher margin than a wholesaler on the same article. The extra price covers the cost of holding variety in small quantities, of decorating and staffing a shop, and of providing services that the wholesaler never provides.

Do Not Mix Up

Decoration And Window Dressing Decoration is the general appearance of the whole shop, inside and outside. Window dressing is the specific arrangement of selected goods in the display window to attract a passer-by.

Figure

Fig. 15.2-1 — Window Display Of A Garment Shop Photograph of a garment shop window with a small selection of clothing arranged for display.

Business Example

Credit To The Regular Customer A neighbourhood grocer sells almost entirely for cash, but maintains a running account for a few families he has served for years and settles it once a month. The convenience keeps those households loyal, while the cash from everyday sales still funds his next purchase from the wholesaler.

15.3 Difference Between Wholesaler And Retailer

Both the wholesaler and the retailer are traders who buy goods in order to resell them, and neither of them manufactures anything. They are nevertheless very different businesses, because they sell to different kinds of buyers. The wholesaler sells to traders who buy for resale; the retailer sells to consumers who buy for use.

That single difference in the buyer decides almost everything else — the quantity handled, the capital locked up, the terms of payment, the width of the range stocked and the area covered. The main points of distinction are set out in Table 15.1.

Table

The Practical Consequence

Because the wholesaler concentrates on a narrow range and moves it in bulk, he earns a small margin on a large turnover. The retailer earns a larger margin on each article, but sells a small quantity of many articles and bears the cost of the shop, the display and the services he offers. Neither margin is a windfall; each is payment for a different kind of work.

Definition

Wholesale Trade Wholesale trade is the purchase of goods in large quantities from producers and their resale in smaller lots to retailers and other traders, and not to the final consumer.

15.4 Types Of Retail Organisation

Retailers differ enormously in size, from a man selling vegetables off a cart to a company running hundreds of identical stores. For study, they are classified by a single practical test — whether the trader operates from a fixed place of business or moves about in search of customers. Fixed shop retailers are then divided further by the scale on which they trade. The full classification is set out in FC 15.1.

Flowchart

FC 15.1 — Types Of Retail Organisation Retailers → Itinerant Retailers, Fixed Shop Retailers; Itinerant Retailers → Hawkers And Pedlars, Market Traders, Street Traders, Cheap Jacks; Fixed Shop Retailers → Small Scale, Large Scale; Small Scale → General Stores, Speciality Stores, Street Stallholders, Second-Hand Goods Shops, Single-Line Stores; Large Scale → Departmental Stores, Multiple Shops, Dark Stores

15.4.1 Itinerant Retailers

Itinerant retailers are mobile traders who have no permanent shop and who carry their goods from street to street or place to place in search of customers. Their whole method rests on going to the buyer instead of waiting for the buyer to come to them.

Their main characteristics follow from that method.

Small resources — they operate with very little capital, because stock is bought only for a day or two and no premises are owned or rented.
Goods of daily use — they deal mainly in vegetables, fruit, toiletries and other low-priced articles that a household buys often and does not need to inspect at length.
Service at the doorstep — their advantage over a shop is convenience, so the emphasis is on making goods available where the customer already is.
No fixed establishment — having no shop, they keep their small inventory at home or at some other place and carry it with them each day.
No specialisation — since they follow the customer rather than a product line, they change what they sell as demand and season change.

15.4.1.1 Types Of Itinerant Retailers

Hawkers and pedlars — traders who move from street to street with goods carried in baskets or on a cart, cycle or rickshaw, dealing in daily-use articles such as vegetables, sweets, bangles and toys.
Market traders — traders who set up on fixed days at fixed places, such as a weekly market held every Saturday. They may deal in one line, such as cloth or crockery, or act as general merchants, and they serve mainly the lower-income group.
Street traders or pavement dealers — traders who spread their goods on pavements, roadsides and busy crossings, choosing spots where crowds already gather rather than where rent is low.
Cheap jacks — petty retailers who put up a temporary stall or small shop in a business locality, commonly near bus stands and railway stations, and who shift the stall to another locality when custom falls off.

15.4.1.2 Merits And Demerits Of Itinerant Retailers

The merits of this form of retailing are as follows.

Little capital needed — stock is bought only in the quantity that can be sold within a day or two, so very little money is locked up and almost anyone can enter the trade.
Convenience to the customer — goods reach the doorstep, which saves the buyer a journey and is especially useful to those who cannot easily leave home.
Flexibility — the trader can move to a better locality, change his line of goods or scale his stock up and down as demand shifts, because he has no premises tying him down.
Low costs — he performs every function himself and spends nothing on rent, decoration or advertising, which allows him to sell cheaply on low-value goods.

The demerits arise from the same lack of a permanent establishment.

Limited choice — the quantity and variety carried are small, so the customer must take what is on the cart rather than choose.
Doubtful quality — with little capital, such traders often deal in inferior goods, and the buyer has no easy way to test quality before purchase.
No storage — goods cannot be stocked or protected, so supply is uncertain and perishable items must be cleared the same day.
Risk of overcharging — prices are settled by bargaining and are not displayed, and since the trader may not return to that street, he has less reason to protect a reputation.
No after-sale service — there is no fixed address at which a complaint can be made, so faulty goods cannot be returned or exchanged.

15.4.2 Fixed Shop Small Scale Retailers

Fixed shop retailers are traders who sell from a permanent place of business. Because customers know where to find them, they can build a regular clientele, hold a wider stock and offer services that an itinerant trader cannot. Small scale fixed shop retailers are the most numerous of all retailers, and they usually locate in markets or residential areas so as to stay close to the households they serve.

15.4.2.1 Types Of Small Scale Retailers

General stores — shops dealing in the whole range of daily requirements such as groceries, confectionery, stationery and soft drinks, so that a household can complete its routine buying at one counter.
Speciality stores — shops confined to one particular product line or one brand, such as footwear or electronic goods, stocking that line in depth and advising customers on it.
Street stallholders — shops defined by their location, set up at street crossings, on main roads, at the corners of colonies or in the corridors of markets, and depending on passing traffic.
Second-hand goods shops — shops dealing in used furniture, books, clothes and household articles, which are sold at low prices because they are no longer new.
Single-line stores — shops dealing in one broad line of goods, such as textiles, medicines, stationery or books, without restricting themselves to a particular brand within it.

15.4.2.2 Merits And Demerits Of Small Scale Retailers

The merits are as follows.

Modest capital — the shop is small and the stock is limited, so the business can be started and run by an owner with limited means.
Personal attention — the shopkeeper knows his regular customers, remembers their preferences and can therefore advise them and hold stock for them.
Convenient location — such shops sit inside the locality they serve, which suits goods that are bought frequently and in small quantities.
Credit and other facilities — home delivery, the return of unsuitable goods and monthly credit to known customers are offered, because the trader depends on the same households returning.
Variety at one counter — a general store carries several lines, so a customer’s ordinary needs can be met without going from shop to shop.

The demerits follow from the small scale itself.

Shortage of capital — limited funds prevent the trader from expanding, holding deep stock or buying in quantities large enough to earn a discount.
Limited scope — the market is confined to the surrounding locality, so growth stops once that area is served.
Higher prices — the costs of the shop and of the services provided are recovered from a small turnover, which pushes up the price of each article.
Prices are not uniform — different shops charge differently for the same article, and a good deal depends on the customer’s ability to bargain.

15.4.3 Fixed Shop Large Scale Retailers

Large scale retailing means retail trade carried on with heavy investment, large premises and a very large number of customers, while the individual sale to each customer remains small. The scale changes what the business can do: it can buy directly from manufacturers, spread its costs over a huge turnover and employ specialists in buying, display and accounting.

The common features of large scale retail organisations are as follows.

Greater resources than any itinerant or small shop trader.
A wide variety of products, or a standardised range sold in volume.
Better services, such as guarantees, exchange facilities and home delivery.
Greater credibility and goodwill, because the organisation is permanent and publicly known.

The principal forms are departmental stores, multiple shops and dark stores.

15.4.3.1 Departmental Stores

A departmental store is a large retail establishment divided into several departments, each dealing in one particular line of goods, all housed under one roof and controlled by a single management. The idea originated in Europe in the nineteenth century and spread to other countries; in India such stores developed mainly in the larger cities.

Its features are as follows.

Central location — the store is placed where the city’s traffic converges, because it must draw customers from the whole city and not from one locality.
Separate departments — each department deals in one line of goods and works almost as a shop in itself.
Wide range under one roof — practically every ordinary requirement of a household can be met inside the building.
Large capital — the premises, the stock and the services demand heavy investment, which is why few such stores are established.
Departmental management with central control — each department has its own manager, but buying, finance and policy are controlled centrally by one person or institution.
Added facilities — restaurants, rest rooms, banking counters and children’s corners are provided to keep the customer in the store longer.
Fixed prices and quality goods — prices are marked and there is no bargaining, and the store’s reputation obliges it to stock reliable goods.

The merits of departmental stores are as follows.

Economies of bulk buying — goods are bought in large quantities, often directly from producers, so the cost per unit falls.
Convenience of one-stop shopping — the customer completes varied purchases in one visit, which saves time and travel.
Economy in advertising — one advertisement serves all departments, so the cost is spread thin.
Wide choice — a large assortment in every line allows real comparison before buying.
Benefits of division of labour — each department is handled by staff who know that line, which raises efficiency.
Higher sales per customer — attractive display and the presence of many departments encourage buying beyond the item the customer came for.
Trained staff — the size of the organisation allows it to employ and pay qualified employees.

The limitations are as follows.

Very heavy capital requirement — the investment needed restricts this form to a few large cities and a few large firms.
High operating costs — air-conditioning, display, wide premises and extra facilities are expensive to run, and the cost must be recovered from prices.
Costly goods — because of those costs, prices are higher than in an ordinary shop, which keeps buyers of limited means away.
Distance from the customer — a central location is far from most residential areas, so the store is unsuitable for daily purchases.
Loss of personal contact — salaried staff serve a stream of strangers and cannot build the personal relationship a small shopkeeper has.
Loss-making departments — some departments run at a loss but must be continued, because their absence would break the promise of everything under one roof.
Difficult supervision — a very large staff spread over many departments is hard to control effectively.

15.4.3.2 Multiple Shops Or Chain Stores

Multiple shops, also called chain stores, are a group of identical branch shops located in different areas, dealing in the same limited range of goods, and owned and controlled by a single firm. They are usually opened by manufacturers or large intermediaries who wish to reach consumers directly, and they are placed in residential localities so that customers can approach them easily.

Their features are as follows.

Uniform appearance — every branch looks alike in layout, décor and signage, so that customers recognise it at once.
Limited and standardised range — the shops deal only in a few lines, usually made or procured by the owning firm, and the goods are of standard size, quality and price.
Central buying and production — goods are supplied by the firm’s own factories or through a central purchase organisation, which secures the economies of large-scale buying.
Central management with branch managers — each branch has its own manager, but all work under the policies of a head office that also inspects the branches.
Uniform and fixed prices — the same article costs the same at every branch, subject only to local taxes, and there is no bargaining.
Cash sales — credit is normally not extended to customers, which keeps working capital free and accounting simple.
Elimination of the middleman — goods pass from the producer to the consumer through the firm’s own shops.

The merits are as follows.

Direct contact with consumers — the producer learns at first hand what customers want and can adjust the product accordingly.
Economies of large scale — buying, production and advertising are done centrally for all branches, so costs per unit are low.
Public confidence — uniform price and uniform quality remove the customer’s fear of being overcharged or sold an inferior article.
Freedom from the problem of selection — the goods are standardised, so the customer need not examine and compare each piece.
Diffusion of risk — a loss at one branch may be covered by profits at others, so the firm as a whole is not endangered by one bad location.
Flexibility in number — branches can be opened or closed as circumstances require, without disturbing the rest of the chain.
Easy recognition — the common design and name make each branch immediately identifiable to a customer in a new locality.

The limitations are as follows.

Limited range — the shops deal only in the goods the firm supplies, so a customer with varied needs must go elsewhere as well.
No credit or home delivery — the insistence on cash sales and standard service costs the chain the custom of buyers who value those facilities.
Lack of initiative — branch managers must follow head office instructions and cannot adapt to local conditions, which discourages enterprise.
Weak personal touch — salaried employees who are paid whether or not they please the customer may show little interest in individual buyers.
Difficulty of control — branches scattered over many places are hard for a head office to supervise closely.
Heavy losses on a change in demand — since the chain is committed to a few lines, a fall in demand for those lines affects every branch at once.

Departmental stores and multiple shops are both large scale fixed shop retailers, yet they are built on opposite principles — one gathers every kind of good at one place, the other carries a few goods to every place. Their differences are set out in Table 15.2.

Table

Case Snippet

Case 15.1 — Thirty Shops, One Signboard Vaidehi Footwear manufactures shoes and has opened thirty small outlets across a city. Every outlet carries the same designs at the same printed prices, looks identical inside, sells only for cash, and is supplied entirely from the firm’s own factory through a central store. A manager runs each outlet but takes no decision on price or stock. Q. Identify the form of large scale retail organisation described and state two benefits the firm obtains from it.

15.4.3.3 Dark Stores

A dark store is a retail outlet or warehouse that exists only to fulfil online orders and is not open to walk-in customers. It is ‘dark’ in the sense that no shopper enters it; the shelves are stocked and picked by staff alone. Dark stores are also described as dark shops, dark supermarkets or dotcom centres, and they function as small distribution hubs inside the city.

The form developed as online ordering grew and buyers began to expect delivery within hours. A conventional shop cannot serve both a counter and a stream of online orders efficiently, so the two functions were separated. Because a dark store must sit close to the customers it serves, it is located within city limits and often pays a high rent for that position.

Its features are as follows.

Lower operating cost — there is no need to spend on décor, display fixtures or in-store promotion, since no customer sees the premises.
Warehouse-style layout — goods are arranged on racks in the order that suits quick picking rather than in the order that would tempt a shopper.
Technology-driven stock control — inventory is tracked digitally in real time, which reduces both stock-outs and overstocking.
Speed of fulfilment — proximity to the customer and a picking-first layout allow orders to be despatched within a short time of being placed.
Flexibility and scalability — a new dark store can be opened where demand grows and stock can be shifted between them as seasons and trends change.
Heavy initial outlay — premises, racking, technology and trained staff must all be arranged before the first order is served.
Operational complexity — receiving, picking, packing and despatching a very large number of small orders each day demands tight coordination.

The working of a dark store is summarised in FC 15.2.

Flowchart

FC 15.2 — Dark Store Order Fulfilment Order received online → order picked from the racks → order packed → order despatched for delivery or collected by the customer

Definition

Departmental Store A departmental store is a large retail establishment which houses under one roof a number of departments, each dealing in one line of goods, all centrally organised and controlled as a single business.

Definition

Multiple Shops Multiple shops are a group of identical branch shops in different localities, dealing in the same limited range of goods, and operating under the centralised ownership and management of a single firm.

Business Example

Dark Stores And Quick Commerce The rapid growth of quick commerce in Indian cities rests on dark stores. Each store holds a limited assortment of everyday goods and serves only the few kilometres around it, which is what makes delivery within minutes possible. The trade-off is high rent, because the premises must sit inside the neighbourhood rather than on its outskirts.

15.5 Digital Retailing

A retail shop can serve only the people who are able to walk into it, during the hours it stays open. Once households owned smartphones and cheap internet connections, that limit became an obstacle rather than a fact of life, and retailers began to sell through screens instead of counters. The result is digital retailing.

Digital retailing is the sale of goods and services to consumers through digital platforms such as websites, mobile applications, social media and online marketplaces. The customer browses products, compares prices, places an order and pays without visiting a physical store, and the goods are delivered to an address of his choosing.

The Concept

The concept rests on applying information technology to each retail function in turn. Display becomes a product page, the shop assistant’s advice becomes a description and a set of ratings, the counter becomes an electronic payment gateway, and the carry bag becomes a delivery service. Digital retailing may replace traditional retailing altogether for some goods, or merely support it, but in either case the transaction is completed through an electronic platform.

Features Of Digital Retailing

Use of digital platforms — e-commerce websites, mobile applications and social media channels act as virtual stores in which products are shown with descriptions, images, prices and offers.
Wider market coverage — the retailer is no longer confined to the locality around a shop and can sell across cities, states and even countries, which enlarges his customer base without opening premises.
Electronic payment systems — debit and credit cards, unified payments interface, net banking and digital wallets settle the transaction instantly, so the sale does not depend on the buyer carrying cash.
No physical interaction — the entire purchase is completed without a face-to-face meeting, which saves time and is valuable when movement is difficult or inconvenient.
Round-the-clock availability — the platform does not close, so orders can be placed at any hour and the retailer keeps receiving business outside ordinary shop hours.
Customer data and personalisation — buying habits, preferences and search history are recorded, and the retailer uses them to recommend products and target offers at the customers most likely to respond.
Cost efficiency — large shop premises and a big sales staff are not required, so rent, electricity and maintenance are lower, and part of the saving can be passed on as competitive prices.
Efficient inventory and order management — digital systems track stock levels, manage warehouses and coordinate delivery, which reduces both overstocking and stock shortages.

An Evaluation

The advantages to the customer are the saving of time and effort, easy comparison of prices across sellers, and access to goods that no local shop stocks. The advantages to the retailer are a wider reach, lower operating costs and detailed knowledge of what his customers want.

The limitations are equally real. Goods cannot be examined before purchase, so the buyer relies on descriptions and returns. The whole arrangement depends on internet connectivity and on a delivery network, which is uneven outside the larger towns. Delivery may be delayed, and online payment carries the risk of fraud and of misuse of the personal data collected.

Definition

Digital Retailing Digital retailing is the process of selling goods and services to consumers through digital platforms such as websites, mobile applications and online marketplaces, without the customer visiting a physical store.

Business Example

Digital Retailing In India Flipkart, Amazon India, Myntra and Nykaa sell largely or wholly through websites and mobile applications. Their growth in India has been driven by rising smartphone ownership, inexpensive internet data and the spread of digital payment systems, which together made it practical for ordinary households to buy without visiting a shop.

Try Yourself

Pick one article your household bought online recently and list two things the seller could not offer that a local shop could.

15.6 Omnichannel Retailing

A customer today rarely uses one channel from start to finish. He may read about a product on his phone, examine it in a shop, order it through an application and return it at a counter. If each of these channels is run as a separate business with its own stock, prices and records, the customer is asked to start again every time he moves between them. Omnichannel retailing exists to remove that break.

Omnichannel retailing is a retail strategy in which a business integrates all its sales and communication channels — physical stores, websites, mobile applications, social media and customer service systems — into a single coordinated system, so that the customer receives one continuous experience whichever channel he uses.

The Concept

The concept is complete integration rather than mere presence on many channels. A centralised inventory system shows in real time what is available online and in each store, so an order placed on one channel can be met from the stock of another. Customer records are shared, so a complaint raised in a store is visible to the person answering the telephone. Prices, offers and branding are held uniform, so nothing the customer was promised on one channel is withdrawn on the next.

Features Of Omnichannel Retailing

Integration of multiple channels — stores, websites, applications, social media and support systems are connected through a common system instead of working independently.
Unified inventory management — one centralised record of stock across all channels and locations, which lets the customer see what is available nearby and helps the retailer avoid shortages and delays.
Consistency in pricing and branding — the same price, the same offer and the same service standard apply on every channel, which prevents the mistrust that arises when a customer finds a cheaper price elsewhere in the same firm.
Seamless customer experience — the buyer can move from channel to channel at different stages of the same purchase without repeating himself or losing what he has already done.
Flexible buying and delivery options — buying online and collecting from a store, home delivery, or returning an online purchase at a nearby counter are all available to the same customer.
Customer-centric approach — data on preferences, purchase history and behaviour across channels is used to serve the customer better rather than to run each channel separately.
Use of technology and data analytics — software systems monitor behaviour, forecast demand and coordinate logistics, which is what makes integration on this scale workable at all.

An Evaluation

For the customer, the gain is convenience, consistency and choice about how to buy and how to receive the goods. For the retailer, the gain is stronger loyalty, more opportunities to sell and better use of stock, because a single pool of inventory can serve every channel.

The costs are substantial. Integrating systems is expensive, managing several channels as one is administratively complex, skilled staff are needed to run it, and the volume of customer data collected raises questions of privacy and cyber security.

Digital retailing and omnichannel retailing are often confused, but they answer different questions. Digital retailing asks how to sell without a shop; omnichannel retailing asks how to make the shop and the screen work as one. Their differences are set out in Table 15.3.

Table

Definition

Omnichannel Retailing Omnichannel retailing is a retail strategy in which a business integrates all its sales and communication channels into a single coordinated system, so as to give the customer a consistent and uninterrupted experience on every channel.

Do Not Mix Up

Multichannel And Omnichannel Retailing In multichannel retailing a firm sells through several channels, but each runs independently. In omnichannel retailing the same channels are linked into one system, so a purchase begun on one can be completed on another.

Business Example

Buy Online, Collect In Store Several large Indian retail chains, including Reliance Retail and Shoppers Stop, allow a customer to order on their website or application and collect the goods from a nearby outlet, or to return an online purchase at that outlet. The store thus serves as a display point, a collection point and a returns counter for the online business.

15.7 Summary

Retail trade is the sale of goods in small quantities directly to consumers for their own use, and the retailer who carries it on is the last link in the chain of distribution.
The retailer serves two sides at once: he provides the wholesaler and the manufacturer with a steady outlet and with information about demand, and he provides the consumer with small lots, choice and services such as credit, home delivery and exchange.
The characteristics of retail trade all follow from selling small quantities to many local buyers:

Sale in very small quantities and direct to the consumer.
Purchase mostly on credit and sale mostly for cash.
Small capital and a local area of operation.
Emphasis on display and window dressing, and on services that bring the customer back.

A wholesaler differs from a retailer chiefly in whom he sells to, and from that difference follow the differences in scale, capital, mode of sale, range of goods, area covered and contact with the consumer.
Retailers are classified first by whether they have a fixed place of business, and fixed shop retailers are then classified by scale.
Itinerant retailers move from place to place with small stock and little capital, dealing in low-priced goods of daily use. They include hawkers and pedlars, market traders, street traders and cheap jacks. They offer convenience, flexibility and low cost, but little choice, uncertain quality and no after-sale service.
Small scale fixed shop retailers sell from permanent premises in a locality and include general stores, speciality stores, street stallholders, second-hand goods shops and single-line stores. They give personal attention and credit, but are limited by shortage of capital and by a narrow market.
Large scale fixed shop retailers trade with heavy investment and a very large number of customers. The principal forms are:

Departmental stores — many departments under one roof at a central place, offering wide choice and one-stop convenience, but requiring heavy capital and charging high prices.
Multiple shops or chain stores — identical branches in many localities selling a limited standardised range at uniform fixed prices for cash, under central management.
Dark stores — outlets closed to the public that exist only to fulfil online orders quickly from within the city.

Digital retailing is the sale of goods through digital platforms. It offers wider reach, round-the-clock availability, electronic payment, personalisation and lower operating cost, but suffers from the inability to inspect goods, dependence on connectivity and delivery, and the risk of cyber fraud.
Omnichannel retailing integrates stores, websites, applications and support systems into one coordinated system with unified inventory and consistent pricing, so that a customer may begin a purchase on one channel and complete it on another. Its costs are high investment, complex management and risks to data security.
The spine of the chapter is the classification of retail organisations, condensed in FC 15.3.

Flowchart

FC 15.3 — The Chapter At A Glance Retail Trade → Itinerant Retailers, Fixed Shop Retailers, Modern Retail Formats; Fixed Shop Retailers → Small Scale, Large Scale; Large Scale → Departmental Stores, Multiple Shops, Dark Stores; Modern Retail Formats → Digital Retailing, Omnichannel Retailing

15.8 Key Terms

Cheap Jacks Petty itinerant retailers who trade from a temporary stall or small shop in a busy locality and shift it elsewhere when custom falls off.
Dark Store A retail outlet or warehouse closed to walk-in customers that exists only to store, pick, pack and despatch goods for online orders.
Departmental Store A large retail establishment housing under one roof several departments, each dealing in one line of goods, all centrally organised and controlled as a single business.
Digital Retailing The sale of goods and services to consumers through digital platforms such as websites, mobile applications and online marketplaces, without a visit to a physical store.
Fixed Shop Retailers Retailers who sell from a permanent place of business, and who may operate on a small or a large scale.
General Stores Small fixed shops dealing in the whole range of daily household requirements, so that routine buying can be completed at one counter.
Itinerant Retailers Mobile retailers who have no permanent shop and who carry their goods from place to place in search of customers.
Multiple Shops A group of identical branch shops in different localities dealing in the same limited range of goods, owned and managed centrally by a single firm; also called chain stores.
Omnichannel Retailing A retail strategy in which all sales and communication channels are integrated into one coordinated system, giving the customer a consistent experience on every channel.
Retail Trade The sale of goods in small quantities directly to consumers for their personal use, and not for resale.
Retailer A trader who buys goods from wholesalers and manufacturers and resells them in small lots to the final consumer, forming the last link in the chain of distribution.
Single-Line Stores Small fixed shops dealing in one broad line of goods, such as textiles, medicines or books, without restricting themselves to a single brand.
Speciality Stores Small fixed shops confined to one particular product line or brand, stocking that line in depth and advising customers on it.
Window Dressing The arrangement of selected goods in a shop’s display window in order to attract the attention of passers-by and draw them in.

15.9 Points To Ponder

Itinerant retailers own no premises, hold almost no stock and offer no after-sale service, yet they have survived alongside far better financed retailers. What are they selling that a fixed shop cannot sell?
A departmental store keeps a department that loses money year after year, because closing it would weaken the promise of everything under one roof. When does that reasoning stop being sound?
Multiple shops give the customer uniform prices and standard quality, but the branch manager no freedom to decide anything. Weigh what the firm gains against what it gives up.
A dark store pays high rent to sit inside a residential neighbourhood while serving no one who walks past it. Consider what has to be true about customer expectations for that arrangement to make business sense.
Digital retailing lets a seller record what each customer searches for, compares and buys. Where should the line fall between using that information to serve the customer and using it against his interest?
Omnichannel retailing treats the physical store as one part of a larger system rather than as the business itself. Does this strengthen the small local retailer’s position or weaken it?

15.10 Objective Questions

Which of the following is the correct test for deciding whether a trader is a retailer? [1]

The quantity in which he buys his goods
The person to whom he sells his goods
The amount of capital invested in the business
The number of product lines he keeps in stock

Read the assertion and the reason given below and choose the correct option. [1] Assertion (A): Multiple shops sell goods at the same fixed price at every branch. Reason (R): Buying and pricing in a multiple shop system are decided centrally by the head office.

Both (A) and (R) are true, and (R) is the correct explanation of (A).
Both (A) and (R) are true, but (R) is not the correct explanation of (A).
1. is true, but (R) is false.
1. is false, but (R) is true.

Match the retail form in Column A with its identifying feature in Column B. [1] Column A

Cheap jack
Departmental store
Dark store
Single-line store Column B

Closed to walk-in customers and used only for online orders
Many departments under one roof at a central place
Deals in one broad line of goods, such as medicines or books
Trades from a temporary stall and shifts it when custom falls

(i)–(D), (ii)–(B), (iii)–(A), (iv)–(C)
(i)–(A), (ii)–(B), (iii)–(D), (iv)–(C)
(i)–(D), (ii)–(C), (iii)–(A), (iv)–(B)
(i)–(B), (ii)–(D), (iii)–(C), (iv)–(A)

Fill in the blank: A retail strategy in which stores, websites and mobile applications work as one integrated system is called ________ retailing. [1]
State whether the following statement is true or false: A departmental store and a multiple shop are alike in that both stock a very wide variety of goods. [1]

15.11 Check Your Concepts

Define retail trade and state why the retailer is described as the last link in the chain of distribution. [2]
State any three characteristics of retail trade, giving in each case the reason why the feature arises. [3]
Distinguish between a wholesaler and a retailer on any three bases. [3]
Why does a dark store pay a high rent to remain inside a city when no customer ever enters it? Explain with reference to the way it works. [4]
‘Digital retailing and omnichannel retailing are two names for the same thing.’ Evaluate this claim, and in doing so explain the features of each. [6]

15.12 Case-Based Questions

Harnoor runs a shop in a residential colony that stocks groceries, stationery, soap and soft drinks. She knows most of her customers by name, keeps a monthly account for a few families, and sends a boy with home deliveries in the evening. A large store has opened three kilometres away with twenty departments under one roof, air-conditioning, a restaurant and printed prices, and Harnoor’s evening sales have begun to fall.

Identify the form of retail organisation to which Harnoor’s shop belongs and state two of its merits visible in the case. [2]
Name the form of retail organisation the new store represents, and state two of its limitations that Harnoor could use to hold on to her customers. [2]