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An Introduction to Retailing

What is Retailing?

Retailing can be defined as the sale of goods and merchandise for personal or household consumption, from a fixed or temporary location, generally a store.

Retailers buy large quantities of goods or services from:

  • manufacturers,
  • wholesalers, or
  • importers
  • which is then sold in smaller quantities to the consumers.

The Primary Objective of Retail

Retailers trade to make a profit. They want to make money to feed and house their families, educate their children, acquire things they want and to grow their wealth. Retailers who are part of a large group or formal business have to make a profit in order to deliver value to the shareholders of the business.

More importantly, retailers are passionate about serving their shoppers’ needs, bringing them the products they need at prices they can afford. Successful retailers are those who always keep their customers in mind in whatever they are doing in their business.

Retailers make a living by keeping their customers happy by having:

  • The right merchandise,
  • At the right price,
  • In the right place,
  • At the right time.

The Key Retail Functions:

  • Provide an assortment of products and services to the shopper,
  • Bulk buying goods in large volumes and selling those goods in smaller quantities to many different shoppers,
  • Hold an inventory of goods which will be available when the shopper wants them,
  • Display products in such a way that the shoppers can choose between them more easily and this will increase the chances of making a sale,
  • Offer shoppers credit, in some instances, so that they can pay for goods when they are able to afford them.

By doing these things, a retailer adds value to their products, making the consumer’s life easier. These activities take time and money so the retailer adds a rand value to the cost of the product that he has bought.

The table below is an example of this:

Types of Retailers: Who’s Who in the Trade

1) The Informal Trade
This refers to anyone who trades:

  • in temporary structures,
  • outdoors, or
  • from buildings which are used for other purposes, such as houses.

Generally, informal traders do not operate formal businesses, and while some are very successful, most informal businesses operate “from hand to mouth”, without accumulating many assets. It is estimated that there may be as many as 750 000 informal businesses in South Africa, which include pavement hawkers, market stalls, spaza shops, tuckshops and shebeens. The informal trade is a very important part of the South African economy, creating employment for hundreds of thousands of people.

2) The Independent Trade
This refers to independently-owned retailers that may have formal systems and operate within permanent structures. These businesses include everything from:

  • small counter-service traders,
  • small self-service stores,
  • small and even large local supermarkets.

In most cases, the owner is also the manager of the store, and this often means that the businesses are efficiently run and profitable. Some of these businesses group together to form “buying groups”. This means that they are able to buy stock in greater bulk and therefore get it at a better price, or negotiate better payment terms from their suppliers. Buying groups are also able to save on the cost of collecting the goods if the wholesaler they are buying from will deliver.

3) The Modern Trade
This is a term which covers all stores owned by large businesses (for example Pick ‘n Pay, Shoprite or Truworths).

These stores:

  • always trade under a major retailer brand,
  • come in a wide range of formats, which include:
  • garage stores,
  • convenience stores,
  • superettes,
  • supermarkets, and
  • hypermarkets.

Recently, more and more of the major retailers are moving into areas where they did not trade previously (for example; townships and rural centres). This means that there is increasing competition between the Modern Trade and the Independent Trade which has traditionally served these areas.

4) The General Trade
Consists of wholesalers and cash & carry stores. Their function is to sell goods in bulk to the Independent and Informal Traders.

Because they sell in bulk, they are able to offer attractive prices to their customers. Some wholesalers and cash & carry businesses are owned independently by individuals, while others are owned by large corporate companies like Massmart (who own Makro and Jumbo).