Retail sales offer manufacturers a way to sell their products to the end consumer. Despite the economic downturn in many other sectors, US retailers have recorded increasing growth for years and are an ideal sales channel. So, what are the characteristics of retail sales? What are the advantages of retail sales compared to direct sales for manufacturers?
Retail sales: what are small traders?
The term retail trade, formerly also called small trade, refers to trading companies that combine the goods of different manufacturers into an assortment and sell them to end consumers, i.e., to non-commercial customers.
We also call retailers small traders because, unlike wholesalers, they source and sell their goods in small quantities. In addition, retail trade mostly takes place on a local or regional basis.
Characteristics of retail sales
On the one hand, retail sales mean selling goods in small quantities and assembling them into assortments.
Retail differs from wholesale in that it only sells to non-commercial customers, while wholesale sells to commercial customers and thus so-called resellers. The criterion for differentiation is not the sales volume but the customer base of the respective company.
Typical types of retail business are, for example:
- Supermarkets
- Discounters
- Specialty stores
- Mail order company
- Teleselling
- Vending machine
- Duty-free stores
- Second-hand shops
What are the advantages of retail sales compared to direct sales for manufacturers?
In the case of direct distribution or direct sales, the manufacturer sells its products directly to the end customers – regardless of whether they are private individuals or companies. Both forms of distribution, direct and indirect distribution, have advantages and disadvantages.
Selling via your employees is cost-intensive and means a great deal of administrative and logistical effort. However, since retail sales generate high sales-related commissions, the profit margin for indirect sales is often lower.
The clear advantage of selling through retailers is that you don’t have to set up your distribution network. You can use the existing sales structure of the respective intermediary and thus have lower costs than direct sales.
Selling via retailers is particularly useful if you as a manufacturer do not (yet) have a dominant position in the market or have little experience in sales. Indirect sales also offer you the advantage, which should not be neglected, of reaching a large group of customers without much effort.
They can only positively affect your future marketing efforts – because once your product has been on a supermarket shelf for a certain period, many customers have already noticed it and ideally will remember it.
Digitization and eCommerce
Digitization has shaped both the business world and society in recent years. However, most retail companies are still in their infancy regarding digital technologies and providing digital offers.
Changes in shopping behavior pose a challenge for the industry because customers now often prefer online solutions to shopping onsite.
Studies show that customers prefer hybrid shopping models to purely online or offline offers. Therefore, more and more retailers are adding digital services to their stationery business premises and thus merging different sales channels.
By connecting different channels, the focus is on the customer. This development is supported by the integration of mobile technologies, above all the smartphone.
Retail companies that are active online offer services such as online reservations or onsite collection (“click and collect”) and the already widely established online purchase.
What alternatives are there?
In addition to the indirect sales channel via retail (and wholesale, which covers a large geographical area and many customers), direct sales run from the manufacturer directly to the end-user.
The nature of your product should determine which sales channel you choose.
Industrial goods such as machines or construction equipment and services are well suited for direct sales, as they often require intensive advice. Sales representatives then advertise and sell the product directly to the end customer.
Retail’s advantages are the proximity to customers, the possibility of influencing the quality of the service, and the elimination of commissions for the dealers. Disadvantages are the costs incurred for setting up a sales network and that you can only reach a small group of customers.
Conclusion
Do we sell our product through intermediaries, or do we choose direct sales? Like many entrepreneurs, you probably ask yourself this question when developing a sales strategy. While distribution through retailers has many advantages, it is also more challenging to control than in-house distribution and is often more expensive.
Ultimately, choosing the right sales channel depends on your product and whether you are willing to invest the time and effort to convince buyers of your product.
The path from the product idea to distribution in the supermarket or specialist retailer is not easy and requires a lot of perseverance, patience, and enjoyment of your product.
