What is Retailing? Definition, Functions, Importance

  • Post last modified:13 April 2022
  • Reading time:20 mins read
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What is Retailing?

Retailing encompasses those business activities involved with the sale of goods and services to the final consumer for personal, family, or household use.

Retailing is the final stage in a channel of distribution. Retailing functions are performed by any firm selling merchandise or providing services to the final consumer.

Retailing Definition

According to Kotler, Retailing includes all the activities involved in selling goods or services to the final customers for personal, non-business use.

Retailing is the activity of selling goods and services to last level consumers for their use. It is concerned with getting goods in their finished state into the hands of customers who are prepared to pay for the pleasure of eating, wearing or experiencing particular product items.

Retailing is all about the distribution of goods and services because retailers play a key role in the route that products take after originating from a manufacturer, grower or service-provider to reach the person who consumes.

Retailing is also one of the key elements of a marketing strategy facilitating the targeting process, making sure that a product reaches particular groups of consumers. It is important in a marketing strategy to match the arena in which a product is purchased to the benefits and characteristics of the product itself and its price.

Functions of Retailing

  1. Understanding the Needs of Consumers
  2. Buying and Assembling
  3. Breaking the Bulk
  4. Warehousing or Storing
  5. Selling
  6. Credit Facilities
  7. Risk Bearing
  8. Grading and Packing
  9. Collection and Supply of Market Information
  10. Helps in Introducing New Products
  11. Window Display and Advertising

Understanding the Needs of Consumers

Knowing and understanding customer needs is at the centre of every successful business. Therefore, a retailer should clearly understand needs of his target customers. Every retailer should know the reason for their customers to buy from them and not from their competitors. This is called Unique Selling Proposition {USP}.

USP can change as the business or market changes. A retailer can have different USPs for different types of customer.

Buying and Assembling

A retailer deals in different variety of goods which he purchases from different wholesalers for selling to the consumers. He tries to locate best and economical source of the supply of goods.

Breaking the Bulk

Manufacturers normally send their products in bulk (whole cases or cartons) to retailers to minimize transportation cost. As the retailers sell goods in smaller quantities, they should break large quantities into convenient smaller quantities. This process is called breaking the bulk.

Warehousing or Storing

After the assembly of goods from different suppliers, the retailers preserve them in-store and supply these goods to the consumers as and when required by them. The goods are kept as reserve stocks in order to ensure uninterrupted supply to the consumers.


The end objective of the retailer is to sell the goods to consumers. He undertakes various methods to sell goods to the ultimate consumers.

Credit Facilities

He caters to the needs of the customers even by supplying them goods on credit. He bears the risk of bad debts on account of non–payment of amount by the customers.

Risk Bearing

A retailer has to bear different type of risks in relation to goods. While in stores, goods are exposed to various risks like deterioration in quality, spoilage and perishability etc.

The products are confronted to natural risks viz., fire, flood, earthquake and other natural calamities. Other type of risks like change in customers tastes also adversely affects the sales.

Grading and Packing

The retailer grades the goods which are left ungraded by the manufacturers and the wholesalers. He packs the goods in small packages and containers for the convenience of the customers.

Collection and Supply of Market Information

The retailers are in direct touch with the consumers. They gather invaluable information with regard to likes dislikes tastes and demands of the consumers and pass on this information to the wholesales and the producers which are very helpful to them.

Helps in Introducing New Products

Without the services of retailers, new products cannot be introduced properly in the market. This is so because a retailer has a direct link with consumer. He can explain nicely about the utility and the characteristics of a new product to the customer.

Window Display and Advertising

The retailer displays the products in show windows in order to attract customers. This leads to immense publicity for the product.

Social and Economic Importance of Retailing

The social and economic significance of retailing is explained under the following heads.

  1. Social Responsibility
  2. Retail Sales
  3. Employment
  4. Global Retailers

Social Responsibility

Retailers are socially responsible businesses. Corporate social responsibility describes the voluntary actions taken by a company to address the ethical, social, and environmental impacts of its business operations and the concerns of its stakeholders.

Retail Sales

Retailing affects every facet of life. Just think of how many daily contacts you have with retailers when you eat meals, furnish your apartment, have your car fixed, and buy clothing for a party or job interview.

American retail sales are over $3.6 Trillion for 2012, but even this sales level underestimates the impact of retailing because it does not include the retail sales of automobiles and repairs.


Retailing also is one of the nation’s largest industries in terms of employment. More than 25 million people were employed in retailing-approximately 18 per cent of the non-agricultural U.S. workforce.

Global Retailers

Retailing is becoming a global industry, as more and more retailers pursue growth by expanding their operations to other countries. Large retail firms are becoming increasingly international in the geographical scope of their operations.

Amway, Avon, Ace Hardware, and Inditex (Zara) operate in more than 20 countries.

Characteristics of Retailer

The followings are some of the essential characteristics of a retailer:

• He is regarded as the last link in the chain of distribution.

• He purchases goods in large quantities from the wholesaler and sell in small quantity to the consumer.

• He deals in general products or a variety of merchandise.

• He develops personal contact with the consumer.

• He aims at providing maximum satisfaction to the consumer.

• He has a limited sphere in the market.

Functions of Retailer

Retailers perform a number of functions. These are :

  • The retailer buys a variety of products from the wholesaler or a number of wholesalers. He thus performs two functions like buying goods and assembling of goods.

  • The retailer performs storing function by stocking the goods for a consumer.

  • He develops personal contact with the consumers and gives them goods on credit.

  • He bears the risks in connection with the Physical Spoilage of goods and fall in price. Besides he bears risks on account of fire, theft, deterioration in the quality and spoilage of goods.

  • He resorts to standardization and grading of goods in such a way that these are accepted by the customers.

  • He makes arrangement for delivery of goods and supply valuable market information to both wholesaler and the consumer.

Theories of Retailing

The theories developed to explain the process of retail development. It revolves around the importance of competitive pressures. It is the investments in organizational capabilities.

  1. Environmental Theory
  2. Cyclical Theory
  3. Conflict Theory

Environmental Theory

According to environmental theory there is a change in retail. It is attributed to the change in the environment in which the retailers operate. The environmental theory explains how retail business evolved from the specialized stores into department, discount, chain, mail order and online stores.

Retail environment is made up of customers, competitors and changing technology. The changes in the external environment can alter the profitability of retail organizations. If an organization is not able to cope with its external environment, it will soon vanish from the market. Thus, the birth, success or decline of different forms of retail enterprises many a times is attributed to the business environment.

Therefore, Darwin’s statement of “Survival is the Fittest” is very well applicable in this context. For this reason, it is important for retailers to be aware of and adjust to changing environments.

Cyclical Theory

The cyclical theory basically explains the different phases in a company. According to this theory, change follows a pattern and all phases have identifiable attributes associated with them. There are three primary components associated with the theory:

  • Wheel of retailing refers to a company entering the market with low prices and affordable service in order to challenge competitors.

  • Retail life cycle addresses the four stages that a company goes through when entering the buyer’s market.

  • Retail accordion aspect of cyclical theory suggests that some businesses go from outlets that offer an array of products to establishments providing a narrow selection of goods and services.

Conflict Theory

According to this theory the competition or conflict between two opposite types of retailers, leads to a new format being developed. It says that retailers change in response to competition. It explains how some department stores transitioned into discount stores. The conflict always exists conflict always exists between operators of similar formats or within broad retail categories.

This theory proposes that new forms of retail institutions emerge due to “inter-institutional conflict.” When an innovative retailer (antithesis), challenges an established retailer (thesis), a new form of retailer (synthesis) results. The synthesis later becomes a thesis, triggering a new turn for assimilation.

For example, when a thesis and antithesis are taken as department stores and discount stores respectively, the synthesis may emerge as discount department stores.

Types of Retail Channels

channel of distribution or trade channel is defined as the path or route along which goods move from producers or manufacturers to ultimate consumers or industrial users. In other words, it is a distribution network through which producer puts his products in the market and passes it to the actual users.

This channel consists of – producers, consumers or users and the various middlemen like wholesalers, selling agents and retailers (dealers) who intervene between the producers and consumers. Therefore, the channel serves to bridge the gap between the point of production and the point of consumption thereby creating time, place and possession utilities.

A channel of distribution consists of three types of flows:

  • Downward flow of goods from producers to consumers

  • Upward flow of cash payments for goods from consumers to producers

  • Flow of marketing information in both downward and upward direction i.e. Flow of information on new products, new uses of existing products, etc. from producers to consumers. And flow of information in the form of feedback on the wants, suggestions, complaints, etc. from consumers/users to producers.

These channels of distribution are broadly divided into four types:


This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution. Under it, the producer or entrepreneur performs all the marketing activities himself and has full control over distribution.

A producer may sell directly to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers.


This channel of distribution involves only one middlemen called ‘retailer’. Under it, the producer sells his product to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers.

This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value.


This is the most common and traditional channel of distribution. Under it, two middlemen i.e. wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to the ultimate consumers.

This channel is suitable for the producers having limited finance, narrow product line and who needed expert services and promotional support of wholesalers. This is mostly used for the products with widely scattered market.

An entrepreneur has to choose a suitable channel of distribution for his product such that the channel chosen is flexible, effective and consistent with the declared marketing policies and programs of the firm.

While selecting a distribution channel, the entrepreneur should compare the costs, sales volume and profits expected from alternative channels of distribution and take into account the following factors:

  • Product Consideration
  • Market Consideration
  • Other Considerations that may have an impact on business and business activities.

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