CARA'S TIPSRetail outlets, trends in retailing, wholesale trade and middlemen
JAMBWAECNECO
What the syllabus asks
JAMB: 4 Trade (a) Home trade: retail trade (types of retailers, functions of retailers, factors to consider in setting up retail trade; trends in retailing: branding, self-service, vending machines, the use of luncheon and fuel vouchers, etc.; reasons for success or failure); wholesale trade (types, functions, reasons for and against the elimination of middlemen)
WAEC: Home trade (meaning and branches; retail trade: types of retail outlets, small-scale and large-scale, functions, factors for setting up; modern trends in retailing; wholesale trade: types of wholesalers, functions to manufacturer, retailer and consumer; middlemen and their elimination; channels of distribution)
NECO: Home trade (meaning and branches; retail trade: types of retail outlets, small-scale and large-scale, functions, factors for setting up; modern trends in retailing; wholesale trade: types of wholesalers, functions to manufacturer, retailer and consumer; middlemen and their elimination; channels of distribution)
What you will learn
- Define home trade and identify its branches.
- Explain the functions of the retailer to the consumer and to the wholesaler or manufacturer.
- Describe the types of small-scale and large-scale retail outlets, with their features, advantages and disadvantages.
- State the factors to consider in setting up a retail business and the reasons for success or failure.
- Explain modern trends in retailing, including branding, self-service, vending machines, vouchers and online selling.
- Explain the functions of the wholesaler to the manufacturer, the retailer and the consumer.
- Distinguish between merchant wholesalers and agent middlemen and describe their types.
- Give reasons for and against the elimination of the wholesaler and of middlemen generally.
- Describe the channels of distribution and the factors that determine which channel is used.
- Calculate mark-up, margin, selling price and rate of turnover.
Key points
- Home trade is trade within one country; branches: retail and wholesale.
- The retailer sells in small quantities to final consumers and is the last link in distribution.
- Retailer to consumer: small units, nearness, variety, credit, advice, after-sales service.
- Retailer to wholesaler/manufacturer: information, display and advertising, risk-bearing, payment.
- Small-scale retailers: hawkers and pedlars, market stalls, kiosks, roadside traders, mobile shops, unit shops.
- Large-scale retailers: department stores, chain stores, supermarkets, hypermarkets, malls, mail order/online, consumer co-operatives.
- Setting up a shop: capital, location, demand, competition, supply, legal requirements, knowledge, infrastructure.
- Modern trends: branding, packaging, self-service, vending machines, vouchers, credit, POS and online sales, loyalty schemes, franchising, barcodes.
- Mark-up = profit ÷ cost × 100; margin = profit ÷ selling price × 100; mark-up is always larger.
- Rate of turnover = cost of sales ÷ average stock; average stock = (opening + closing) ÷ 2.
- Wholesaler to manufacturer: bulk buying, finance, storage, risk, information, distribution.
- Wholesaler to retailer: breaking bulk, credit, variety, delivery, advice, regular supply.
- Merchant wholesalers own goods; agents (broker, factor, commission, del credere, auctioneer) do not.
- Wholesaler is eliminated for perishable, technical or made-to-order goods, by large retailers and by e-commerce; his functions remain.
- Channel choice depends on product, market, producer’s finances, unit value, after-sales needs and regulations.
Start here: Home trade: meaning and branches
When a trader in Aba buys shoes made in a local workshop and sells them in a shop in Enugu, that is home trade. Home trade (also called domestic or internal trade) is the buying and selling of goods and services within the boundaries of one country, using one currency (the naira in Nigeria) and one set of laws. Foreign trade, studied in cm3, crosses national borders.
Figure 1 shows the place of home trade in commerce. Home trade has two branches:
- Retail trade: buying in fairly small quantities and selling in units to final consumers.
- Wholesale trade: buying in large quantities from producers and selling in smaller lots to retailers (and sometimes to large consumers such as hotels, schools and hospitals).
Both are links in the chain of distribution. Goods produced on a farm in Benue or in a factory in Ogun are not useful to a family in Kano until they have been transported, stored, divided into small quantities, displayed and sold. The wholesaler and the retailer perform those tasks.
Features of home trade
- Buyers and sellers use the same currency, so no foreign exchange is needed.
- Goods move under the same laws, so there are no customs duties at state boundaries (though some states and local governments levy market and haulage fees).
- Documentation is simpler than in foreign trade.
- Distances and risks are usually smaller, and payment is easier to enforce.
- Language and customs are more familiar, although Nigeria’s many languages mean traders still need good communication.
Importance of home trade
Home trade makes goods available throughout the country, encourages specialisation between regions (for example tomatoes and onions from the north, palm oil from the south), creates jobs for millions of traders, porters and drivers, raises revenue for governments through taxes and market levies, and raises living standards by giving consumers a wide choice.
Home trade is best described as trade
A. between two neighbouring countries B. within the boundaries of a country C. between a wholesaler and a manufacturer only D. carried out from the home
Answer: B. Option D is a common trap: "home" means the home country, not a dwelling house.
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Practice questions
- final consumers
- manufacturers
- wholesalers
- exporters
Show answer
A: final consumers
Retail is the last link in the chain.
- Manufacturing goods
- Issuing currency
- Collecting import duty
- Granting credit and breaking bulk
Show answer
D: Granting credit and breaking bulk
He also stores goods and gives advice.
- wholesaler with a warehouse
- manufacturer’s agent abroad
- small-scale itinerant retailer who carries goods about
- large-scale importer
Show answer
C: small-scale itinerant retailer who carries goods about
He moves from place to place.
- a co-operative wholesale
- one firm owning many similar branches selling similar goods
- a single shop with many departments
- a mail-order firm
Show answer
B: one firm owning many similar branches selling similar goods
E.g. branches with uniform appearance and central buying.
- self-service
- credit to all customers
- home delivery only
- bargaining over prices
Show answer
A: self-service
Customers serve themselves and pay at checkouts.
Key words
- Home trade
- Buying and selling within the boundaries of one country; also called domestic or internal trade.
- Retailer
- A trader who buys from wholesalers or producers and sells in small quantities to final consumers.
- Wholesaler
- A trader who buys in large quantities from producers and sells in smaller lots to retailers.
- Breaking bulk
- Dividing a large quantity of goods into smaller quantities convenient for the next buyer.
- Middleman
- Any person or firm between the producer and the consumer, such as a wholesaler, retailer or agent.
- Merchant wholesaler
- A wholesaler who buys goods, takes ownership and resells them at his own risk.
- Agent middleman
- A middleman who arranges sales for a principal for a commission without owning the goods.
- Del credere agent
- An agent who, for an extra commission, guarantees payment by the buyers he introduces.
- Factor
- An agent given possession of goods to sell in his own name for a commission.
- Broker
- An agent who brings buyer and seller together without taking possession of the goods.
- Chain store
- One of many similar shops owned and controlled by one firm, selling a similar range of goods; also called multiple shop.
- Department store
- A large shop under one roof and one management, divided into departments, each like a specialist shop.
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