READING MATERIAL OF INTERNAL TRADE

What is Trade?
It refers to buying and selling of goods and services with the objective of earning profit.
Trade can be classified as Internal Trade and External Trade. Trade which takes place
within a country is called Internal Trade. Trade between two or more countries is
called External trade.
What is Internal Trade?
Buying and selling of goods and services within the boundaries of a nation are referred
to as Internal Trade. The products purchased from a neighbourhood shop in a locality
or a central market or a departmental store or a mall are examples of Internal trade.
Internal trade can be classified as Wholesale trade and Retail trade.
What is Wholesale Trade?
It refers to buying and selling of goods and services in large quantities for the purpose
of resale or intermediate use. Wholesaling is concerned with the activities of those
persons which sell to retailers and other merchants but who don’t sell in significant
amount to ultimate consumers.
What are the different types of services offered by Wholesalers?
1) Services to Manufacturers:-
a) The wholesalers collect small orders from number of retailers and pass them on to
the manufacturers and make purchase in bulk quantities which enables the
producers to undertake production on a large scale.
b) The wholesalers deal in goods in their own name, take the delivery of the goods and
keep the goods purchased in large lots in their warehouses, thereby, bear lots of
risks.
c) The wholesalers provide financial assistance to the manufacturers by making cash
payment for the goods purchased by them. In addition to this, at times, they also
advance money to the producers for bulk orders placed by them.
d) The wholesalers advice the manufacturers about various aspects including
customers’ tastes and preferences, market conditions, etc.
e) The wholesalers take care of the distribution of goods to a number of retailers. This
relieves the manufacturers of many of the marketing activities and enable them to
concentrate on the production activity.
f) The wholesalers facilitate continuity of production activity throughout the year by
purchasing the goods as and when these are produced.

Services to Retailers:-
a) The wholesalers make the products of various manufacturers readily available to the
retailers.
b) The wholesalers provide various marketing functions and provide support to the
retailers. They undertake advertisements and other sales promotional activities to
induce customers to purchase goods.
c) The wholesalers extend credit facilities to their regular customers. This enables the
retailers to manage their business with relatively small amount of working capital.
d) The wholesalers specialize in one line of products and pass on the benefit of their
specialized knowledge to the retailers.
e) The wholesalers purchase in bulk and sell in relatively small quantities to the retailers
which enable the retailers to avoid the risk of storage, obsolescence and reduction in
prices.

What is Retail Trade?

It is a branch of business which is devoted to the sale of goods and services to the
ultimate consumers for their personal use. A retailer performs different functions in
the distribution of goods and services.

What are the different types of Services offered by Retailers?

1) Services to Manufacturers and Wholesalers:-
a) 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.
b) The Retailers undertake personal selling efforts and relieve the producers of this
activity and help them in the process of actualizing the sale of the products.
c) On account of retailer’s services, the manufacturers and wholesalers are freed from
the botheration of making individual sales to consumers in small quantities.
d) The retailers remain in direct touch with the buyers and serve as an important
source of collecting market information about the tastes and preferences of
customers.
e) Retailers participate in the promotional activities along with the manufacturers and
distributors helping them in promoting the sale of the products.

2) Services to Consumers:-
a) The retailers maintain regular availability of various products produced by different
manufacturers.
b) The retailers provide important information about the arrival, special features, etc.
of new products to the consumers.
c) Retailers are situated very near to the residential areas and remain open for long
hours, thereby, offer great convenience to the customers to make their choice out of
a wide selection of goods.
d) Retailers keep a stock of a variety of products of different manufacturers which
enables the consumers to make their choice out of a wide selection of goods.
e) Retailers provide important after sales services to the consumers.
f) Retailers provide credit facilities to the regular consumers.
What are Departmental Stores?
A Departmental Store is a large establishment offering a wide variety of products,
classified into well defined departments, aimed at satisfying practically every
customer’s need under one roof.
Features of Departmental Stores:-
1) A departmental store may provide all facilities such as restaurant, travel and
information bureau, telephone booths, rest rooms, etc. and try to provide maximum
service to higher class of customers.
2) These stores are located at a central place which caters to a large number of
customers.
3) As the size of these stores is very large, they are generally formed as a joint stock
company managed by a board of directors.
4) A departmental store combines both the functions of retailing as well as
warehousing. They purchase directly from manufacturers and operate separate
warehouses.
5) They have centralized purchasing arrangements. All the purchases are made
centrally by the purchase department of the store.

Advantages of Departmental Stores:

1) They attract a large number of customers as they are located at central places.
2) They provide convenience in buying as they offer a large variety of goods under one
roof.
3) They aim at providing maximum services to the customers.
4) They enjoy benefits of large scale production in terms of low purchase cost.
5) They are able to spend a considerable amount on the promotion of products thereby
increasing their sales.
Limitations of Departmental Stores:
1) Due to large scale operations, it becomes difficult to give personal attention to each
and every customer.
2) The operating cost of departmental stores is very high.
3) Due to the high operating cost and large scale operations, the chances of losses are
also very high.
4) As the departmental stores are located at a central place, it is very difficult to
purchase the goods at a very short notice.

What are Chain Stores?

Chain stores are networks of retail shops that are owned and operated by
Manufacturers or Intermediaries. A number of shops with similar appearance are
established in localities spread over different parts of the country. These different
types of shops deal in standardized and branded consumer products which have rapid
sales turnover.
Features of Chain Stores:-
1) These shops are located in populous localities.
2) The manufacturing or the purchase of goods for all the retail units is centralized at
the head office.
3) Each retail shop is under the direct supervision of a Branch manager.
4) All the branches are controlled by the head office.
5) The prices in the retail shops are fixed and the sales are made on cash basis.
6) Inspectors are appointed by the Head office for the day to day supervision of the
shops.
Advantages of Chain Stores:
1) The Chain stores enjoy benefits of Economies of Scale as the purchases are
centralized.
2) The Chain stores are able to eliminate the middlemen in the sale of goods and
services.
3) All the sales are made on cash basis, so there are no bad debts.
4) The goods can be transferred from one shop to another depending upon the change
in demand thereby reducing the chances of dead stock.
5) The losses incurred by one shop may be covered by profits in other shops.
6) The Chain stores enjoy low cost due to the elimination of middlemen and centralized
promotion of sales.
Limitations of Chain stores:
1) The Chain stores deal in limited range of products.
2) The personnel working in Chain stores lack in taking initiative as they are directed by
the Head office.
3) Due to the lack of initiative, the personnel lack in personal touch towards the
customers.
4) It is very difficult for the chain stores to cope up with sudden changes in demand.

How are the Departmental Stores differ from the Chain Stores?
Basis Departmental Stores Chain Stores
Location They are centrally located They are located in the
localities.
Range of products They deal in large variety of They deal in limited range of
products products.
Services offered They provide maximum They provide limited services
services to their customers. to their customers.
Pricing They sell goods at fixed prices They do not have uniform
pricing policy
Class of customers They cater to the needs of They cater to the needs of all
high income groups. classes of customers.
Credit facilities They provide credit facilities They do not provide credit
to their customers facilities to their customers.
Flexibility They have certain flexibility in They do not have any
terms of the line of products flexibility