Retail trade industry - Business in United States of America
Definition: Enterprises that purchase products wholesale from their manufacturers or distributors and then sell them to consumers for a profit
Significance: Retail trade plays a critical part in any economic system by linking producers and consumers. It also provides critical information on the value and price of goods.
In North America, Native American trade consisted of barter, since there was no money in circulation. Some tribes did use seashells or wampum as currency, but trade still resembled barter. Barter is inconvenient because of the difficulty of having items of the same value immediately ready for exchange whenever a product is needed. Still, barter survives even to the twenty-first century. The history of retail trade is one of increasing complexity alongside older forms of trade. The earliest North American colonists largely followed this pattern of barter, especially when trading with Native Americans. Still, because of their European origins, the colonists were aware of the usefulness of money as a medium for exchange and gradually introduced it into the New World.
Peddlers, whether traveling on foot, on horseback, or in wagons, were the next stage in the evolution of retail trade. Even in the most modern societies, some door-to-door sales continue to take place, as happens in the case of Girl Scout cookies, for example. Parallel with the development of peddlers was the institution of open-air markets and fairs in which goods can be exchanged through barter or the use of money. Such trade institutions survive into the modern world in the form of yard sales and flea markets.
Stores and Mail Order
Over time, the development of fixed retail sites became increasingly common, especially in towns and villages. In the smaller collections of human habitation, the most common form of fixed site retailing was the general store. As towns and villages evolved into cities, the fixed site general store developed into specialty retail stores. These specialty retail stores typically were divided between those that catered to women, such as grocery and clothing stores, and those that catered to men, such as lumber yards and heavy-equipment stores.
The general store did not disappear entirely, but it was gradually replaced by department stores in larger cities by the middle of the nineteenth century. Some of these reverted back to trade with both men and women as the size of the department stores increased dramatically. Earlier forms of retail trade did not disappear, but peddlers were often replaced by door-to-door salespeople for very specialized products.
By the end of the nineteenth century, catalog sales had developed in which the door-to-door salesperson was, in effect, replaced by the mail carrier. The consumer would receive catalogs through the mail, would order supplies by mail, and would pay the mail carrier when he or she received the goods. The mail carrier replaced the peddler as the retail trade agent.
The mail carrier also acted as a key advertiser, supplementing the advertisements on fixed signs and in the newspapers. The retail trade has always depended on advertisements in the form of handbills, newspaper advertising, and mailers. By the twentieth century, first radio, then television, and still later, computers and the Internet transformed the nature of advertising. The combination of modern retail outlets of all kinds and extensive advertisements led to what some call a consumer-oriented society. In this view, the nation’s economic activity depends on conspicuous consumption and planned obsolescence. From this perspective, the retail trade industry is an essential engine in the operation of the economy as a whole.
The Twentieth Century
Although some stores had always offered discounted merchandise, in the second half of the twentieth century, the urge for increased sales led to discount stores with a reputation for the lowest possible prices. The Kresge department store led the way with a chain of stores called Kmart in 1962. Target and Wal-Mart soon followed suit, with Wal-Mart eventually becoming the largest discount retail chain in the United States.
Although specialized retail outlets continued to exist, there was a return to an earlier general store concept but this time on a mammoth scale. Despite the breadth of products available in department stores during the mid-twentieth century, the 1980’s saw the dawn of the age of the supercenters. The consumer was invited to shop at a massive store essentially containing a grocery store, drugstore, clothing store, appliance store, hardware store, furniture store, electronics store, photography studio, and automotive service center under a single roof.
The supercenters were pioneered in 1988 by Wal-Mart, which announced the goal of having a Wal-Mart supercenter within thirty miles of any significant population concentration in the United States. In the case of small towns, the Wal-Mart supercenter often replaced an entire downtown business district. This led to widespread complaints by small merchants that they were driven out of business by Wal-Mart’s tremendous size and ability to purchase merchandise at prices far below what they could.
Retail Trade Sales by Kind of Business, 1995-2005, in Billions of Dollars
Source: Data from the Statistical Abstract of the United States, 2008 (Washington, D.C.: Department of Commerce, Economics and Statistics Administration, Bureau of the Census, Data User Services Division, 2008)
A franchise is defined as the right or license granted to a person or group of people to market another company’s goods or services in a particular territory. Implicit in this is the notion that the franchisee—the person receiving the franchise— follows the philosophy or mode of operation of the franchisor—the enterprise that has granted the franchise. The franchisor grants this right in return for a royalty fee and a percentage of the franchise’s gross monthly sales. The franchisor provides intangibles such as training, advertising, and basic planning as well as the product or the machinery used to perform services. The franchisor enters into a contract with the franchisee for a specific time, usually from five to twenty years.
The franchisor is willing to do this because this business model allows for direct access to investment capital without giving up the control that the franchisor would lose if it tried to raise capital by selling stock. In some cases, franchising allows a franchisor to expand operations across the country and even across continents, where the franchisor would have a difficult time setting up business. For example, within the United States, often liquor licenses for restaurants or hotels can be acquired only by local operators, such as a franchisee. Through use of carefully worded contracts, the franchisor can operate a business far from its original location without the necessity of providing day-to-day supervision of the operations.
The franchisee benefits from being able to start a new business without having to develop a business plan for a product or service. The franchisee also benefits from whatever national or regional advertising has been done to promote the trademarked product or service. The franchisee also benefits from the training and supplies provided by the franchisor.
There are risks involved for both parties, but carefully worded contracts can minimize these problems. The franchisor suffers the danger that its trademark will be damaged by the improper or incompetent actions of the franchisee. The franchisee faces the danger of losing money expended on the business that cannot be recovered if the franchise is withdrawn.
The first franchise in the United States was granted during the 1850’s by the sewing machine manufacturer, Isaac Merrit Singer. Also during this time, Western Union authorized others to use its telegraph system, while maintaining control. During the late nineteenth century, John Stith Pemberton began franchising a fountain drug, Coca-Cola. Believing that bottling his product had no future, he virtually gave away the bottling rights to Chattanooga, Tennessee, entrepreneurs, who made a fortune with their own bottling franchises.
Franchising for restaurants, motels, and fast-food enterprises began during the 1930’s with A&W Root Beer. Howard Johnson began developing restaurant and motel franchises around 1935. Franchising expanded rapidly after World War II. As American consumers acquired the ability to travel widely, they showed a preference for trademarked enterprises because the products and services offered were familiar and of predictable quality. The McDonald’s Corporation is one of the most successful fast-food enterprises.
Computerized Inventory Systems
In addition to the new supercenter marketing concept, computerized inventory systems became available. Many retail chains began offering loyalty cards (also called rewards, points, or club cards), which the customer could use at checkout to obtain discounts on the official retail price. The stores offered discounts in return for being able to gather statistics on the kinds of products and brands that consumers were most likely to purchase. This increased retail chains’ ability to determine what products to buy and in what quantities. This increased the stores’ profit and allowed them to offer more competitive prices.
The most successful computerized concept developed so far has been that of Wal-Mart. Its computerized inventory system is so sophisticated that every time a customer goes through the checkout line in any Wal-Mart store, the bar code of the computerized system provides a record of the precise item the customer purchased. When sufficient quantities of products have been sold across the entire system, new quantities can be purchased. Because the purchases are recorded on an individual store basis, Wal-Mart can calculate how much to purchase and ship to each of its individual locations. This enables Wal-Mart to avoid the loss of sales because products were not available when customers wanted them and also to avoid the danger of overstocking items. Given the massive buying power of the Wal-Mart chain, this new computerized system has made Wal-Mart one of the most efficient retail chains in the world, earning record profits.
Although many characteristics of the retail trade industry have changed over the last few centuries, it continues to be true that the retail trade industry forms a critical link between producers and consumers and also provides critical information on products and prices for the entire economic system.
Benson, John, and Gareth Shaw, eds. The Retailing Industry. 3 vols. London: Macmillan, 1999. One of the most comprehensive examinations of retailing available.
Crossick, Geoffrey, and Serge Jaumain. Cathedrals of Consumption. Brookfield, Vt.: Ashgate, 1999. The architecture as an aspect of the retail industry is considered in this monograph.
Davis, Dorothy. A History of Shopping. Toronto: Toronto University Press, 1996. A general overview of retailing as shopping.
Dow, Louis A., and Fred Hendon. Economics and Society. Englewood Cliffs, N.J.: Prentice Hall, 1991. Strongly influenced by the free-market economics of Adam Smith, these coauthors look at economics in a societal context.
Willis, James. Explorations in Microeconomics. 5th ed. Redding, Calif.: North West, 2002. This mainstream text examines construction from a microeconomic perspective explaining the impact of retailing in the individual firm.
Wrigley, Neil. Reading Retail: A Geographic Perspective on Retail and Consumption Spaces. New York: Arnold, 2002. A theoretical perspective on the important issue of geographic location on retailing.
Wrigley, Neil, and Michelle Lowe. Retailing, Consumption, and Capital: Towards the NEW Retail Geography. London: Harlow, 1996. Economic and geographic theories are paramount in this study of retailing.
See also: catalog shopping; Christmas marketing; Credit card buying; Great Atlantic and Pacific Tea Company; Home Shopping Network; Montgomery Ward; Promotional holidays; Sears, Roebuck and Company; thrift stores; Trading stamps; Warehouse and discount stores.