Advantages & Disadvantages of Retailing

  Reviewed by: Jayne Thompson, LLB, LLM
  Written by: Devra Gartenstein      Updated October 25, 2018
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Retail is the original, most direct form of business. It’s a clear exchange between the merchant selling a product and the customer buying it. With the growth of online businesses, retailing doesn’t have to be a face-to-face transaction, but it does have to take place without middlemen. This one-on-one aspect introduces a degree of transparency and accountability into retail sales. As a customer, you don’t have to go through a third party to voice your needs or your feedback. As a merchant, you can promote your offerings on your own terms and respond to customers firsthand. However, this directness comes with added responsibility as customer service interactions become more personal, and mistakes and mishaps have the potential to undo carefully fostered trust.

Greater Profits, Smaller Scale

Because retailers sell products directly to end users, they are able to earn more for the same items than wholesalers, who must allow room in their pricing structures for retailers to mark up these same products. A merchant selling a shirt directly to customers can ask full price, but a wholesaler offering the same shirt must sell in to retailers at a discount so those retailers can also earn a slice of the pie. Conversely, retailers tend to operate smaller enterprises than wholesalers, handling less volume and finding fewer opportunities to reap economies of scale.

More Sales Options, Higher Marketing Costs

A retail business provides a wealth of marketing opportunities, from sampling food products, to dressing rooms to try-on clothing to in-person advice and recommendations. These marketing strategies help sell retail items and develop relationships that can lead to repeat business. However, they can be expensive and require extra labor and infrastructure, such as staffing to hand out advice and samples, or extra floor space to install dressing rooms. Some entrepreneurs specifically choose retail business models because they enjoy and are good at these types of marketing. Other retailers may have less of a natural feel for in-person marketing and may struggle to reach customers and to use marketing resources cost effectively.

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Go Online, Lose Customer Relationships

Online retailing offers the advantage of a retail pricing structure with the added boost of drop shipping, if this model makes sense for your business. By ordering directly from manufacturers and wholesalers only when customers place their orders, you circumvent the need to dedicate capital and space to inventory waiting to be sold. However, online retailers don’t enjoy the marketing advantages of meeting customers face-to-face and building strong symbiotic relationships.

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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