1. Copyright 2010, The World Bank Group. All Rights Reserved. Domestic trade statistics 1. Scope and concepts 1 Business statistics and registers

2. Copyright 2010, The World Bank Group. All Rights Reserved. Resale without transformation By convention, resale of goods represents sale without transformation Goods are transformed if they undergo a substantial change in form, appearance or nature Some specified actions are not considered substantial transformations of goods 2

3. Copyright 2010, The World Bank Group. All Rights Reserved. Role of distributive trade Distributive trade as an activity consists of:  Provision of a service to various types of customers by storing, displaying and making available for buying of goods  Provision of other services incidental to the sale of those goods 3

4. Copyright 2010, The World Bank Group. All Rights Reserved. Scope and structure of distributive trade In the ISIC, Rev.4, the scope of distributive trade is defined as section G Section G has three divisions – Division 45 includes all activities related to the sale and repair of motor vehicles and motorcycles – Divisions 46 and 47 include all other sale activities – The distinction between divisions 46 (wholesale) and 47 (retail sale) is based on the predominant type of customer 4

5. Copyright 2010, The World Bank Group. All Rights Reserved. Retail trade Retail trade is defined as the resale of new and used goods mainly to the general public for personal or household consumption or utilization, by shops, department stores, etc. The goods sold are limited to those usually referred to as consumer goods or retail goods Goods not usually entering the retail trade, such as cereal grains, ores, industrial machinery, etc., are excluded Some processing of goods may be involved, but only as incidental to selling 5

6. Copyright 2010, The World Bank Group. All Rights Reserved. Wholesale trade Wholesale trade is defined as the resale (sale without transformation) of new and used goods to retailers, business-to- business trade (for example, to industrial, commercial, institutional or professional users) or resale to other wholesalers It may also involve acting as an agent or broker in buying merchandise for, or selling merchandise to, such persons or companies The principal types of wholesale trade businesses are merchant wholesalers Other types of wholesale trade businesses are merchandise and commodity brokers, commission merchants and agents and assemblers, buyers and cooperative associations etc. 6

7. Copyright 2010, The World Bank Group. All Rights Reserved. Boundary of distributive trade Certain activities are not considered to entail transformation of goods and are included in distributive trade, e.g. Packaging Repackaging for distribution in smaller lots Mixing (blending) of goods Bottling Storage Refrigerating Delivering After-sale installation Washing, polishing of vehicles 7

8. Copyright 2010, The World Bank Group. All Rights Reserved. Exclusions from distributive trade The following activities do not count as distributive trade: – Renting of motor vehicles or motorcycles – Renting and leasing of goods – Sale of farmers’ products by farmers – Sale of food and drinks for consumption on the premises or takeaway – Renting of personal and household goods to the general public 8

9. Copyright 2010, The World Bank Group. All Rights Reserved. ISIC Division 45 Wholesale and retail trade; repair of motor vehicles and motorcycles includes: Retail sale of automotive fuel and lubricating or cooling products Renting of motor vehicles or motorcycles Some other related activities are classified elsewhere 9

10. Copyright 2010, The World Bank Group. All Rights Reserved. ISIC Division 46 ISIC 46 includes all wholesale activities, with the exception of those related to motor vehicles and motorcycles: – Wholesale on a fee or contract basis – Wholesale of agricultural raw materials and live animals – Wholesale of food, beverages and tobacco – Wholesale of household goods – Wholesale of machinery, equipment and supplies – Other specialized wholesale – Non-specialized wholesale trade 10

11. Copyright 2010, The World Bank Group. All Rights Reserved. ISIC Division 47 ISIC 47 includes all retail trade, except related to motor vehicles and motorcycles: – 471 - Retail sale in non-specialized stores – 472 - Retail sale of food, beverages and tobacco in specialized stores – 473 - Retail sale of automotive fuel in specialized stores – 474 - Retail sale of information and communications equipment in specialized stores – 475 - Retail sale of other household equipment in specialized stores – 476 - Retail sale of cultural and recreation goods in specialized stores – 477 - Retail sale of other goods in specialized stores – 478 - Retail sale via stalls and markets – 479 - Retail trade not in stores, stalls or markets 11

12. Copyright 2010, The World Bank Group. All Rights Reserved. CPC In terms of products, the Central Product Classification defines distributive trade services in divisions 61 and 62 There are two criteria: (a) type of provided service (b) type of traded goods As a result, the list of commodities that can be sold is classified in seven groups: two groups for wholesale trade services and five groups for retail trade services 12

13. Copyright 2010, The World Bank Group. All Rights Reserved. COICOP Another option for classifying products of distributive trade is the Classification of Individual Consumption According to Purpose (COICOP) For the purpose of achieving comparability of distributive trade data by products, countries are encouraged to present retail products by 7 product categories: Food, beverages and tobacco Clothing and footwear Household appliances, articles and equipment Of which: Furniture Machinery, equipment and supplies Of which: Information-processing equipment Of which: Motor vehicles and associated goods Personal and other goods Construction materials Other 13

14. Copyright 2010, The World Bank Group. All Rights Reserved. Boundary between wholesaling and manufacturing Outsourcing takes place when the principal productive unit contracts another productive unit (the contractor) to carry out specific functions The activity classification of the principal is affected by the nature and extent of the outsourcing The classification of the principal units is a significant boundary issue between manufacturing and wholesale (or retail trade) divisions 14

15. Copyright 2010, The World Bank Group. All Rights Reserved. Boundary between retail and financial services Many retail stores offer their customers the option of purchasing on credit Compilers of distributive trade statistics must pay attention to cases where the holder of consumer credits is a retail trade unit that has a separate establishment dealing with, or ancillary activities involving consumer credits SNA distinguishes non-financial and financial sectors separately It is recommended that in such cases two separate units be defined, one financial institution and one a retail unit if the unit providing consumer credits is not statistically observable separately it is recommended that it be treated as a part of the relevant statistical unit involved in an ancillary activity 15

16. Copyright 2010, The World Bank Group. All Rights Reserved. Economic entities Economic entities in distributive trade range from small entities engaged in one activity from one geographical location, to large and complex entities working from many geographical locations In large and complex entities, the units at which economic activity takes place are grouped for management, administrative and decision-making purposes into hierarchic structures Higher-level organizational units own, control or manage the lower- level production units at which production decisions are made or production takes place In complex entities, management of the financial affairs of the business is usually conducted at a higher organizational level than management of wholesaling or retailing operations The ability to report data will vary with the structural level Choice of proper statistical units is therefore important 16

17. Copyright 2010, The World Bank Group. All Rights Reserved. Statistical units A statistical unit is an entity about which information is sought and for which statistics are ultimately compiled Units can be divided into two categories: (a) Observation units: identifiable legal/organizational or physical entities (b) Analytical units: entities created by statisticians (also referred to as statistical constructs) A collection unit is the unit from which data are obtained and by which statistical forms are completed A reporting unit is the unit about which data are reported 17

18. Copyright 2010, The World Bank Group. All Rights Reserved. Establishment An establishment is defined as an enterprise or part of an enterprise that is situated in a single location and in which only a single productive activity is carried out Although an establishment may have one or more secondary activities, their magnitude should be small compared with that of the principal activity 18

19. Copyright 2010, The World Bank Group. All Rights Reserved. Units for distributive trade Two main types of data are required to describe the economic activity of distributive trade units: 1.production data, based on management and cost accounts of trade units; 2.financial data, based on their accounting records. The establishment is the most appropriate statistical unit for production and employment data In the majority of cases, the establishment and the enterprise are the same Hence all types of data can be obtained from the same source If an establishment is a part of a multi-establishment enterprise, it may not have access to all the necessary (for example, financial) information Under these circumstances, the enterprise may serve as a collection unit Some countries are using the establishment as the statistical unit for the collection of non-financial data items and the enterprise for the collection of financial data 19

20. Copyright 2010, The World Bank Group. All Rights Reserved. Retail chains The dominance of retail chain stores is an important development in the retail markets Retail chains encompass a range of retail outlets Such stores may be branches, owned by one legal unit, or franchises In the case where a retail chain operates under a single ownership, there will exist one trade enterprise with many establishments In the case where a retail chain operates under a franchise agreement, there will be many enterprises, corresponding to the number of franchisees 20

21. Copyright 2010, The World Bank Group. All Rights Reserved. Shops within shops A department store is a retail establishment that specializes in selling a wide range of products without a single predominant merchandise line (non-specialized stores) Department stores are organizational forms of retail trade that may complicate the implementation of rules for identifying the local units In principle, in almost all cases, the retail local units will be precisely equivalent to retail stores One exception are “shops-within-shops,” where a department store lets out part of its retail space to other retailers In the case of shops-within-shops trade, the department store and all other shops on the same premises should be treated as separate statistical units 21

22. Copyright 2010, The World Bank Group. All Rights Reserved. Franchising Franchisees are independent legal units that sign a contract with another legal unit, the franchiser, to engage in an activity making use of trademarks, trading styles and marketing support provided by the franchiser, usually in return for a fee or a share of the sales or profits A franchise contract typically includes a number of restrictive clauses limiting the franchisee’s freedom of choice The franchiser, in turn, offers scale economies without completely depriving the franchisee of its autonomy, for example, by assuming responsibility for collective marketing It is recommended that franchisees engaged in distributive trade activities be considered separate enterprises because they consist of a complete set of factors of production and run the full entrepreneurial risk 22

23. Copyright 2010, The World Bank Group. All Rights Reserved. Marketplaces Marketplaces are outdoor locations where goods and services are exchanged The traders have stalls, but not entire stores However, it is also possible to have associated shops Usually, another unit is the owner and operates the location where the market is situated The recommended treatment for such units will be similar to that for department stores when they let out retail space to individual retailers Individual retailers at the marketplace will be treated as separate statistical units The marketplace will have as many local units as there are stalls 23

24. Copyright 2010, The World Bank Group. All Rights Reserved. Markets Marketplaces, street markets, etc. are outdoor locations where goods and services are exchanged They are traditionally in operation in many countries and function in a similar way irrespective of their name and location Often, the markets are permanent, but they can also be temporary Usually, another unit is the owner and operates the location where the market is situated Traders are often required to obtain a license or pay a fee The recommended treatment for such units is as separate statistical units Farmers selling their output at farmers’ markets are not treated as trade units 24

25. Copyright 2010, The World Bank Group. All Rights Reserved. Characteristics of statistical units Characteristics of statistical units are data items used for their unique identification, for their classification within a particular activity area of distributive trade and for the description of various aspects of their structure The main characteristics of the statistical unit are its identification code, location, kind of activity, type of operation, type of economic organization, type of legal organization, type of ownership, size, and demographic characteristics 25

26. Copyright 2010, The World Bank Group. All Rights Reserved. Kind of activity The kind of activity is defined as the type of production in which a unit is engaged It is the principal variable utilized in determining whether or not a given statistical unit is to be included in the scope of distributive trade statistics and to what activity class of distributive trade it belongs It is recommended that ISIC, Rev.4, is used for determining the kind of activity of a unit If a different scheme of national classification of activities is followed by countries full correspondence at least at the two-digit level of ISIC, Rev.4 should exist 26

27. Copyright 2010, The World Bank Group. All Rights Reserved. Principal and other activities The principal activity of a unit is the activity that contributes most to the value added of that unit A secondary activity is an activity carried out by a unit in addition to the principal activity and whose output The value added of a secondary activity must be less than that of the principal activity A productive activity undertaken with the sole purpose of producing one or more common type of services for intermediate consumption within the same enterprise is defined as an ancillary activity Examples are bookkeeping, transportation, storage, purchasing, sales promotion, cleaning, repair and maintenance, security, etc. 27

28. Copyright 2010, The World Bank Group. All Rights Reserved. Criteria for allocating activity The following principles for determining the kind of activity of statistical units are recommended: – The kind of activity of a statistical unit is determined by the nature of its principal activity – If the unit is engaged in several types of independent activities, but the unit itself cannot be segregated into separate statistical units, its kind of activity should be determined according to the class of ISIC with the largest share of value added by using the “top-down” method The top-down method entails, first, the determination of the appropriate highest classification level (one-digit), followed by determination of the lower (two- and three-digit) levels and, finally, of the class (four-digit) level If value cannot be determined, substitutes may be used, notably output or input 28

29. Copyright 2010, The World Bank Group. All Rights Reserved. Vertical integration Units where the different stages of production are carried out in succession by the same unit (vertical integration) should generally be treated like any other form of unit involving multiple activities It should be classified to the class corresponding to the principal activity within that chain, as determined by the top-down method If value added or substitutes for the individual steps in a vertically integrated process cannot be determined comparisons with other units could be used 29

30. Copyright 2010, The World Bank Group. All Rights Reserved. Horizontal integration Unit where activities are carried out simultaneously using the same factors of production (horizontal integration), should be classified by application of alternative indicators, such as gross output It is recognized that there is no good general rule for identifying the single activity that best represents the mix included within this horizontal integration Countries must develop their own rules 30

31. Copyright 2010, The World Bank Group. All Rights Reserved. Specific rules for distributive trade The general principles for determining the kind of activity of statistical units should be supplemented by the following classification criteria specific to distributive trade: – Ideally, the principal activity of the unit should be determined by reference to the value added of the goods sold or the services rendered – In practice it is often not possible to obtain the information on value added for individual products or services – As substitute criterion output should be utilized – The gross margin is the best output indicator for trade activities – Value of turnover is the second-best alternative output indicator – Inputs indicators such as wages and salaries should be considered where no other output substitutes are available 31

32. Copyright 2010, The World Bank Group. All Rights Reserved. Type of operation - wholesale Type of operation refers to different methods of organization of wholesale and retail trade and is used in defining the activities of groups and classes in section G of ISIC, Rev.4. Wholesale trade units can be classified into the following types of operation:  Wholesale trade on own account: wholesalers who buy goods (and thereby assume legal title to them) and sell these goods on own account. The wholesale trade on own account is further subdivided into the following two groups:  Specialized wholesale trade;  Non-specialized wholesale trade;  Commission trade: agents and brokers, who buy and sell goods to others mainly on commission. 32

33. Copyright 2010, The World Bank Group. All Rights Reserved. Type of operation - retail Two broad categories of retail trade organization can be distinguished: store and non-store retailing. It is recommended that the following types of retail trade operations be identified: (a) Retail trade in stores: (i) Specialized stores; (ii) Non-specialized stores : — Food predominantly; — Others; (b) Retail trade not in stores: (i) Retail trade via stall or markets; (ii) Others. 33

34. Copyright 2010, The World Bank Group. All Rights Reserved. E-commerce Broad definition: includes in addition to Internet transfers, transfers made over other computer mediated networks like telephone systems Broad definition is close to the entire class ‘Retail sale via mail-order houses or via the Internet’ Narrow definition: E-commerce only refers to orders received or placed through any Internet application Narrow definition excludes orders received or placed by telephone, facsimile or conventional e-mail Units involved in e-commerce should be classified to the industry of their principal activity Units engaged in e-commerce will be found throughout ISIC 34

35. Copyright 2010, The World Bank Group. All Rights Reserved. Size measures Size of a statistical unit is an important stratification characteristic Different size criteria are used Size based on employment is recommended The following size classification of distributive trade units based on employment is recommended: 1, 2-9, 10-19, 20-49, 50-249, and 250 and more Size based on turnover is an alternative Size based on sales space is another alternative 35

36. Copyright 2010, The World Bank Group. All Rights Reserved. Demographic characteristics Demographic characteristics provide information about the period of economic activity of a given unit Demographic characteristics play a significant role in identifying units as a target population for statistical surveys They can also provide useful information on the dynamics of units Activity characteristics to be recorded in statistical business registers include: (a) in operation since (date); (b) temporarily or seasonally inactive; (c) ceased operation (date); and (d) sold or leased to another operator (name of new operator) Besides information about the activity status of the unit (active or temporarily inactive), this also helps in interpreting the returns submitted by statistical units 36