CH - 09: INTERNAL TRADE

(MIND MAP)

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LEARNING OBJECTIVES:
 Meaning & types of internal trade.
 Appreciate services of wholesalers & retailers.
 Types of retail trade.
 Concept of departmental store, chain store & mail order business.
 Concept of GST.

Internal Trade:
Internal trade refers to the buying and selling of goods and services within a country’s border. In this the
buying and selling occur in the home country, with payments made or received in the home country and
only a few formalities for traders to complete.
Internal trade can be classified into two broad categories:

Internal trade

Wholesale trade Retail trade

1. Wholesale trade &

2. Retail trade.
Wholesale Trade:
It refers to the trade in which goods are sold in large quantities. The person who carries on wholesale
trade is known as wholesaler. A wholesaler provides many valuable services to the manufacturer as
well as the retailer.

Services of Wholesalers:
They provide both time and place utility by making the products available in a location where they
are needed and at a time when they are needed for consumption or use.

Services of wholesalers

Services to Manufacturers Services to Retailers

Service to manufacturers:
(a) Facilitating large scale production:
Small orders from a variety of merchants are collected by wholesalers, who then transmit the pool of
orders on to manufacturers, who make bulk purchases.

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(b) Bearing risk:
The wholesale merchants deal in good in their own name take delivery of the goods and keep the
goods purchased in large lots in their warehouses. They bear a variety of risks such as the risk of fall
in prices, theft, pilferage, spoilage, fire etc.
(c) Financial assistance:
Cash payment is made generally; hence the manufacturers need not block their capital. Sometimes they
also advance money to the procedure for bulk orders placed by them.
(d) Expert Advice:
As the wholesalers are in direct contact with the retailers, they are in a position to advise the
manufacturers about various aspects including customers taste and preferences, market condition,
competitive activities and the features referred by the buyer.
(e) Help in marketing function:
Release the manufactures from many of the marketing activities and enable them to concentrate on
the production activity. A large number of customers get their goods from retailers who in return have
actually bought the goods from the wholesaler.
(f) Facilitate production continuity:
Facilitate production continuity through purchasing the goods as and when these are produced and
storing them till the time these are demanded by retailers or consumers.
(g) Storage:
When goods are produced in factories, wholesalers declare delivery and store them in their godowns /
warehouses. They thus provide time utility.
Service to Retailers:-
(a) Availability of goods:
So as to provide a diverse assortment of goods to its customers, the wholesalers provide the retailers
with varied products and services. Wholesalers hold the inventory of goods as well as handle the
work of collecting goods from several producers thus relieving the retailers of the same.
(b) Marketing support:
Wholesalers are responsible for a variety of marketing duties as well as providing support to retailers.
The retailers are benefited due to this as it helps them in increasing the demand for various new
products.
(c) Grant of credit:
The wholesalers usually provide credit to their frequent customers. As a result, the retailer can run
their firm with a modest quantity of working cash.
(d) Specialized knowledge:
Wholesalers specialize on a single product line and have a good understanding of the market, which is
further passed to the retailers.
(e) Risk sharing:
Retailers can avoid the risk of pilferage, stockpiling, obsolescence, and demand fluctuations by
purchasing small merchandisable quantities.

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2. Retail Trade:
Retail trade refers to sale of goods in small lots to the final consumers. A retailer buys goods from a
wholesaler and sells them to the consumer.
Services of Retailers:
Retailers act as a vital link in the distribution of goods and services between producers and
ultimate customers. They give the following services:
Services of Retailers

Services to Manufacturer and Wholesalers Services to Consumers

Services to Manufacturer and Wholesalers:

(a) Help in distribution of goods:
Provide help in the distribution of manufacturer's product by making goods available to the final
consumer who may be scattered over a large geographic area. They thus provide place utility.
(b) Personal selling:
Personal selling by retailers relieves the producer of this activity and considerably assists them in
the process of actualizing product sales.
(c) Enabling large scale operations:
Enable them to operate at a relatively large-scale level and thereby fully concentrate on their
other activities.
(d) Collecting market information:
Retailers serve as an important source of collecting market information about the tastes,
preferences and attitudes of customers which is useful in taking important marketing decisions.
(e) Help in promotion:
Manufacturers and distributors have to conduct various promotional activities in order to increase
the sale of their product. Retailers participate in these activities and promotes sales of product.
Services to Consumers:
(a) Regular availability of products:
There is a continuous and regular availability of various products produced bydifferent manufacturers
which allows buyers to purchase things as and when they are needed.
(b) New Products information:
Because of the shelf space, and display retail stores have, the retailers provide new product
information, features, etc to the customers, thus directing their buying behavior.
(c) Convenience in buying:
The customers can buy goods in small quantities anywhere at any time, as the retail stores are
available in every residential area thus adding to customer’s convenience.
(d) Wide selection:
The retailers maintain stock of a variety of products of different manufacturers, thus enabling the
consumer to make their choice out of a wide selection of goods.

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(e) After Sales services:
Services such as home delivery, delivery of spare parts etc is also a merit of retail stores.
(f) Provide credit facilities:
Provide credit facilities to their regular customers, thus leading to high future sale prospects from
the same customers.

Types of Retailers

Itinerant Retailers Fixed Shop Retailers

Small - scale Fixed Retail Shop Large - scale Fixed Retail Shop

A. Itinerant Retailers:
They are the retailers that continue to move their wares from street to street or from location to location
in search of buyers.
Types of Itinerant:
1. Hawkers and Peddlers: Hawkers and Peddlers move from street to street in search of customers.
The main features of hawkers and peddlers are:
(a) They sell a variety of goods such as fruits, vegetables, toys etc.
(b) They deal with non-branded and local items.
(c) They supply the goods at the door step of the customer.
2. Periodic Market Trader: These traders sell their goods on fixed days in different market places.
Their weekly market is fixed. The main features of periodic market traders are:
(a) They sell their goods in the weekly market.
(b) They deal in low price and low quality goods.
(c) These traders also set up shops on the occasion of Diwali, Christmas, etc.

3. Street Traders: These retailers display their articles on busy street corners, pavements, bus stands
etc. The main features of street traders are:
(a) They generally operate near public places such as railway stations.
(b) They deal in a variety of goods such as towels, things of daily use mirrors etc.

4. Cheap Jacks: They display their goods in hired shops or intents for a temporary period in different
localities. The main features of cheap jacks are:
(a) They hire small shops.
(b) They shift from locality depending upon the prospectus of business.
(c) They deal in low price, household articles.

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B. Fixed Shop Retailer: The retailers having a fixed place of sale are known as fixed shop retailers.
Fixed shop retailers can be further classified into two categories:
1. Small scale Fixed Retail Shops
2. Large scale Fixed Retail Shops.
1. Small Scale Fixed Retailer:
(i) General Stores: General stores are small shops located in residential areas.
The main features of general stores are:
(a) They have a large variety in each line of product.
(b) They provide free home delivery, credit facility.
(ii) Specialty Stores: These stores deal in a particular type of product under one product line only.
The main features of specialty stores are:
(a) These stores are specialized in one product only.
(b) They keep all the brands of that product.
(iii) Street Shops: These shops are situated at street crossings, They are also known as street stalls
The main features of street shops are:
(a) These shops have a limited space.
(b) These retailers display their goods on tables, stands etc.
(iv) Second-hand Goods Shops: These shops deal with second-hand goods or used articles such as
books. The main features of second- hand good shop.
(a) These shops sell used goods.
(b) The goods are generally priced low because these are used goods.
(v) Seconds Shops: There are the shops to sell goods which are not produced according to the
required specification. The main features of second-hand goods shop.
(a) These shops deal in the products which have some manufacturing defect.
(b) Goods are sold at a heavily discounted price.
2. Large-Scale Fixed Retail Shop: Large scale retailers deal in a large stock of goods and purchase
goods in bulk. Features of large scale retailers are:
(i) Departmental Stores. (ii) Chain Stores or Multiple Shops.
(iii) Mail Order Retailing. (iv) Automatic Vending Machines.

(i) Departmental Stores:

A departmental store is a huge store that sells a wide range of products divided into distinct department-
ts, with the goal of meeting almost every customer's demand under one roof. It is divided into several
departments, each of which focuses on a single type of product. Shopper stop, Lifestyle are some
examples of department stores.
Features:
(a) Provide maximum service to higher class of customers for price is of secondary importance full
stop insert bullet.
(b) These are located at a central place in the heart of a city which caters to a large number of customers.
(c) As the size of the store is very large, they are generally formed as a joint stock company are managed
by a board of directors.
(d) A Departmental Store combines both the functions of retailing as well as warehousing.
(e) They have centralised purchasing arrangements, whereas sales are distributed across departments.
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(ii) Chain Stores or Multiple Shops:
A number of shops with comparable appearances have been created in various locations throughout the
country. These various stores usually sell standardised branded consumer goods with a high turnover
of sales. These stores are owned by the same company & have the same merchandising tactics,
as well as the same products and displays.
For example, such as Bata, etc.
Features:
(a) These stores are in well-traveled areas where a large number of people can be approached.
(b) Centralised at the head office, from where the goods are dispatched to each of these shops.
(c) The shop is under the direct supervision of the branch manager who is held responsible for its
day-to-day management.
(d) Controlled by the head which is concerned about formulating the policy & getting them
implemented.
(e) The prices of goods in such stores are set, and all transactions are conducted in cash.

Difference between Departmental Stores and Chain Stores

Basis Departmental Stores Chain Stores
1. Variety Departmental stores keep a wide variety of Chain store are specialised in only
products to satisfy the requirement of all the one line of product. They deal with
customers. limited range only.
2. Credit/ Departmental stores offer both cash and credit Chain Store sells goods only on cash
Cash Basis facilities to their regular customers. basis.
3. Location Departmental stores are centrally located in Chain stores are located in different
big cities. localities.
4. Risk There is greater risk in departmental stores. The risk gets spread over all the
stores located in different areas.
5. Types of It attracts customers belonging to the higher They attract customers from all
Customers income group. income groups.
6. Services Departmental stores offer various services like Chain store does not offer such
post office, restaurants, etc. services.
7. Decoration Different departmental stores may adopt All chain stores have uniform
different decoration and display styles. decoration and display Style.
8. Pricing Prices charged in all departmental stores are Prices charged in all chain stores are
not fixed and uniform. fixed and uniform.
9. Advertising Departmental stores advertise in the local city Chain store gives national level
where these are situated. advertisement.
[Link] There is more flexibility of operations in There is no or very little flexibility as
departmental stores. Changes in policies are policies are framed by head offices
made according to local opportunities. & changes are not permitted
according to local opportunity.

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(iii) Mail Order Retailing:
 In mail order houses, merchandise is sold through mail.
 In this sort of business, there is usually no direct personal contact between the buyers and sellers.
 Potential consumers are approached for orders through newspaper or magazine advertisements,
circulars, catalogues, samples and bills, and price lists mailed to them.
 After receiving the orders, the items are thoroughly inspected to ensure that they meet the
purchasers' standards, which are then carried out through the post office.
 There may be a variety of payment options available:
o Full advance payment.
o The goods may be sent by Value Payable Post (VPP). The goods are sent via postal service
and are only provided to consumers after full payment has been received.
 The commodities may be sent through a bank, which would then be responsible for delivering
the items to the customers. There is no possibility of bad debt in this arrangement.
Suitability:
Only the goods that are:
o Graded and standardised
o Easily transported at low cost
o Have ready demand in the market
o Available in large quantities throughout the year
o Less competed in the market
o Can be described through pictures etc, are suitable for this type of trading.

(iv) Automatic Vending Machines:

Automatic vending machine is a new form of direct retailing. It is a machine operated by coins or
tokens. The buyer inserts a coin or token in the machine & receive a specific quantity of product from
the machine.
Advantages:
(a) Buying round the clock is possible.
(b) The customer gets fresh supply of goods.
(c) No, requirement of salesman.

Limitations;
(a) Initial investment to install the machine is quite high.
(b) Machine requires regular repair and maintenance.
(c) Coins of exact shape and size are required to operate the machine.

Goods and Services Tax:-

On July 1, 2017, the Government of India adopted the Commodities and Services Tax (GST) in
accordance with the 'One Nation, One Tax' philosophy, in order to create a unified market and ensure
the smooth movement of goods across the country. Effective taxation ensures that public funds are
effectively employed in fulfilling social objectives for sustainable development.
The GST has replaced 17 indirect taxes (8 Central + 9 State levels) and 23 cesses of the Centre and
the States, eliminating the need for filing multiple returns and assessments and stream lining the tax
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treatment of goods and services from producers to consumers throughout the supply chain.
Key features of GST:-
 The territorial spread of GST in whole country.
 GST comprises Central GST (CGST) and the State GST [SGST] and IGST (Interstate GST).
 GST [CGST + SGST] is charged at each stage of value addition and the supplier offsets the levy
on inputs in the previous stages of the value chain through the tax credit mechanism.
 There are four tax bands for all goods and services, namely 5%, 12%, 18%, and 28%.
 There is no tax on export and supplier to SEZ.
 Tax liability takes place when the taxable person exceeds the exemption limit of Rs 20
lakh.

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 SELF-ASSESSMENT:

1. What is meant by internal trade?

2. How would you differentiate between street traders and street shops?
3. Specify the characteristics of fixed shop retailers.
4. What are the services offered by retailers to wholesalers and consumers?
5. Discuss the features of a departmental store. How are they different from multiple shops or chain
stores.
6. Explain the usefulness of mail orders houses. What type of products are generally handled by
them? Specify.

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