Retail & Wholesale Trade

 

Shopping. For some, it's a necessary chore while others find it a relaxing way to pass the time. Whether you're buying food, clothing, or other necessities, putting gas in the car, picking up supplies for a do-it-yourself project, getting a new pair of glasses or simply browsing in a mall, you're using the services of establishments in the retail and wholesale trade industry. The industry is the biggest employer in BC, providing about 16% of all the jobs in 2005 and generating about 11% of total GDP.

What's included in retail & wholesale trade?

Wholesalers and retailers are in the business of re-selling goods that have been purchased from suppliers. They bring goods produced in the province, or imported from other regions and countries, to the marketplace, where they can be purchased by consumers.

Wholesalers can be thought of as “middle men” who supply goods to industrial or business customers, such as retailers, restaurants, manufacturers, or construction companies. They sell single units of big ticket items like farm machinery, heavy equipment and vehicles. They also sell bulk quantities of building supplies, food and beverages, seed, fertilizer and many other types of products.

These goods may be used as inputs into production. For example, a building contractor would usually purchase materials such as cement, plywood, nails, two-by-fours, sinks, pipes, bathroom fixtures, paint, glass, wallpaper, and so on from a wholesale supplier.

Wholesalers typically operate from a warehouse or office space that isn't designed to attract walk-in customers. Wholesale outlets are often located in industrial areas of cities, where it is convenient for their customers to pick up and load supplies, or where they have warehouses from which the goods are distributed and delivered directly to their clients.

BC wholesalers of building materials and food, beverages & tobacco products generated 45% of total sales in 2005

Wholesalers of building materials and food, beverages and tobacco dominate the industry, accounting for about 45% of total sales in 2005. Machinery and electronic equipment (including computers) wholesalers accounted for 19% of total sales. These shares have been quite stable, changing only marginally during the last decade or so.

The main characteristic of retailers is that they sell goods primarily to consumers or households. Supermarkets, gas bars, drug stores, furniture outlets, “mom and pop shops”, hardware stores, car lots, mobile home dealers and garden centres are only some of the many types of retail businesses. This industry also includes “big box” retailers such as office supply and computer stores, and retailers of building materials, plumbing and electrical supplies.

Retail outlets are usually designed to have display areas where customers can see the merchandise that's available for sale.  They cater to walk-in traffic, so they're often located in places that are easy to find and typically have access to nearby parking.

Not all retailers have store-fronts. The industry also includes retailers who sell via infomercials, vending machines, door-to-door sales, in-home demonstrations, or mail order. Some retailers sell their products online, and don't have a store-front outlet at all.

Similarly, some establishments that sell goods to customers are not included in this industry. For example, a produce stand at a farm would be considered part of the farming operation, and thus included in the agriculture industry. A bakery that produces and sells baked goods onsite is considered part of the food manufacturing industry. Photofinishing shops that are primarily in the business of developing pictures rather than retailing products are part of the personal and laundry services industry and maintenance and repair shops have their own industry group. On the other hand, meat and seafood markets or optical outlets, which are primarily involved in selling finished product to customers, are part of the retail industry. The work that they do cutting meat, preparing fish or grinding lenses is incidental to their main activity: selling products to customers.

Automotive product retailers in the province chalked up a third of total sales in 2005

Retailers of automotive products, including new and used car and RV dealers, as well as gas stations, typically account for about a third of total sales, while supermarkets, food, liquor and beer stores usually take in about a quarter of total retail revenues. The third biggest group is department stores and other retailers of general merchandise, who accounted for 11% of sales in 2005. These shares have remained quite stable during the period since 1990.

Measuring output in retail and wholesale trade: retail and wholesale margins

In the goods sector, industries produce finished products that are tangible: fruit, fish, lumber, ores, computers, clothing and so on. In the case of retail or wholesale sales, the nature of the product isn't so obvious. These establishments are re-selling goods that have been produced by another industry, and they're not materially altering them–all they're doing is making them accessible to their customers.

The value of retail sales includes the cost of the goods supplied by all the industries that produced them (going right back to the primary industry that harvested or extracted the raw materials used to manufacture the goods sold), plus the value of the wholesaling services, if any, associated with those goods.

So what is the product in the case of retail or wholesale sales? It's the service provided by the industry. When a retailer attaches a price to a good, that price includes the cost of the good, plus a “margin” which covers the retailer's operating costs and profit. In economic accounting, this margin is a measure of the value of the service produced by the retailer or wholesaler. Margin rates vary among retailers and wholesalers, based on what they're selling. In retailing, margin rates average about 27%, but depending on the type of store, they range from about 14% to just under 50%. Margins in the wholesaling industry are a little lower, averaging about 20% of operating revenues.

There are three retail jobs for every job in wholesaling

About 5% of the province's GDP originates in wholesale activities, just slightly more than the industry's 4% share of total employment. The retail industry's share of GDP is quite a bit lower (6%) than its share of employment (12%).

Given the customer-oriented nature of retailing activities, it is not surprising that retail trade is a much bigger employer than the wholesale trade industry. In fact, there were three retail workers for every worker in the wholesale industry in 2005.

Retailing is a labour-intensive industry. Workers have to order goods, stock shelves, assist customers, take inventories, record purchases, and so on. Stores need to be cleaned, window displays have to be maintained, and there are many other types of jobs that need to be done in order to attract and serve customers. It takes a lot of elbow grease to run a store. That's one of the reasons why the industry's share of total employment is higher than its contribution to GDP.

Another reason for the gap between GDP and employment shares is that part-time work is very common in the retail industry. Total employment figures don't distinguish between different types of work arrangements, so the part-time workforce can inflate the total job count. One in three workers in the retail industry is employed part-time. The average for all industries is one in five and in wholesale trade, one in ten workers have part-time jobs.

What's happened since 1990?

Job growth in retail and wholesale trade has not kept pace with the rest of the economy, and as a result, its share of total employment has declined slightly since 1990. In 2005, nearly 16% of the province's workers were employed in retail or wholesale sales. That's down from the 17% share at the beginning of the period.

Employment growth has lagged behind the rest of the economy, but the industry's share of GDP is increasing

As a whole, retail and wholesale trade's share of GDP has been rising over time, increasing from about 10% in 1990 to just over 11% in 2005, indicating that the industry's value added has been growing faster than the average for all industries in the province.

Faster-than-average GDP growth, combined with slower-than-average increases in employment, means that labour productivity is rising in this industry. Both retail and wholesale trade have experienced higher-than-average productivity growth during the period from 1990 to 2005. These productivity improvements may well be linked to technological and process changes that have been introduced in recent years.

An industry in transition

The retail and wholesale trade industry has seen a lot of changes in recent years [1]. These have been driven by technological as well as market developments.

Retailing has always been characterized by a mix of small, privately owned and operated establishments, and large chain stores that have outlets across the country. In the mid-1980s, most of these chain stores were domestically owned. There were only 10 US-based chains operating in Canada. By 2003, there were 185 US chain stores with Canadian outlets, and 11 of the top 20 retailers in the country were American. Many Canadian shopping malls are now virtually indistinguishable from those south of the border: they have the same stores and carry the same type of merchandise that you'd find at home.

Some of the most significant retailing innovations have originated in the US

What effect has the growing influence of US retail companies had on the industry in Canada? Historically, many of the major innovations in retailing have come from south of the border. Five-and-dime stores, for example, were the brainchild of Franklin W. Woolworth, a New Yorker who borrowed $300 in 1879 to open up a discount store where all the merchandise was priced at 5 cents. After he expanded his product line to include pricier 10 cent merchandise, the idea caught on, and by 1911, there were 586 Woolworths stores operating in North America. The chain eventually spread to other countries such as the UK.

Supermarkets were also a US invention. The first self-service grocery store, called Piggly Wiggly's, opened in Louisiana in 1916. The concept of the “self-serving store” was so revolutionary that the owner was granted a patent in 1917. Prior to that, customers at grocery stores had to ask a clerk behind a counter to measure out dry goods in the required quantities: pre-packaged goods weren't sold, fresh fruit, vegetables, meat and dairy products weren't available at the grocery store, and customers weren't trusted to select their own merchandise.

More recently, a number of important retailing innovations have originated in the US. These include marketing concepts such as everyday low pricing, big box retailing, warehouse club stores and specialty store chains, which only stock certain types of goods such as sporting equipment and clothing, computer products, or craft and office supplies.

Big box retailers

Big box retailers represent a departure from the traditional type of retailing, where customers receive personalized service in surroundings that are meant to be appealing. Big box retailers place a greater emphasis on self-service, bulk buying, or do-it-yourself assembly. Stores are typically warehouse-style with relatively little focus on ambience. Because they spend less on decorations or fixtures such as carpets, and usually have fewer floor workers than other types of retail outlets, they can often sell goods–ranging from clothing and food to furniture and appliances–at very competitive prices. Similarly, by eliminating the middle man, factory outlets are able to offer their products to consumers at reduced prices. Warehouse clubs offer products in bulk, at discount prices, to customers who pay a fee to join.

New technologies

US retailers have introduced some technological innovations that are changing the way the industry does business. For example, bar codes, which are used to electronically scan and price merchandise, are also being used to implement just-in-time inventory control (a process which allows retailers to keep less stock on hand, since they order the required goods from their suppliers “just in time” before they need them). Radio frequency ID tags, which allow stores to locate merchandise using radio signals, are used as inventory control mechanisms and to simplify the stocking process, since goods marked with these tags can be located even if they're still in packing crates. Technologically advanced distribution centres, and the practice of cross-docking (where merchandise in warehouses is kept ready for shipment rather than being unpacked and put away) are also innovations that arrived in Canada together with the US retailing giants.

The “Wal-Mart” effect

Woolco (the successor of the Woolworth's chain in Canada) was purchased by the US retailing giant Wal-Mart in 1994. The entry of Wal-Mart into the Canadian marketplace has had a profound effect on retailers of all sizes. Some small independent retailers were unable to compete, and have gone out of business. Others have found new ways to market their products, attracting customers who prefer to shop at locations that can offer more personalized service, or stock products that aren't available from the big retailers.

Canadian chain stores were forced to change their marketing strategies in order to compete after Wal-Mart and other US discount stores arrived on the scene. Many large retailers used to offer goods at sale prices from time to time, while charging higher prices in between. Now, they've adopted everyday low pricing, or are competing by marketing house brands or by customer loyalty programs.

The “Wal-Mart effect” hasn't just driven prices down; it's resulted in a lot of changes in the industry supply chain. Big corporations now often deal directly with manufacturers, bypassing the wholesaler altogether. Because the corporations have a lot of buying power, this means that they're able to influence the way producers make, package and ship their products. Some of these changes (such as the introduction of radio frequency ID tags) can benefit both small and large retailers.

Retailing has become more efficient

All of these factors have made retailing more efficient, and that has contributed to productivity gains in the industry. But there's also been a cost, since some of the diverse and unique features offered by small independent retailers have been lost.

So how does all this affect consumers? On one hand, they are able to purchase brand-name goods at lower prices. They can find virtually the same stores, offering the same products, in shopping malls all over North America. On the other hand, the types of goods offered for sale, and the retailers stocking them, have become more homogeneous.

The Internet

The effect of the Internet on commerce has been wide-ranging. Books, clothing and even construction supplies are available for purchase online. Books and other printed matter are the most common items sold, but online shoppers also purchase clothing, software, music and electronics.

What do people buy online?

Some retailers and wholesalers are taking advantage of this trend. For example, large book retailers have whole divisions devoted entirely to Internet commerce. Internet dealer networks such as Abebooks (a home-grown Victoria business) make it possible for individuals to purchase rare or out-of-print books from a network of second-hand book dealers located all over the world.

However, Internet shopping is still a relatively small share of the market. In 2003, households that purchased goods or services online (including airline tickets and other services that are not available from retail outlets) spent an average of $1,011 on products sold over the Internet. They averaged seven online purchases during the year. Total retail sales were $28,795 per household in that year.

We don't have data for BC, but among Canadians who shopped online, five of the seven types of items most frequently purchased online could have been purchased at a retail outlet. E-commerce is a long way from becoming a replacement for the traditional store, but as more and more consumers become comfortable with this method of doing business, it's likely that its role will increase over time.

Changing consumer habits

Other factors have influenced the nature of the retail and wholesale trade industry as well. As people become more pressed for time, they're looking for ways to cut down on the amount of work they need to do to prepare meals or handle other aspects of maintaining a household.

Food retailers have responded to this trend. Deli departments in supermarkets used to sell mainly sliced meat and cheese. Now most of them have large sections devoted to fresh salads, sandwiches, packaged casseroles, hot food and other take-home items that are ready to serve. Stores are also branching out, carrying products that they did not use to stock. For example, pharmacies and general merchandise stores now sell a wide range of food products, including fruit, vegetables, dairy products and packaged meats. Big supermarkets often have in-store pharmacies, flower shops and even bank branches, and may also sell clothing or other dry goods.

Why does all this matter?

The retail and wholesale trade industry has changed a lot in the last two decades. Some of the changes have fundamentally altered the way the business works and the industry is now employing different types of workers.

Supermarket chains are hiring chefs, cooks and dishwashers to prepare take-home meals. Stores that use just-in-time inventory processes may hire more truck drivers and fewer shelf stockers. Booksellers who sell their products online don't need sales clerks, but they do need mailroom and warehouse workers and computer operators to run their business. And the list goes on.

What are the most common occupations?

Not surprisingly, sales and service occupations account for the largest number of jobs, with more than half (57%) of the people working in retail and wholesale trade engaged in these occupations.

Sales and services are dominant

In wholesale trade, they are primarily sales representatives and technical sales specialists. In retail trade, they're mainly salespeople, cashiers, supervisors, or grocery clerks and shelf stockers.

Management (16%) is the next most common occupation. In wholesale trade, management positions primarily involve sales and marketing while managers in retailing are more likely to be running a retail outlet. Business, finance and administrative jobs are more prevalent in wholesaling than in retail trade. They're mainly shipping, receiving and accounting jobs.

Trades, transportation and equipment operators (10%) are mainly materials handlers, truck and delivery drivers, and equipment operators. They make up a bigger share of the workforce in wholesaling than they do in retail trade.

How many people work in retail & wholesale trade, and how much do they earn?

Retail and wholesale trade was the province's biggest employer in 2005, with a total of 334,600 people working in the industry. Three-quarters (254,800) of the workers were in retail trade, while one in four (79,800) worked in wholesale establishments.

The average worker in the industry earned $14.97 an hour and spent 34 hours on the job each week. Average wages were significantly lower in retail trade ($13.99) than in the wholesaling industry ($18.54). Both wages and hours in this industry were below the average for the economy as a whole.

What are the characteristics of the workforce?

Twenty-eight percent of the workers in this industry spend less than 30 hours on the job each week. One in three workers in retail trade has a part-time job, but in wholesale trade, only 10% work part-time. Seventeen percent of workers have union coverage, about half the provincial average (33%).

Males make up 50% of the workforce, slightly less than their share (53%) of total employment. In wholesale trade, seven in ten workers are male, but the share is much lower (44%) in retail trade.

The incidence of unemployment in the industry is relatively low, averaging 5.6% between 1990 and 2005, well below the 8.4% rate for all industries. The jobless rate in wholesale trade (4.9%) was lower than in the retail industry (5.7%).

Self-employment is less common in this industry (14%) than in the economy as a whole (20%). About a fifth of the workers in wholesale trade are self-employed, but in retail trade, only 11% are their own bosses.

Four out of ten people work for small businesses with fewer than 20 workers

The retail and wholesale trade industry includes everything from “mom and pop” corner stores to large department stores or wholesale distribution centres. Small stores are often operated by self-employed businesspeople. These owner-operators often hire staff to help run their store, and this, together with the prevalence of part-time work, may help explain why self-employment accounts for a relatively small percentage of the total number of jobs in this industry.

Although self-employment is less common than in the economy as a whole, most establishments have relatively few workers. Forty-one percent of employees work at establishments with fewer than 20 people.

Where are the jobs located?

Wholesale distribution centres are often located in highly populated areas and goods are shipped out to smaller centres from there.  Smaller wholesale establishments can also be found in most urban areas. Retailing activity occurs in every part of the province. The regional distribution of workers in this industry closely mirrors the regional distribution of the provincial workforce.

Jobs in this industry are distributed among regions in much the same way as the population

What's the outlook to 2014?

The industry's share of GDP is forecast to increase to 14% by 2014, suggesting that GDP will continue to grow faster than in the economy as a whole. Job growth is expected to keep pace with the rest of the economy. This means that productivity improvements are expected to continue to outpace the average for all industries in the next few years.

GDP growth in the industry is forecast to outpace the provincial average

 

 

 

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[1] Although the discussion in this section focuses on retail trade, many of the changes have affected both retail and wholesale activities.