Home Trade

Zanzibar Institute and Financial Administration - ZIFA 1

Lecturer: Makarani, Khamis Ali

Lecturer ZIFALecture 2

[email protected]

04/22/23

AGENDA:Definition of Home

TradeRetail trade Functions of a RetailerTypes of Retailerswholesale tradeFunctions of a

wholesaler Types of wholesalerschain of distribution

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Zanzibar Institute and Financial Administration - ZIFA

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Zanzibar Institute and Financial Administration - ZIFA

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refers to the buying and selling of goods for delivery within the boundaries of a particular country.Home trade may be further classified as given below:

retail trade: is concerned with the distribution of goods in small quantities to the consumers. wholesale trade: deals with the buying of goods from the manufacturers or producers in bulk and selling them in small quantities to the retailers.

Definition of Home Trade

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Retail tradeA retailer is a person who buys goods from

wholesalers in greater quantities and sells to the consumer in smaller quantities.

Characteristics of retailer;He is the last link in the chain of distribution of

goods btw the producer and the consumer.He is always in direct touch with the consumer.He does not need a large capital.He often gets credit from the wholesaler.He sells his goods mostly on cash basis.He gives credit facilities to some specific

consumers only. Zanzibar Institute and Financial Administration - ZIFA

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Functions of a Retailer Retailer performs functions for two groups of people;

the first group are the manufactures or wholesalers who provide him with

goods.

The second group are the consumers who buy the goods from him .

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Functions of Retailer to the consumers1. Holding stocks: he hold stocks of goods ready for

immediate use and sells them in small quantities to the consumer.

2. Anticipation of consumer demand: through his close contact with the final consumers, he is in a position to anticipate their wants and stocks goods accordingly.

3. Providing variety of choice: he keeps a variety of goods and satisfies the needs of his customers who may differ considerably in their preferences.

4. Personal attention to consumers: he is direct contact with consumers. He caters their tastes and fashion and he pays personal attention to them. He also help consumers by giving advice on the price and choice of goods.

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Cont……5. Provide credit facilities: He grants credit to

his approved customers and in some cases agrees to receive the amount installments.

6. Supplying information to the public: he displays new goods at his shop and. also he even educates the consumers in the matter of satisfying their wants in an effective manner at the minimum of expenses.

7. Miscellaneous services: free delivery of goods at the door of the customers, repair and after-sales service, etc are some of the services rendered by the retailer to the consumers.


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Functions of a Retailer to the Manufacturers and Wholesalers1. Provides outlet for producers: he provides the

producer with outlet for his products. The end of production is consumption.

2. Helps markets research: he has personal contact with the customers. He passes on this information to the producer through the wholesaler or otherwise. This has the effect of influencing the producer to produce those goods which suit the preference of the consumers.

3. Publicity of their goods: he publicizes the goods on the behalf of the manufacturers and wholesalers as well as puts on display posters, stickers and hangings of various products which supplied by the manufacturers to attract the consumers.


Types of RetailersThere are different types of retailers. These

can classify them as under:-

1. Small scale Retailers

2. Large scale retailers

These are explained as under:- small scale retailers; consist of street

shops, hawkers, road side traders, mobile traders, automatic vending machines, market stall holders, open market trader, kiosks, canteens, unit shops etc.


conti…..Street traders: are those who set up their

business by the side of the streets in large cities. They are also known as road side traders.

Advantages;

1. Their overheads are too low.

2. At time they can buy goods directly to manufacturers, so they sell at low prices.

3. They need small amount of capital. Disadvantages

1. They have no fixed premises.

2. They cannot get regular customers so they sales fluctuate.

3. They sell normally defective or inferior quality goods.


conti…..Mobile traders: are those traders who

carry goods in boxes and call upon their customers at their houses. Sometimes, they use specially designed vehicles to carry a wide range of goods to villages, sub-urban areas and housing colonies. Example are peddlers, hawkers, market stall holders and mobile shops.


Cont….Advantages;1. They need small amount of capital to start

business.

2. They have some permanent customers so they can easily sell.

3. The customer get required goods at their places conveniently

4. Their overheads are too low.Disadvantages;1. It quite inconvenient to move from one place to

another.

2. Their sales are affected adversely when there is rainy season.

3. They normally sell defective or inferior goods.04/22/23


conti…..Small fixed shops: the most important retail

outlets are the small fixed shop. These shops are owned mostly by the sole proprietors. The examples of small fixed shops are unit shops, kiosks and canteens.Advantages;

1.Overheads are low.

2.Credit facilities can be provided to the customers.

3.These shop can be operated permanently.


Cont…. Disadvantages;

1. In one area, different shops sell similar goods so there is greater competition.

2. More capital required to attract more customers by stocking different type of goods.

3. Some credit customers can disappear without paying the amounts due from them.

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conti…..Tied shops: these are retail sales agencies

selling the products of a particular manufacturer who, in turn, finances them. The manufacturer insists on a standard design for such shops. Sometimes allowed to sell non-competing products of other manufacturers. The main example is petrol stations.

Advantages;

1.These outlets sell the products of a specific company so the customers can buy those goods without any hesitation.

2.Through these outlets, the manufacturer can supply goods direct to the customers.


Cont… Disadvantages;

1. These outlets sell the products of one manufacturer only so the consumers have no choice.

2. Insufficient supply of the goods from the manufacturers can result in the closure of such outlets.


large scale retailersLarge scale retailers operate their business

at a large scale. They carry a lot of stock and their volume of sales is bigger. large scale retailers include multiple supermarkets, chain stores, and department stores. These can be explained as under:-

Multiple shops or chain stores: are a number of shops owned and managed by one concern, found in different places, stocking the same class of merchandise and often similar in appearance.


main features of multiple shops are :1. There is uniformity of the premises, external

shop front, internal layout and furniture and fixtures of the branches.

2. Control is vested in the central organization and the individual branch manager are given only restricted powers.

3. Buying is centralized and selling is decentralized through a large number branches scattered over a wide area.

4. Generally they deal only in a particular set of goods – mainly in standardized type of goods.


conti….. 5. Sales are strictly for cash and credit

facilities are not allowed

6. They are often part of an integrated wholesale retail group

7. Not infrequently, some are owned and operated by manufacturers with a view to selling their own products

8. Selling prices are fixed by the central organization.


advantages of multiple shops1. Efficient service; multiple shop system serves the

customers easily and efficiently by opening a large number of branches near the customers residence.

2. Economies of large scale buying and selling; multiple shops enjoy all the advantages of a scale enterprise, like economies of large scale buying and selling, centralized and efficient control etc.

3. Geographical diversification of risks; since the operation of multiple shop system is scattered over a wide area. Any loss incurred by one braches due to bad situated of trade, that lose can be compensated from profit earned by branches situated in areas where the trade is good.


conti…..4. Low advertisement expenses per branch;

standardization of shop fronts, internal layout etc have effect of good advertisement. One shop in the chain advertises for the other.

5. No loss from bad debt; since credit facilities are not allowed there are no chances of bad debts.

6. Low operation expenses; as an extension to the above point there is no need to maintain a large clerical staff to maintain the account of customers.

7. Less selling effort; since multiple shops are mainly dealing in standardized and branded goods selling effort will be less.


Disadvantage of multiple shops1. Lack of personal contact; there is little

personal contact between the customer and seller. It need hardly be pointed out that personal attention is a very important factor for the success of retail trade.

2. Lack of credit facility; Customers do not get credit facilities due to policy of multiple shop which may affect the turnover adversely.

3. Limited power of the branch managers; this may affect adversely the initiative in them. Besides, centralized buying may result in over-looking the tastes of the customers of a particular locality.


Department storesThis is a number of single shops each restricted to

selling only one class of goods under one roof (i.e same building) and one management. Each shop has a department manager who decide on the size and type of stock to be held. It offer a wide variety of goods so that customers need not go to different shops for purchasing different articles.

Department store often maintain their own restaurants, reading rooms, cinema houses, hair dressing and beauty saloons, information bureau etc.

Department store are always situated in the central shopping areas of big towns. The premises are generally very extensive to accommodate various departments.


Advantages of department stores1. Lower prices for goods; department store

purchase goods direct from manufacturer, this has effect of saving on the middleman’s commission. These enable the department store to sell goods at comparatively low prices.

2. Saving on overhead expenses; owing to the large volume of sales of a department store the overhead expenses of the store will be distributed over a large turnover. Thus the average rate of overhead expenses will be comparatively low.

3. Right personnel for the right job; the large size of a department store enables it to employ the right person for the right job.


conti…..4. One department advertises for another; the

department store is made up of a number of departments housed under one roof. When a customer enters one department he is often attracted by the articles displayed in the neighboring departments. Thus one department can effectively advertise for another.

5. Diversification of risks; since a department store is dealing in a variety of products, it will be possible to diversify the risks. Even if it undergoes loss in one or two lines of goods which it traded, the profit which it earns in the other lines will more than make up the loss.


disadvantages of department stores.1. Lack of personal contact with customers; It is not

able to give personal attention to the customers. The customers of such a store are far too many and they are drawn from different places with different tastes.

2. Not easily accessible to many; they are situated in central shopping areas of large towns and cities unlike to ordinary retail stores so they are not able to cater the needs of the rural population.

3. Chance of mismanagement; since the organizational set up of a department is very large, inefficiency in management is a possibility.

4. Chances of pilfering; some customer may exploit the situation by pilfering the goods displayed due to it may not be possible to exercise a close watch on all the customers.


Differences between department stores and multiple shops1. A department store is a collection of shops all under the

same roof, each department dealing in a particular branch of retail trade but under the multiple shop system we can find a large number of individual shops operating in different parts of the country.

2. Department store the whole business is concentrated in one unit and the customers are drawn to it but multiple shop system opening a large number of shops in various places.

3. A department store deals in a wide variety of articles while a multiple shop specializes in a particular set of goods.

4. A multiple shop is often part of a integrated wholesale retail group. This is not so in the case of department store


conti…..5. Department store procures goods from different

sources and sells them at a central place while multiple shop purchases from a single source and sells them from different centers.

6. Geographical diversification of risk is possible in the case of a multiple shop since it is operating from different centers while in the case of department store is not possible.

7. Department store has to be centrally located and requires extensive premises while multiple can operate from any fairly populous place and does not require large premises.


super-marketsThese are large stores that stock many of

household items and operate on “self service” system. They offer food stuffs, utensils, drinks, electrical appliances, cleaning materials, stationary, mattresses, hardware etc.

Self service means that a customer pick up any item he needs by himself. Items carry price tags which is its cost and customers move through the shop from shelf to shelf, picking whatever they need.

Example of supermarket are nakumatt, kwality supermarket etc.



super-marketsThese are large stores that stock many of

household items and operate on “self service” system. They offer food stuffs, utensils, drinks, electrical appliances, cleaning materials, stationary, mattresses, hardware etc.

Self service means that a customer pick up any item he needs by himself. Items carry price tags which is its cost and customers move through the shop from shelf to shelf, picking whatever they need.

Example of supermarket are nakumatt, kwality supermarket etc.


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HOME TRADE


mail order businessIs a type of retail trade where the business

is done by post. In this type of retail trade, the customers place their order for goods through post and the goods are also supplied through post. There is absolutely no personal contact between the seller and the buyer. The mail order businessmen advertise about the goods and the customers relying upon these advertisements place orders for them.


Cont….Advantages of mail order business

to the retailer;

1.It is not necessary to maintain expensive showrooms.

2.It is not necessary to maintain huge transport fleet.

3.Selling and buying are done though post so no need to employ salesmen.

4.Losses from bad debt do not arise since sold for cash.


Advantages of mail order business to the customers;The customer can save the trouble of going to the

retailer’s shop. He sends the order for goods through post and gets them at his residence.

Disadvantages of mail order business;

1.There is no personal contact btw mail order business and the customer.

2.Customer may be misled by false and exaggerated advertisements.

3.No credit facility to the customer since buyer will have to pay before delivery the goods.

4.Heavy advertisement expenses

5.Limited range of goods which suitable for mail order business.


hire purchase and installment systemUnder hire purchase system, the buyer agrees to

pay for the commodity in installments. On signing the agreement the buyer can take possession of the commodity and use it. But the ownership in the articles rest with the seller until the buyer pays the final installment. if the buyer fails to pay any installment the seller is entitled to take back the article and the buyer will have no claim over the installments he has already paid. The amount paid will be treated as hire charges for the article. Hence the sale becomes complete only when the buyer pays the final installment. On payment of the final installment the ownership of the article passes from the seller to the buyer.


conti…..Under the installment selling system, the articles

becomes the property of the buyer with the payment of the first installment. In case of failure to keep up with installments, the seller cannot repossess the product but may sue him in court for unpaid amounts. Advantages to the customer;

1.The customer is allowed to pay in installment. At the same time enjoy the article as soon as the first installment is paid.

2.The system encourage thrift among the people. The buyer is compelled to save.


conti…..Advantage to the trader;The trader can increase his sales by creating

new demand for his products.Disadvantages;

1.Only goods suitable for re-possession can be sold under these methods.

2.The seller has to be very cautious otherwise he may incur losses owing to bad debts and accumulation of second hand goods.

3.Buyer have to pay higher price under these systems.


wholesale tradeFunctions of wholesalers to manufacturers;1.he has close contact with retailer to judge changes in

demand that may occur, so he orders the goods in advance of demand.

2.He relieves manufacturer by stocking the goods in his own warehouse until demanded by the retailers.

3.A good deal of publicity work is undertaken by the wholesaler on behalf of the manufacturer.

4.He uses own transport to move goods from manufacturer to his warehouse. Thus the manufacturer saved of transport expenses.

5.He renders valuable financial help to the manufacturer by purchase goods for ready cash or by bills of exchange.


conti…..Functions of wholesalers to retailer;1.The wholesaler is an ever ready foundation of supply of

goods. The travelling salesmen as agents of the wholesaler visit the retailer often to know his requirement and see they are supplied with goods in time.

2.With his knowledge of the market the wholesaler is of often in a position to render advice to the retailer with regard to the disposal of goods.

3.As an expert buyer and seller the wholesaler is on the look out for new products and new market, so he is the source of supply of new product to the retailer.

4.The wholesaler allow credit facilities to the retailer.Zanzibar Institute and Financial Administration -

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conti…..Functions of wholesalers to consumers;1.The wholesaler helps to maintain prices

steady. When the price is falling on account of over production and consequent over supply, the wholesaler purchase goods in large quantities and stocks them, thus absorbing the excess supply and vice-versa.


advantages and disadvantages of the wholesale tradeThe wholesale trader perform some functions in the

interest of the manufacturer, retailers and consumers. These function indicate the advantage of the wholesale trade.

The disadvantages of the wholesale trade are:-1.The wholesalers are link btw the manufacturer and

the retailers so they are in a position to exploit them if they do not buy goods from the manufacturers in time.

2.Sometimes , they provide incorrect information to the manufacturers regarding the market situation.

3.They can create shortage of some goods in view of some selfish motives.


Types of wholesalersVarious types of wholesalers are classified as under;1. General wholesalers: they deal in a variety of goods like

foodstuffs, hardware, cloth etc.2. Specialized wholesalers: they sell a particular type of goods

e.g hardware, books, cloth etc but offer great variety within their particular field.

3. Regional wholesalers: they sell goods within a particular area or region e,g district or province.

4. Nation-wide wholesalers: they supply their goods to the retailers all over the country. They normally they have their ware-houses in main towns of the country.

5. Truck wholesalers: these carry only a limited range of stock and combine selling, delivery and collection function in one operation. They also known as “wagon jobbers”


Should the wholesaler be eliminated? It depend of the kind of goods which can be sold

directly to retailer or consumer and the growth of large scale retailers has reduce the need of wholesaler.

In spite of all the above it is not always possible to eliminate the wholesaler altogether because;

There are many grocery items which would be uneconomical for the manufacturer distributed.

Wholesaler is often in position to help manufacturer on experience sale organization and accumulated knowledge about market

Wholesaler is a particularly important link in the chain of distribution as far as small manufacturers and small retailers are concerned.


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chain of distribution A chain of distribution is a path in which

products follow from the producer or manufacturer to the final consumer or user.

The path consists of a set of business entities like retailers, wholesalers, industries etc.

Normally, the chain of distribution follows as under:-

1. wholesalers buy goods from manufacturers

2. Retailers buy goods from wholesalers3. Consumers buy goods from retailers


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Chain of distribution diagramThis diagram is concerned with home trade only.


Manufacturers

Large Retaile

rs

Consumers

Retail shops of

manufacturers

Wholesalers

Small Retailers

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Documents

Home Trade