Retail Trade - KCSE Business Studies Notes

​Retail trade involves the buying of goods and selling them to the final consumer. A retailer is the trader who buys goods with a view of selling them to the final consumer.

Classification of Retail Trader

Retailers are classified/categorized according to the amount of capital they need to start and operate their businesses and their sales volume. Thus retailers can be classified as;

1. Small scale retailers
2. Large scale retailers

1. Small-scale Retail businesses/small scale Retailers

These are retailers whose capital requirement is low and their sales volume also low. They form the majority of retail traders and all found in all parts of the country.
Small scale businesses are easy to start and in most cases they are operated as one-man’s business.
A small scale trader serves the needs of people in the immediate neighborhood and deal mainly in fast moving goods such as foodstuffs, detergents, kerosene etc.

Categories and Types of small scale

These are two main categories of small scale traders as shown below;
a) Small scale Traders without shops

• Itinerant Traders (Hawkers and peddlers)
• Roadside sellers
• Open air market Traders

 b) Small scale retailers with shops

• Single shops               
• Tied shops                  
• Kiosks
• Mobile shops
• Market stalls               
• Canteens                    
• Mail order stores

a) Small scale Retailers without shops

i. Itinerant Traders
These are retailers who move from place to place selling their goods either on foot, by bicycles or motor cycles
They move from town to town, door to door and from village to village selling their goods. Their goods may include clothes, utensils and foodstuffs. Customers can buy goods without having to travel to look for them
Examples of itinerant traders are hawkers and peddlers (Hawkers move around on bicycles, handcarts or motorcycles while peddlers walk around)
The itinerant traders require a license from the local authorities in order to sell their goods.
Characteristics of itinerant Traders

1. Are found mainly in densely populated areas
2. Move from place to place  in search of customers
3. They are very persuasive
4. Their prices are not controlled.

Advantages of itinerant Traders

1. They require little capital to start
2. They are convenient because they bring goods closer to the people
3. The business is flexible in that they can move from place to place. They can also change from line of business to another
4. Few legal formalities are required
5. They usually do not suffer bad debts because they sell in cash.

Disadvantages of itinerant Traders

1. The traders get tired because of moving from one place to another while carrying goods.
2. The business is affected by bad weather conditions
3. The traders sale a limited range of goods
4. It is difficult to transport goods from one place to another.
5. Do not offer guarantee, in case items are to be found defective
6. They are constantly in conflict with the local government.

ii. Roadside sellers
These are traders who sell their goods at places where other people pass by and at busy places such as along busy roads, bus stages, road junctions and entrances to public buildings.
They place their goods on trays, cardboards, empty sacks and mails
They sell items such as fruits, utensils, sweets, clothing and some hardware.
iii. Open-air market Traders.
Open air markets are places set aside by the government through the local authorities where people meet to buy and sell goods. Traders selling similar commodities are allocated a special area. Such markets are open on particular days of the week.
The variety of goods sold here is wide and include agricultural produce, clothing, household items, animals, foodstuffs and even furniture.
The traders move from one market to another depending on the various market days.
Advantages of small-scale retailers without shops

1. They require a small amount of capital to start and operate their businesses.
2. They are convenient since they take goods to the customers within their reach.
3. They incur low costs of doing business
4. Most of their goods are low-priced and hence more affordable to customers.
5. The business is flexible. It is easy to change from one business to another
6. They require few legal requirements
7. The financial risks involved in these businesses are minimal
8. They do not suffer bad debts since they sell on cash bases
9. They interact at personal level with the customers and can convince them to buy their goods.

Disadvantages of small-scale retailers without shops

1. It is tiring for traders to move from place to place especially if the goods are heavy and the distance covered are long
2. The traders face stiff competition from other traders with more resources
3. They offer a limited variety of goods
4. They are affected by unfavorable weather condition
5. Lack of permanent operating premises denies them a chance to develop permanent customers
6. They face a lot of certainty, especially in terms of a steady flow of income
7. They sometimes sell defective or low quality goods because customers expect to pay little money for them.

b) Small scale Retailers with shops

These are small scale retailers with permanent locations to operate from. They include;
i. Kiosks
These are small shops or structures found mostly in residential areas, busy streets, highly populated areas or inside building where people pass by or work
They deal in fast-moving items and groceries such as; sodas, cakes, sweets, cigarettes, and newspapers etc. some kiosks also sell food.
ii. Market stalls
​These are permanent stands found in market places, especially those operated by the various local authorities
They are of different designs depending on the goods they sell or services they offer.
They are rented or leased by individuals from local authorities
They deal in fast moving household goods though some may specialize in other products such as clothing and shoes.
Examples are stalls at Muthurwa markets, Kariokor, and most municipal markets

Advantages of kiosks and market stalls

• They are small, hence easy to start and operate
• They are conveniently located close to their customers
• They require little capital to start
• They tend to have a loyal group of customers since they have permanent premises
• They incur relatively low running costs
• They give personal attention to their customers
• They are flexible since the owner can change from one business to another easily.

Disadvantages of kiosks and market stalls

• They provide a limited range of products
• They usually do not have adequate higher capital for  expansion
• They charge relatively higher prices than the retailers without shops
• They face stiff competition from more established retail businesses
• They sometimes suffer from bad debts
• Due to their size, they do not enjoy economies of scale
• For market stalls the hours for operation are controlled by the local authority concerned.

iii. Single shops (unit shops)

• Single shops are mostly located in the trading or market centres in rural areas or in the residential areas of high towns
• They are operated from fixed premises
• They are usually run by one person who may get assistance from him/her family or employ attendance
• Some deal in one line of commodity such as houses, clothing, groceries or electronics

Advantages of single shops

• Minimal capital is required
• Running costs are usually low as the owner may use the services of family members
• They may offer credit facilities to some customers
• They are easy to start because only a license is required
• They usually have a loyal group of customers
• Flexibility. The owner can change his or her line of business at will
• They are easy to start since the owner does not have to meet any manufactures requirements
• Products prices are fixed by the shop owners
• The owner has the freedom of creativity and independence
• They are convenient since they ensure goods are within easy reach of their customers.

Disadvantages of single shops

• Expansion is difficult due to limited funds
• They face stiff competition from large businesses
• The absence of the owner may result in closure and loss of business
• May suffer bad debts
• Provide limited variety of goods
• The operations of the business are affected by the owner’s commitment.

iv. Tied shops 
These are shops that mainly sell the products of one particular manufacture or are owned by a specific supplier of certain goods. The shops are owned or controlled by the manufacturer, and are thus tied to the manufacture.
The manufacture/supplier designs the organization of the shop and its appearance e.g. painting hence they look alike. The supply closely supervises the shops.
Examples of tide shops include; Bata shops which sell shoes made by Bata Company, petrol station like National, Kobil, and total etc.

Advantages of Tied shops

• Availability of goods is assured at all times
• The supplier carries out promotion for the goods
• The manufacturer/supplier can easily give credit to the shops
• Customers can return or change faulty goods at any of the shops
• The shops are  easily identifiable due to their similarity
• Traders are financed by the manufacture
• They get loyal customers who keep buying their branded products
• Advertisement expenses are met by the manufacture
• They get technical advice from the manufacture
• Some operate from permanent premises owned by the manufacture.

Disadvantages of Tied shops

• Decision making is slow because the manufacturer must be consulted
• The variety of goods is limited
• The shops cannot sell goods from any other manufactures even if customers require them
• Prices are fixed by the manufacture and sometimes profit margins may be low
• They inhibit the retailers creativity and innovations
• There is a likelihood of disagreements between the manufacture and the tied shop owners.

Differences/Distinction between a tied shop and single shop.

Single shop	Tied shop
​Owner is free to stock whatever he/she wishes	​Dealership can be withdrawn if operators stock competing products
Owned by individual or a group of people	​The owner is normally the manufacturer
Sells products from different manufacturers	Sells products from a single manufacturer
Design of shop according to owners wish	Shops usually have the same design
Prices of goods determined by shop owner or different manufactures	​Prices of goods set by the manufacturer
​Operators not trained by manufacturers	​Operators are usually trained by manufacturer

vi. Canteens;
​These are retail shops found in institutions such as schools, colleges, hospitals and army barracks.

• They stock a variety of consumable goods such as sodas, bread, tea, groceries and other things used by the people in that institution.
• They are run by the institutions management or by individuals on retail business
• Most of them operate without a license as they are considered to be part of the institution. Their hours of operation are sometimes regulated by the institution          

Advantages of canteens

• Some do not pay any rent, thus they incur low overhead costs
• They often require low capital to start
• Some offer credit facilities to their customers
• They are situated at ideal location which is convenient for their customers
• They are assured of a market as they cater for people in particular institution.

• The market is limited to people in a particular institution
• They do not open throughout/they open for limited hours e.g. after classes in schools
• They close down when the targeted customers are not available e.g. during school holidays.
• They may suffer from bad debts
• They are difficult to expand due to insufficient funds

vi. Automatic vending machines;
these are coin or card operated machines used to sell commodities like drinks, stamps, and snacks etc. Examples are coffee shops, ATM’s etc.
​Features

• They dispense goods or services once a coin or a card is inserted and instructions keyed in.
• They operate without an attendant
• They are usually placed at strategic places such as busy streets, office buildings, shopping centres and hospitals.

Advantages of vending machines

• Commodities can be bought anytime because no attendant is required
• They save the owner the cost of employing a shop attendant
• They can be put strategically to boost sales e.g at institutions
• They are fast and accurate
• They are not affected by weather changes
• They provide goods and services on cash basis protecting the owner from the burden of bad debts.

Disadvantages of vending machines

• They provide a limited range of products
• Break-downs or stock-outs may discourage customers
• Maintenance costs are high due to regular servicing, repairs and sometimes vandalism
• The owner may incur losses through fraud and use of inappropriate coins and cards by consumers.
• Customers are forced to carry coins and cards in order to obtain goods or services
• Their use is limited to customers who are familiar with how the machine works
• They are mainly found in urban areas, thereby locking out the people in rural areas.

vii. Mobile shops

• Mobile shops, like itinerant traders move from town to town or village to village selling their goods.
• They have vehicles that they have converted into a shop from which customers can buy their goods
• They visit different towns at regular intervals.

Advantages of small scale Retailers

1. Easy to raise capital to start
2. Retailers are in close contact with the consumers and may give credit to credit worthy customers.
3. Are able to use free or cheap labour from family members
4. The risks involved in their businesses are small
5. The business is simple to start and manage
6. Few legal formalities required to start and run the business
7. The trader can easily change from one form of business to another i.e. the business is flexible

Disadvantages of small scale retailers

1. Traders have limited access to loan facilities
2. They may not afford to hire specialists or technical staff
3. May suffer bad debts if they give credit to customers without proper assessment
4. Do not enjoy economies of scale
5. Have a low turnover because of the little capital invested

LARGE SCALE RETAILERS

Large scale retailers have the following features/characteristics;

1. Require large amounts of capital to start and maintain
2. They operate from larger fixed premises
3. They operate mainly in urban areas
4. They have a large labour force
5. Buy goods in large quantities from wholesalers or directly from producers and are therefore allowed large trade and quantity discounts and other favourable credit facilities
6. Require the services of specialists such as salespersons and accountants
7. May occupy one large premise or several premises in the same town or in different towns
8. They have large stocks and large sales volumes

TYPES OF LARGE SCALE RETAILERS

a) Supermarkets;
A supermarket is a large scale self-selection/self-service store that deals mainly with household goods such as utensils, foodstuffs and clothes. It has the following features;
​Features of supermarkets

1. Requires large capital to start
2. They stock a wide variety of goods
3. Offers self service facilities
4. Goods have price tags or bar codes
5. Prices of goods are fixed
6. No credit facilities are offered
7. Sell at comparatively low prices
8. Goods are systematically arranged for easy selection
9. Shoppers are provided with baskets or trolleys for convenience
10. There is minimal interaction between buyer and seller
11. There are employees who pack goods for customers at the pay points.

Advantages of supermarkets

1. Prices may be relatively low because they buy their goods in bulk and are given discounts
2. Saves time as customers are able to get most goods they require under one roof
3. Self-service saves the customers  time
4. Few attendants are employed thereby reducing the monthly wage bill
5. Impulse buying leads to more sales, hence high profits
6. Bad debts are avoided because there are no credit sales.
7. The price tags on goods help customers to monitor their spending.

Disadvantages of supermarkets

1. Do not offer credit facilities to customers
2. Do not deliver goods to the customer’s premises
3. Are found mainly in urban areas
4. May incur losses due to pilferage of goods
5. Impulse buying may lead the customers to buying goods they may not need.
6. They are expensive to start and operate due to the large amount of capital required
7. Prices are fixed and bargaining is not accepted, which discourages some customers
8. Minimal personal interaction limits chances for making more sales

b) Hypermarkets 
A hypermarket is a large shopping complex/centre comprising a variety of businesses managed by different people all housed in one building
Examples; village market, sarit centre, Tuskeys-Kisumu, Nakumatt mega city-Kisumu e.t.c
Features/Characteristics of Hypermarkets

1. Are served with good access roads
2. They have ample parking space
3. Many businesses in one building
4. Located in the outskirts of town
5. Offer a variety of goods and services
6. Occupy a large space.

Advantages of Hypermarkets

1. Offer ample and secure parking space to customers
2. Customers can do all their shopping in one building
3. They are usually open for long hours
4. They may provide credit facilities by accepting credit cards
5. There is less traffic congestion as hypermarkets are located away from urban centres
6. Provide a wide variety of goods and services to customers under one roof.
7. They have fair prices that are customer friendly.

Disadvantages of Hypermarkets

1. Are only convenient to customers who have  cars because they are situated away from city centres
2. They serve limited number of people due to their location
3. They require large amount of capital to establish
4. They can easily exploit their customers since their prices are not controlled
5. Require large amount of space which are not available in central business district (CBD)
6. They spend a lot of security to safeguard properties

c. Chain stores (Multiple shops);
Are large scale businesses with separate branches which are managed and organized centrally. The branch managers are accountable to the head office. Examples; African Retail Traders (ART), White Rose dry cleaners, Nakumatt, Tuskys, Uchumi e.t.c 
​Characteristics/features of chain stores

1. Are managed centrally from a head office
2. Prices are standard for all their products in all their branches
3. All branches deal in the same type of products
4. Sales are decentralized i.e. the various shops situated in different places act as selling points or branches
5. Purchases of stock are centralized i.e. buy stock buy stock in bulk centrally and distributed to the different branches
6. Goods can be transferred from one shop to another where the need for them is higher
7. The shops operate under one name and are similar in appearance and interior layout

Advantages of chain stores/multiple shops

1. They enjoy large trade discounts since they buy their goods in bulk centrally and is passed to consumers in form of low prices
2. Common costs such as those of advertising are shared
3. Goods that do not have a high demand in one branch can be transferred to another where their demand is high
4. They are easily identified by their colour and design
5. They have low operational costs because of the centralized buying, storage,          advertising and accounting
6. They serve a large number of customers because they are spread in many towns and cities
7. The similarity of the shops in appearance and services serves as an advertising tool
8. Risks such as losses are spread among many shops
9. It is possible to pay for goods in one branch and pick them up in another. 

Disadvantages of chain stores/multiple shops

1. Large amount of capital is required to start and maintain the business
2. They cater mainly for the urban areas as they are situated in those places
3. Organizational problems may occur due to their large size
4. No credit facilities are offered except those operating exclusively on hire purchase schemes
5. Response to market changes is slow due to the slow decision making
6. Decision making is slow as the head office must be consulted
7. Lack of personal touch with customers
8. Absence of personal touch between employer and employee may reduce incentives for hard work among staff
9. People tend to shy away from buying similar products such as clothes and this may reduce sales.

d) Departmental stores 
​This is a group of single shops operating under one roof with a centralized management
Each shop/department specializes in a particular line of products and is headed by its own department manager.
Characteristics of departmental stores

1. Each department has its own manager
2. Each department sells only one line of products
3. All departmental managers are answerable to a general manger
4. They offer a wide variety of goods at relatively low prices
5. They sell goods strictly on cash basis
6. They are usually in town centres
7. Goods are not transferable from one department to another as each has its own variety of goods.

Advantages of departmental stores

1. Customers can buy/access a wide variety of goods at fair prices under one roof.
2. They can afford to hire trained qualified experienced staff who provide quality services
3. They buy goods in large trade discounts. This enables them to sell at low prices.
4. Each department is able to make independent and quick decisions that affect its operations.
5. The independence of departments ensures that the weakness of one department does not affect each other.
6. Savings can be made on some activities such as product promotion by centralizing them.

Disadvantages of Departmental stores

1. A large amount of capital is required to start and maintain the stores
2. They require a large number of customers to operate profitably
3. It is difficult to give personal attention to customers
4. They cater mainly for the urban communities in which they are located
5. They strictly sell their goods on cash basis
6. Operational costs are high due to the wide variety of services offered
7. Their large size could encourage theft and pilferage of goods
8. The independence of departments can make central control difficult.

e. Mail order stores 
​This is a type of retail business where business is carried out through the post office, telephone or email

• Ordering of the goods is done through the post office telephone or email and delivering of goods is done by post or courier
• There is no personal contact between the seller and the buyer and buyers get information from advertisements.
• Goods are dispatched on the basis of cash with order (CWD) or cash on delivery (COD).

Characteristics/features of Mail order stores

• They sell the goods through the post office
• They operate on cash with order (CWO) or cash on delivery (COD) terms
• Heavy advertisement are involved
• Customers do not visit the selling premises.
• There is no personal contact between the buyer or the seller
• All transactions are done through the post office
• They deal with goods that are less bulky, have high value, and are durable and not too fragile
• May have large warehouses

Advantages of Mail order stores

• They reach customers who are far for away from the shopping centres
• Do not require the services of sales personnel or shop attendants for skilled labour since selling is routine
• Total control of distribution is possible
• Payments is made with order or delivery so there is little chance of bad debts
• Eliminates the loss associated with shop space, thus saving on rent
• Supply of goods is based on order thus a trader requires little working capital
• The method eliminates trips to congested stores and lengthy waits queues
• Do not require large storage space for goods.

Disadvantages of Mail order stores

• Advertising and postage costs may increases the price of goods
• There is lack of personal contact between the seller and the buyer
• There is limited variety of goods on offer
• Customers do not have the opportunity of inspecting goods before buying
• There are no credit facilities
• The method is only suitable for those who can read and write
• Should there be a problem with the post office. e.g. industrial action like strikes, the business may be affected
• Difficult to operate in places where post office services are poor or unavailable
• Chances of being defrauded are high.

FUNCTIONS OF RETAILERS

These can be discussed as services rendered to consumers, wholesalers and producers
Services Rendered to consumers

1. Offers credit facilities; Retailers are in close contact with the consumers and some may give them credit facilities
2. After-sales services; Retailers who sell technical goods e.g. cars, electronics e.t.c may offer after sale services to consumers e.g. transport, installation repair e.t.c
3. Provision of variety of goods; Retailers stock a wide variety of goods from different wholesalers and manufactures enabling the consumers to have a wide choice.
4. Advising consumers; Retailers may offer advice to consumers on choice and use of products
5. Availing needed goods; Retailers make goods available to consumers at the right time and place
6. Breaking bulk; Retailers sell goods to consumers in convenient quantities
7. Accumulating bulk
8. Stabilizing prices, by ensuring that goods are continuously available to consumers.

Services Rendered to wholesalers

1. Retailers store goods and relieve the wholesalers the burden of storing goods and the storage costs
2. They relieve the wholesalers the burden of transportation
3. Retailers advice wholesalers on market trends(on consumers demand)and give valuable information
4. They help in distribution of goods to the consumers
5. They help in breaking bulk on behalf of the wholesaler
6. They finance wholesalers to continue with their operations through paying for the goods
7. They relieve the wholesaler of some risks that arise from the storage of goods such as theft, fire and accidents.

Services Rendered to producers

1. Through wholesalers retailers provide very vital information to manufactures about market demand
2. They advertise goods on behalf of producers
3. They sell and market goods to consumers. This relieves the manufactures the task and  risk of retailing
4. They store goods on behalf of the producers
5. They break bulk on behalf of producers to consumers
6. They finance producers by buying and paying cash

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Next: Wholesale Trade

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