Distribution management is the essence of providing place, time, form and possession utilities to consumers. Retailing takes care of a major part of this task. It is retailing that actually delivers these utilities to the consumers. It is, on the quality of retailing that the efficiency of this delivery depends.
How does Retailing differ from Wholesaling?
It is obvious that retailing differs from wholesaling. Actually, two main characteristics distinguish retailing from wholesaling. First, unlike wholesaling, retailing is aimed at the actual or ultimate consumer. Second, unlike wholesaling, retailing involves selling for personal consumption. A wholesaler does not sell to the ultimate consumers; or for the personal consumption of the buyer. Those who buy from a wholesaler are either retailers or institutional buyers; and neither buys for personal consumption; instead, they do so for their business — the retailers for reselling and the institutional buyers for the consumption of their institutions.
Margin and turnover: Two key parameters of retailing.
Success in retail operations is governed largely by two parameters: margin and turnover. To be successful, a retailing operation must be strung in at least one of these parameters. Different positions on the margin turnover grid correspond to different levels of success. How far a retail enterprise can reach in margin and turnover depends basically on the type of the business (product lines) and the style and size of the operations. Of course, as regards turnover, how far it can reach may additionally depend on the competence of the enterprise. Put in different words, whether a retail enterprise will be a low margin one, or a high margin one, or a low turnover one, or a high turnover one, depends in a basic sense on the nature of the products / items handled. At the same time, it is also a matter of choice / strategy of the enterprise.
In a given business, two retail enterprises may opt for two different margin levels. Interestingly, both can succeed here, provided the strategy and management style are appropriate. Retail enterprises select their profit target and choose a relevant margin-turnover position that would help achieve the profit target.
Using margin and turnover as the two parameters, Ronald Gist has provided an easy to follow conceptual framework of retail structure which can be used in understanding retail structure and in formulating retail strategy. Margin is defined as the percentage mark-up at which the inventory in the store is sold and turnover is defined as the number of times the average inventory is sold in a year.
The position of any retailing operation will fall in one or the other of the four parameters a low position on both margin and turn over; a high margin but low turnover position , low margin and high turnover and high margin high turnover.