The Economics of Retailing and Distribution

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The Economics of Retailing and Distribution Powered By Docstoc
					The Economics of Retailing and
 “The provision of goods and services to consumers together
   or jointly with a set of distribution services….It identifies
      distribution costs, which are transaction costs, and
    distribution services into which these costs map as key
       determinants of the functioning of retail system.”
•   Retail economics applies to both:
•   Whole sale Sector
•   Retail sector
•   But we would focus on Retail sector
     Defining and understanding the
            distribution sector
• Difficult Task for 3 reasons
• A. Encompasses any mechanism for making available
  goods and services to consumers. These include
  Department Store, the Supermarket, and auction
  companies on the internet, as well as those of travel
  agent, the telephone company and the local branch of
  a bank.
• First three: distribute usually outputs of
  manufacturing, agriculture
• The last three: outputs of service sector
• Then there are a host of temporary/special stalls
  installed on festivals etc
    Defining and understanding the
           distribution sector

• Income from service sector: Inverted-U shaped,
  rather than rising pattern.
• B) Since retailing provides link between
  consumers and producers/wholesalers, it is going
  to be affected by the characteristics of both the
  consumers and the producers or wholesalers.
    For example, long term demographic and
  technological changes that affect consumers and
  producers will have an indirect impact on
   Measuring the outputs of service

• 1.When refrigeration is/is not available to
  households at low cost: It would impact retailers
• 2. When society is increasingly populated by
  households with two income earners: extended
  working hours, or some special services would
  have significance.
• When societies began aging, it also impacts
  retailers indirectly.
    Measuring the outputs of service
• C) Since distribution is an economic activity, it will
  be directly affected by all factors that affect
  economic activity. For example: technological
  changes like optical scanners, rapid spread of
  internet trading of retail and wholesale.
• Regulatory environment will also impact directly
• Understanding these impacts is not an easy task

• Understanding the distribution is therefore a
  challenge as there are a host of interpretations.
 Importance of distribution system
• 1. Economic size and resources devoted:
• i) contribution to GDP: USA 1996: 16.5%
• Anderson and Betancourt: 74 country study
  1950-1983 finds the average contribution to GDP
  at 13.5%.
• India: Contribution to GDP 13%, 12 million
  players, fragmented, organized accounts for 2.2%.
• Fragmented and unorganized leads to
  exploitation of both consumers and producers.
 Distribution sectors contribution is an
• The contribution of retail is an underestimate because:
• i) Many retailing activities attributed to sectors other than retail,
  especially in respect of retail services. Examples: eating and
  drinking services difficult to distinguish between production and
  distribution activities.
• ii) what part of banking activity’s contribution to GDP is due to retail
• iii)What part of contribution of communication or transportation to
  GDP is due to the retailing of these services ?
• iv) Dramatic changes in economy like selling a car through internet
  where the buyer gets all types of services( information) delivered
  previously by a dealer. While dealers services come under retail,
  internet services are clubbed under IT.
    Main growth features/trends
• Despite these underestimations distribution
  sector is important enough to deserve attention:
  It is an engine of growth.
• A) its contribution to employment in USA and
  elsewhere is increasing while it is declining for
• B) Productivity per-man hour rising considerably
  in mfg but not in distribution sector
• The above two trends are more pronounced for
  the retail trade than for the wholesale trade.
Retail sector’s share in distribution
 The retail trade’s share of employment in 1987 was 22 per
   cent, compared to 6.8 per cent in wholesale and 21.4 per
   cent in manufacturing.
In terms of working hours: in 1987 share of hours worked in
   retailing equals 19 per cent, compared to 7.2 per cent in
   wholesale and 23.4 per cent in manufacturing.
The difference between employment and hours is due to the
   greater use of part-time workers

• Hence, the economic importance of the retail sector
  measured in terms of the number of persons who earn
  their living in this sector is considerably larger than in terms
  of its contribution to output.
            Retail vs wholesale
• Hourly earnings of retail workers are
  substantially lower than those in wholesale
or manufacturing.
• Therefore the nature of work in the retail
  trade raises issues relevant for current social
  policy, since the availability of pensions and
  health benefits for part-time workers is less
  than for full-time ones.
  Efficiency of Distribution sector and
            trade imbalances
• Structural Impediments Initiative or SII
• Imbalances in trade between the US and
  Japan or other countries arises on account of
  differences in the efficiency of distribution
  sectors across regions
• Structural Impediments Initiative or SII has
  therefore as a policy issue. Indeed, a new
  acronym has been added to our vocabulary,
  Efficiency of Distribution sector and
            trade imbalances
• While the theoretical basis for attributing this
  imbalance to an inefficient distribution system
  is ambiguous,
• There is a positive empirical association
  between the level of trade and the level of
  services available to the distribution sector in
  terms of communication and transportation
            Importance of ….
• Distribution sector is important for the
  understanding of the macroeconomic
• Tradable goods must be combined with
  distribution services before consumption
• Once this is done it becomes easier to
  understand the behavior of real exchange
 Understanding distribution and other
     systems like manufacturing
• Retailing is a local or at best regional activity
• Retailing firms are intrinsically multiproduct
  offering a variety of explicit goods/services
  and implicit distribution services.
• The provision of distribution services plays a
  fundamental role in retailing e.g. variations in
  these services are the main cause generating
  different types/kinds of retailing
 Understanding distribution and other
     systems like manufacturing
• Price comparisons or analyses of competition
  across different retail establishments ignoring
  these features (distribution services) are
• Intertype competition is more important in
  retailing than in other industries

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