CH9: Internal trade

WHOLESALE TRADE
-​ Wholesale trade: buying and selling of goods and services in large quantities for the purpose of
resale or intermediate use

Wholesaler
-​ Wholesalers- important link between manufacturers and retailers
MANUFACTURER -> WHOLESALER -> RETAILER
-​ Enable the producers to:
●​ reach large number of buyers spread over a wide geographical area (through retailers)
●​ perform a variety of functions in the process of distribution of goods and services
-​ Generally take the title of the goods
-​ Bear the business risks by purchasing and selling the goods in their own name
-​ Purchase in bulk, sell in small lots to retailers/industrial users
-​ Undertake various activities such as:
●​ grading of products
●​ packing into smaller lots
●​ Storage
●​ Transportation
●​ promotion of goods
●​ collection of market information
●​ collection of small and scattered orders of retailers
●​ distribution of supplies to them.
-​ Relieve retailers of maintaining large stock of articles and extend credit facilities to them
-​ If no wholesalers, functions will have to be performed either by the manufacturers or the
retailers
​
SERVICE TO MANUFACTURERS
1.​ Facilitating large scale production: Wholesalers collect small orders from a number of retailers
and pass on the pool of such orders to the manufacturers and make purchases in bulk
quantities. This enables the producers to undertake production on a large scale and take
advantage of the economies of scale.

2.​ Bearing risk: The wholesale merchants deal in goods in their own name, take delivery of the
goods and keep the goods purchased in large lots in their warehouses. In the process, they bear
variety of risks such as the risk of fall in prices, theft, pilferage, spoilage, fire, etc. To that
extent, they relieve the manufacturers from bearing these risks.
3.​ Financial assistance: The wholesalers provide financial assistance to the manufacturers in the
sense that they generally make cash payment for the goods purchased by them. To that extent,
the manufacturers need not block their capital in the stocks. Sometimes they also advance
money to the producers for bulk orders placed by them.

4.​ Expert advice: As the wholesalers are in direct contact with the retailers, they are in a position
to advice the manufacturers about various aspects including customer’s tastes and
preferences, market conditions, competitive activities and the features preferred by the
buyers. They serve as an important source of market information on these and related aspects

5.​ Help in marketing function: The wholesalers take care of the distribution of goods to a number
of retailers who, in turn, sell these goods to a large number of customers spread over a large
geographical area. This relieves the manufacturers from many of the marketing activities and
enable them to concentrate on the production activity.

6.​ Facilitate production continuity: The wholesalers facilitate continuity of production activity
throughout the year by purchasing the goods as and when these are produced and storing
them till the time these are demanded by retailers or consumers in the market.

7.​ Storage: Wholesalers take delivery of goods when these are produced in factory and keep them
in their godowns/warehouses. This reduces the burden of manufacturers of providing for
storage facilities for the finished products. They thus provide time utility.

SERVICES TO RETAILER
1.​ Availability of goods: Retailers have to maintain adequate stock of varied commodities so that
they can offer variety to their customers. The wholesalers make the products of various
manufacturers readily available to the retailers. This relieves the retailers of the work of
collecting goods from several producers and keeping big inventory of the same.

2.​ Marketing support: The wholesalers perform various marketing functions and provide
support to the retailers. They undertake advertising and other sales promotional activities to
induce customers to purchase the goods. The retailers are benefitted as it helps them in
increasing the demand for various new products.
3.​ Grant of credit: The wholesalers generally extend credit facilities to their regular customers.
This enables the retailers to manage their business with relatively small amount of working
capital.
4.​ Specialised knowledge: The wholesalers specialise in one line of products and know the pulse
of the market. They pass on the benefit of their specialised knowledge to the retailers. They
inform the retailers about the new products, their uses, quality, prices, etc. They may also
advise them on the decor of the retail outlet, allocation of shelf space and demonstration of
certain products.

5.​ Risk sharing: The wholesalers purchase in bulk and sell in relatively small quantities to the
retailers. Being able to purchase merchandise in smaller quantities, retailers are in a position
to avoid the risk of storage, pilferage, obsolescence, reduction in prices and demand
fluctuations in respect of larger quantities of goods that they would have to purchase in case
the services of wholesalers are not available.

RETAIL TRADE
-​ Retailer: is a business enterprise that is engaged in the sale of goods and services directly to
the ultimate consumers.
-​ BUY goods in large quantities from the wholesalers
SELL in small quantities to the ultimate consumers
-​ Retails represents-> final stage in the distribution where goods are transferred from the hands
of the manufacturers or wholesalers to the final consumers or users.
-​ Retailing: branch of business which is devoted to the sale of goods and services to the ultimate
consumers for their personal and non-business use.
-​ Different ways of selling goods
●​ Personally
●​ On telephone
●​ Through vending machines.
-​ Products may be sold at different places
-​ in a store, at the customer’s house or any other place.
-​ As long as the goods are sold to ultimate consumers, case of retail selling.
-​ If the sales are made directly to the consumers, irrespective of ‘how or ‘where’, it will be
considered as retailing

Retailer
-​ Performs different functions in the distribution of goods and services:
●​ Purchase a variety of products from the wholesale distributors and others
●​ arrange for proper storage of goods
●​ sells the goods in small quantities
●​ bears business risks
 ●​ grades the products
●​ collects market information
●​ extends credit to the buyers
●​ promotes the sale of products through displays
●​ participation in various schemes

SERVICE TO MANUFACTURERS AND WHOLESALERS ​ ​ ​ ​ ​ ​

1.​ Help in distribution of goods: A retailer’s most important service to the wholesalers and
manufacturers is to provide help in the distribution of their products by making these
available to the final consumers, who may be scattered over a large geographic area. They thus
provide place utility

2.​ Personal selling: In the process of sale of most consumer goods, some amount of personal
selling effort is necessary. By undertaking personal selling efforts, the retailers relieve the
producers of this activity and greatly help them in the process of actualising the sale of the
product​
​ ​ ​ ​
3.​ Enabling large-scale operations: On account of retailer’s services, the manufacturers and
wholesalers are freed from the trouble of making individual sales to consumers in small
quantities. This enables them to operate on, at relatively large scale, and thereby fully
concentrate on their other activities​
​ ​ ​ ​
4.​ Collecting market information: As retailers remain in direct and constant touch with the
buyers, they serve as an important source of collecting market information about the tastes,
preferences and attitudes of customers. Such information is considered very useful in taking
important marketing decisions in an organisation.​​
​
5.​ Help in promotion: From time-to-time, manufacturers and distributors have to carry on
various promotional activities in order to increase the sale of their products. For example,
they have to advertise their products and offer short-term incentives in the form of coupons,
free gifts, sales contests, and so on. Retailers participate in these activities in various ways and,
thereby, help in promoting the sale of the products
​ ​ ​ ​ ​ ​ ​ ​
SERVICE TO CUSTOMERS​ ​ ​ ​
1.​ Regular availability of products: The most important service of a retailer to consumers is to
maintain regular availability of various products produced by different manufacturers. This
enables the buyers to buy products as and when needed.
2.​ New products information: By arranging for effective display of products and through their
personal selling efforts, retailers provide important information about the arrival, special
features, etc., of new products to the customers. This serves as an important factor in the
buying decision making process of the purchase of such goods.

3.​ Convenience in buying: Retailers generally buy goods in large quantities and sell these in
small quantities, according to the requirements of their customers. Also, they are normally
situated very near to the residential areas and remain open for long hours. This offers great
convenience to the customers in buying products of their requirements.

4.​ Wide selection: Retailers generally keep stock of a variety of products of different
manufacturers. This enables the consumers to make their choice out of a wide selection of
goods

5.​ After-sales services: Retailers provide important after-sales services in the form of home
delivery, supply of spare parts and attending to customers. This becomes an important factor
in the buyers’ decision for repeat purchase of the products

6.​ Provide credit facilities: The retailers sometimes provide credit facilities to their regular
buyers. This enables the latter to increase their level of consumption and, thereby, their
standard of living.

Fixed shop- large stores

DEPARTMENTAL STORE
-​ Departmental store: large establishment offering a wide variety of products, classified into
well-defined departments, aimed at satisfying practically every customer’s need under one
roof
-​ It has a number of departments, each one confining its activities to one kind of product. For
example, there may be separate departments for toiletries, medicines, furniture, groceries,
electronics, clothing and dress material within a store.
-​ Satisfy diverse market segments with a wide variety of goods and services.
-​ It is not uncommon for a department store in the United States of America to carry ‘needle to
an aeroplane’ or ‘all shopping under one roof.’ Everything from ‘a pin to an elephant’ is the
spirit behind a typical department store.
-​ In India real departmental stores have not yet come in a big way in the retailing business.
However, some stores on this line in India include ‘Akberally’ in Mumbai and ‘Spencers’ in
Chennai.
​ ​ ​ ​ ​ ​ ​ ​ ​
 Some of the important features of a departmental store are as follows:
1.​ Facilities: A modern departmental store may provide all facilities such as restaurant, travel
and information bureau, telephone booth, rest- rooms, etc. As such they try to provide
maximum service to higher class of customers for whom price is of secondary importance.
2.​ Central location: These stores are generally located at a central place in the heart of a city,
which caters to a large number of customers.
3.​ Formation: As the size of these stores is very large, they are generally formed as a joint stock
company managed by a board of directors. There is a managing director assisted by a general
manager and several department managers.
4.​ Functions: A departmental store combines both the functions of retailing as well as
warehousing. They purchase directly from manufacturers and operate separate warehouses.
That way they help in eliminating undesirable middlemen between the producers and the
customers.
5.​ Centralised purchasing: They have centralised purchasing arrangements. All the purchases
in a department store are made centrally by the purchase department of the store, whereas
sales are decentralised in different departments.

Advantages
1.​ Attract large number of customers: As these stores are usually located at central places, they
attract a large number of customers during the best part of the day
2.​ Convenience in buying: By offering large variety of goods under one roof, the departmental
stores provide great convenience to customers in buying almost all goods of their
requirements at one place. As a result, customers do not have to run from one place to another
to complete their shopping.
3.​ Attractive services: A departmental store aims at providing maximum services to the
customers. Some of the services offered by it include home delivery of goods, execution of
telephone orders, grant of credit facilities and provision for restrooms, telephone booths,
restaurants, saloons, etc
4.​ Economy of large-scale operations: As these stores are organised at a very large scale, the
benefits of large scale operations, particularly, in respect of purchase of goods are available to
them.
5.​ Promotion of sales: The departmental stores are in a position to spend considerable amount of
money on advertising and other promotional activities, which help in boosting their sales.
​ ​ ​ ​ ​ ​ ​ ​ ​
Disadvantages
1.​ Lack of personal attention: Because of the large-scale operations, it is very difficult to provide
adequate personal attention to the customers in these stores.
2.​ High operating cost: As these stores give more emphasis on providing services, their
operating costs tend to be on the higher side. These costs, in turn, make the prices of the
goods high. They are, therefore, not attractive to the lower income group of people.
3.​ High possibility of loss: As a result of high operating costs and large-scale operations, the
chances of incurring losses in a departmental store are high. For example, if there is any
change in the tastes of customers or latest fashions, it necessitates selling of such
out-of-fashion articles in clearance sale, to reduce the huge inventory of goods built up.
4.​ Inconvenient location: As a departmental store is generally situated at a central location, it is
not convenient for the purchase of goods that are needed at short notice. In spite of some of
these limitations the departmental stores have been popular in some of the western countries
of the world because of their benefits to a certain class of customers.

CHAIN STORES
-​ Chain stores: networks of retail shops that are owned and operated by manufacturers or
intermediaries
-​ Under this type of arrangement, a number of shops with similar appearance are established in
localities, spread over different parts of the country
-​ Normally deal in standardised and branded consumer products, which have rapid sales
turnover
-​ Run by the same organisation, identical merchandising strategies, identical products and
displays

Some of the important features of such shops may be described as follows:

1.​ Location: These shops are located in fairly populous localities, where sufficient number of
customers can be approached. The idea is to serve the customers at a point which is nearest to
their residence or work place, rather than attracting them to a central place.
2.​ Centralised at the head office: The Manufacturing/procurement of merchandise for all the
retail units is centralised at the head office, from where the goods are despatched to each of
these shops according to their requirements. This results in savings in the cost of operation of
these stores
3.​ Direct supervision of branch manager: Each retail shop is under the direct supervision of a
Branch Manager, who is held responsible for its day-to-day management. The Branch
Manager sends daily reports to the head office in respect of the sales, cash deposits, and the
require-ments of the stock.
4.​ Control: All The Branches Are Controlled By the head office, which is concerned with
formulating the policies and getting them implemented.
5.​ Cash sale: The prices of goods in such shops are fixed and all sales are made on cash basis.
The cash realised from the sales of merchandise is deposited daily into a local bank account on
behalf of the head office, and a report is sent to the head office in this regard.
6.​ Supervision: The Head Office Normally Appointed inspectors, who are concerned with
day-to-day supervision of the shops, in respect of quality of customer service provided,
adherence to the policies of the head office, and so on.​

Advantages
1.​ Economies of scale: As there is central procurement, the multiple-shop organisation enjoys
the economies of scale.
2.​ Elimination of middlemen: By selling directly to the consumers, the multiple-shop
organisation is able to eliminate unnecessary middlemen in the sale of goods and services.
3.​ No bad debts: Since all the sales in these shops are made on cash basis, there are no losses on
account of bad debts.
4.​ Transfer of goods: The goods not in demand in a particular locality may be transferred to
another locality where it is in demand. This reduces the chances of dead stock in these shops.
5.​ Diffusion of risk: The losses incurred by one shop may be covered by profits in other shops,
reducing the total risk of an organisation
6.​ Low cost: Because of centralised purchasing, elimination of middlemen, centralised promotion
of sales and increased sales, the multiple shops have lower cost of business.
7.​ Flexibility: Under this system, if a shop is not operating at a profit, the management may
decide to close it or shift it to some other place without really affecting the profitability of the
organisation as a whole.
​ ​ ​ ​ ​ ​
Limitations
1.​ Limited selection of goods: Some of the multiple shops deal only in limited range of products.
This is especially the problem with the chain stores which are owned and operated by
manufacturers, and as such mostly sell the products produced by the themselves. They do not
sell products of other manufacturers. In that way the consumers get only a limited choice of
goods. This, however is not the case with retailer owned chain stores which sell products of a
large number of manufacturers.
2.​ Lack of initiative: The personnel managing the multiple shops have to obey the instructions
received from the head office. This makes them habitual of looking up to the head office for
guidance on all matters, and takes away the initiative from them to use their creative skills to
satisfy the customers
3.​ Lack of personal touch: Lack of initiative in the employees sometimes leads to indifference
and lack of personal touch in them
4.​ Difficult to change demand: If the demand for the merchandise handled by multiple shops
change rapidly, the management may have to sustain huge losses because of large stocks lying
unsold at the central depot. ​ ​ ​ ​
​ ​ ​ ​ ​ ​
Difference between Departmental stores and Multiple shops
1.​ Location: A departmental store is located at a central place, where a large number of
customers can be attracted to it. However, the multiple stores are located at a number of
places for approaching a large number of customers. Thus, central location is not necessary
for a multiple shop.
2.​ Range of products: Departmental stores aim at satisfying all the needs of customers under one
roof. As such, they have to carry a variety of products of different types. However, the multiple
stores generally aim to satisfy the requirements of customers relating to a specified range of
their products only.
3.​ Services offered: The departmental stores lay great emphasis on providing maximum service
to their customers. Some of the services, provided by them include alteration of garments,
restaurant and so on. As against this, the multiple shops provide very limited service confined
to guarantees and repairs if the sold out goods turn out to be defective.
4.​ Pricing: The multiple shop chains sell goods at fixed prices and maintain uniform pricing
policies for all the shops. The departmental stores, however, do not have uniform pricing
policy for all the departments; rather they have to occasionally offer discounts on certain
products and varieties to clear their stock.
5.​ Class of customers: The depart- mental stores cater to the needs of relatively high income
group of customers who care more for the services provided rather than the prices of the
product. The multiple shops, on the other hand, cater to different types of customers,
including those belonging to the lower income groups, who are interested in buying quality
goods at reasonable prices.
6.​ Credit facilities: All sales in the multiple shops are made strictly on cash basis. In contrast, the
departmental stores may provide credit facilities to some of their regular customers.
7.​ Flexibility: As the departmental stores deal in a wide variety of products, they have certain
flexibility in respect of the line of goods marketed. However, there is not much scope for
flexibility in the chain stores, which deal only in limited line of products.

GOODS AND SERVICES TAX

-​ The government of India, following the credo of ‘One Nation and One Tax’, and wanting a
unified market in order to ensure the smooth flow of goods across the country implements the
goods and service Tax (GST) from July 1,2017.
-​ The move also aims to make life easier for manufactures, producers, investors and consumers.​
This system is regarded as the most revolutionising tax reform in the Indian taxation history.​
 Effective taxation ensures that public funds are effectively employed in fulfilling social
objectives for sustainable development.
-​ GST is a destination – based single tax on the supply of goods and services from the
manufacturer to the consumer, and has replace multiple indirect taxes levied by the central
and the state governments.
-​ GST is expected to improve the ease of doing business in tax compliance, reduce the tax
burden by eliminating tax – on tax, improve tax administration, mitigate tax evasion, broaden
the organised segment of the economy and boost tax revenues.
-​ The GST has replaced 17 indirect taxes and 23 cesses of the centre and the states.​
GST comprises Central GST (CGST) and the State GST(SGST), subsuming levies previously
charged by the central and the state governments respectively. GST (CGST+SGST) is charged at
each stage of vale addition and the supplier off – sets the levy on inputs in the previous stages
of value chain through the tax credit mechanism.
HOW WILL GST BENEFIT AND EMPOWER CITIZENS
-​ Reduction in overall tax burden
-​ No hidden taxes
-​ Development of a harmonised national market for goods and services Higher
disposable income in hand, education and essential needs Customers to have wider
choice
-​ Increase economic activity
-​ More employment opportunities
Key Features of GST:
1.​ The territorial spread of GST is the whole country.
2.​ GST is applicable on the ‘supply’ of goods or services as against the present concept of tax on
the manufacture or sale of goods or on the provision of services
3.​ It is based on the principle of destination-based consumption tax against the present principle
of origin-based taxation.
4.​ Import of goods and services is treated as inter-State supplies and would be subject to IGST in
addition to the applicable customs duties.
5.​ CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and the States
under the aegis of the GST Council
6.​ There Are Four Tax Slabs Namely 5 Percent, 12 percent,18 percent and 28 per cent for all goods
or services
7.​ Exports and supplies to SEZ are zero-rated.
8.​ There are various modes of payment of tax available to the taxpayer, including Internet
banking, debit/credit card and National Electronic Funds Transfer (NEFT)/Real Time Gross
Settlement (RTGS).