SDM/U3 Topic 3 Wholesale and Retail Structure
Wholesaling is the selling of merchandise to anyone—either a person or an organization—other than the end consumer of that merchandise. Wholesalers, who are sometimes referred to as middle agents, represent one of the links in the chain along which most goods pass on their way to the marketplace. As intermediaries between producers and consumers of goods, wholesalers facilitate the transport, preparation of quantity, storage, and sale of articles ultimately destined for customers. Wholesalers are extremely important in a variety of industries, including such diverse product areas as automobiles, grocery products, plumbing supplies, electrical supplies, and raw farm produce. They are particularly vital to the operations of small retailers. Whereas large retail companies buy directly from the manufacturer and often have their own intermediate warehousing operations, the limited resources of independent retail outlets makes alliances with wholesalers a practical necessity.
Wholesalers are successful only if they are able to serve the needs of their customers, who may be retailers or other wholesalers. Some of the marketing functions provided by wholesalers to their buyers include:
- Provide producer’s goods in an appropriate quantity for resale by buyers.
- Provide wider geographical access and diversity in obtaining goods.
- Ensure and maintain a quality dimension with the goods that are being obtained and resold.
- Provide cost-effectiveness by reducing the number of producer contacts needed.
- Provide ready access to a supply of goods.
- Assemble and arrange goods of a compatible nature from a number of producers for resale.
- Minimize buyer transportation costs by buying goods in larger quantities and distributing them in smaller amounts for resale.
- Work with producers to understand and appreciate consumerism in their production process.
TYPES OF WHOLESALERS
Although there are a number of ways to classify wholesalers, the categories used by the Census of Wholesale Trade are employed most often. The three types of wholesalers are 1) merchant wholesalers; 2) agents, brokers, and commission merchants; and 3) manufacturers’ sales branches and offices.
(A) MERCHANT WHOLESALERS
Merchant wholesalers are firms engaged primarily in buying, taking title to, storing, and physically handling products in relatively large quantities and reselling the products in smaller quantities to retailers; industrial, commercial, or institutional concerns; and other wholesalers. These types of wholesaling agents are known by several different names, including wholesaler, jobber, distributor, industrial distributor, supply house, assembler, importer, and exporter, depending on their services.
According to E. Jerome McCarthy and William D. Perreault Jr., authors of Basic Marketing, merchant wholesalers account for the large majority of whole-saling establishments and wholesale sales. “As you might guess based on the large number of merchant wholesalers, they often specialize by certain types of products or customers,” added McCarthy and Perreault. “They also tend to service relatively small geographic areas…. Merchant wholesalers also differin how many of the wholesaling functions they provide. There are two basic kinds of merchant wholesalers: 1) service (sometimes called full-service wholesalers) and 2) limited-function or limited-service wholesalers.” The latter category of wholesalers, which itself is divided up into little niches, offer varying levels of service in such areas as product delivery, credit bestowal, inventory storage, provision of market or advisory information, and sales.
(B) AGENTS, BROKERS, AND COMMISSION MERCHANTS
Agents, brokers, and commission merchants are also independent middlemen who do not (for the most part) take title to the goods in which they deal, but instead are actively involved in negotiating and other functions of buying and selling while acting on behalf of their clients (commission merchants typically are limited to agricultural goods). They are usually compensated in the form of commissions on sales or purchases. Agents, brokers, and commission merchants usually represent the non-competing products of a number of manufacturers to several retailers. This category of wholesaler is particularly popular with producers with limited capital who can not afford to maintain their own sales forces.
(C) MANUFACTURERS’ SALES BRANCHES AND OF FICES
Manufacturers’ sales branches and offices are owned and operated by manufacturers but are physically separated from manufacturing plants. They are used primarily for the purpose of distributing the manufacturers’ own products at the wholesale level. Some have warehousing facilities where inventories are maintained, while others are merely sales offices. Some of them also wholesale allied and supplementary products purchased from other manufacturers.
Category # 1. Independent, Single Store Establishments:
These are generally located in localities where population is higher. They can be a specialized apparel store to MBO or a grocery store. Owned by a family or individual with operations limited lo the area where store is located with direct personal relationship with customers.
The essence is that they have better understanding of their customers and supported by long standing patronage as they can revert to their needs within short span of time.
Unlike others they pay less attention to Store Design, Merchandise Mix, Employee Trainings, Book Keeping etc. This category of course requires very less capital to start, thus are major drivers to entrepreneurship in the retail category.
They also have very low credit rating in the market or almost nil past records to prove their goodwill or financial health; thus working with them or engaging with them, as supplier or tenant would require other party to be careful and safeguard all their interest.
Category # 2. Corporate Retail Chains:
As the name suggests, these well-known brands may specialize in a form of retailing (like super market, hypermarket, apparel store) with multiple stores across the state, country or even in the world. They have centralized decision-making body that may take decision for all its stores and then executed by respective city heads or unit heads.
The number of stores may vary from 10 to over 300 (such as Safeway, Wal-Mart, Target). They can be part of large corporation also like Target Corporation owns Target, Dayton’s and Hudson’s. Thus they may have multiple stores for multiple brands and multiple categories.
These stores employ large number of people and also sometimes become bureaucratic due to complex and multi-level decision-making process but sell product at lower price due to economies of scales attained through wide distribution channel and mass buying of products. They have same merchandise mix and merchandise across all stores.
In India, Shopper’s Stop, Big Bazar, Pyramid, Shubiksha, Music World, Planet Sports, etc., are examples of this kind of stores.
Category # 3. Franchise Stores:
Franchising is an agreement between a franchiser and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchiser. These stores can be restaurants, fast food outlets, apparel outlets, sports goods outlets, hypermarkets etc.
In this kind of an arrangement generally franchiser charges franchisee a lump sum fees towards usage of brand names, retailing expertise plus a royalty and franchisee has to bear all operation cost along with above and has to earn profit.
Though in recent times franchiser also underwrites the losses if it occurs to avoid high attrition and motivate franchisee to invest as these kinds of arrangement require high investment. Franchisers support franchisee with merchandise planning, store management, training, manpower sourcing, IT support, interiors and advertising at national and regional level.
This format fuels growth faster as franchiser does not need to block huge capital, employ more people and hold huge stock. This model has helped people with adequate capital but without any technical knowledge to enter into retail trade. In India, UCB, Reebok, Adidas, Lee are examples for this kind of retailing.