A retailer’s business is to buy items in large quantities to take advantage of lower costs and then sell the items in smaller quantities with a profit markup. Retailers act as middlemen between the manufacturer/wholesaler and the customer who buys the goods. The truth is, being a large-scale retailer (such as a supermarket, superstore or hypermarket) has both advantages and disadvantages.
PROS:
For retailers
1. Buying in bulk direct from the manufacturer gives large retailers better discounts, therefore a lower cost of goods.
2. It employs specialist buyers and other specialised staff, which is an indication that goods of better quality will be purchased at reasonable price
3. They can use an exclusive brand or their own factory. Some large retailers can have goods manufactured according to their own special requirements.
4. Since they buy in bulk, they can save on transport by having their own fleet of transport vehicle.
5. Most large retailers use self-service methods, therefore, they need smaller sales staff to keep an eye on the goods and assist customers whenever needed. The staff required are only those who are packing the goods, filling the shelves and operating the “check out” points.
6. There‘s a quick turnover. Since the sales volume is so large, they can afford to make a small profit on each sale, thereby attracting customers with a lower price.
7. They can save on operation costs per unit of goods sold. They can save on floor space since the turnover is very large, as well as enjoy economies in administrations since the number of staff employed won’t necessarily increase with the increase in turnover.
For customers
1. Customers are assured they’ll get quality goods at competitive prices. Sometimes, the price is lower when large retailers give “special offers” to attract customers.
2. They can do one-stop shopping and find it very convenient. Self-service in large stores makes goods easy to collect, so they can go round on their own, prices are clearly marked and goods are packed in very convenient packages, and the facilities offered enable them to shop in comfort.
CONS:
1. A larger amount of capital is needed, as they stock a great variety of goods bought in bulk direct from the manufacturers
2. A personal touch is lost since large retailers are using self-service methods.
3. Large retailers only stock standard goods, which are in regular demand and which can be sold quickly. This can be bad because customers with an eye for individuality will look to small retailers who can cater to their individual taste.
4. There are administrative difficulties. As the number and size of branches increase, control from the headquarters becomes quite difficult and expensive.
5. Since large retailers have large staff, they also have high wage bills. Even if the wage bills can be kept down through self-service, it involves losses through theft, which creates the need to install devices and employ store detectives.
6. There‘s a greater risk of loss. The overheads (rents, advertising, wages, maintenance cost) are very high, so if turnover doesn’t come up to expectations, profit will fall even faster. Also, warehousing of large stocks of goods means that retailers bear the risk of loss, should the demand for goods fall.