Informal Retailing: an Analysis of Products, Attitudes, and Expectations

Elaine Sherman, Hofstra University
Kevin McCrohan, George Mason University
James D. Smith, University of Michigan
ABSTRACT - This research was designed to examine consumer involvement with flea markets, an informal retailing institution, which are considered to be part of the underground economy. The paper reports the results of over 600 interviews with shoppers at 15 flea markets. The authors concluded that "heavy" shoppers at flea markets considered the flea market to be an enjoyable place to shop, offering a wide assortment of goods; while "light" shoppers had both product and ethical reservations about flea markets.
[ to cite ]:
Elaine Sherman, Kevin McCrohan, and James D. Smith (1985) ,"Informal Retailing: an Analysis of Products, Attitudes, and Expectations", in NA - Advances in Consumer Research Volume 12, eds. Elizabeth C. Hirschman and Moris B. Holbrook, Provo, UT : Association for Consumer Research, Pages: 204-208.

Advances in Consumer Research Volume 12, 1985      Pages 204-208

INFORMAL RETAILING: AN ANALYSIS OF PRODUCTS, ATTITUDES, AND EXPECTATIONS

Elaine Sherman, Hofstra University

Kevin McCrohan, George Mason University

James D. Smith, University of Michigan

ABSTRACT -

This research was designed to examine consumer involvement with flea markets, an informal retailing institution, which are considered to be part of the underground economy. The paper reports the results of over 600 interviews with shoppers at 15 flea markets. The authors concluded that "heavy" shoppers at flea markets considered the flea market to be an enjoyable place to shop, offering a wide assortment of goods; while "light" shoppers had both product and ethical reservations about flea markets.

INTRODUCTION

Over the past several years economists have explored the phenomenon of the underground economy from a variety of perspectives. Although there seems to be almost as many definitions of the underground economy as there are researchers, there appears to be some agreement that the underground economy is that part of a nation's Gross National Product which should have been measured but is unmeasured, untaxed, or both. For example, do-it-yourself proJects constitute economic activity but should not be measured for GNP, and are therefore not part of the underground economy. While tip recipients may underreport their income for federal income tax purposes, the Bureau of Economic Analysis uses a ratio of reported tips to actual tips to estimate tip income for the National Income and Products Accounts (Pearl and McCrohan 1983). Therefore it is measured but untaxed and part of the underground economy. Off-the-books earnings of a self-employed house painter should be part of GNP but would be difficult to measure and even more difficult to tax and would be part of the underground economy.

Most of the estimates used to measure this underground activity have of necessity been indirect. That is to say, they have used other measures as the basis for their underground economy measure. Those that have been direct have been concerned with dollar measurement or share of production rather than consumer behavior. This paper extends these measures to the consumer level. Whereas the research which is discussed in the next section established that an underground economy of some magnitude existed, this paper explores one small market segment in some depth. The following sections of the paper discuss some of the major studies conducted on the underground economy, the limited research that deals with informal retailing, the present study, and finally presents some conclusions from the preceding analysis.

ESTIMATION METHODS

The most widely used classification scheme for differentiating between the various estimates of the underground economy is to identify them as either direct or indirect measures. Direct measures are based on contract with, or observation of, individuals involved in underground economic activity, while indirect measures use some other indicator to point to this underground activity (Carson 1984).

Direct

The direct approach attempts to measure under-round economic activity by piecing together the components of this economy. Studies using this method are in affect microeconomic in nature as opposed to the indirect approach which has a more macroeconomic orientation. Perhaps the most comprehensive of these is the Internal Revenue Services' research on income tax compliance (IRS 1983). This report measures the unreported legal sector income of income tax filers, non-filers, and illegal sector income from narcotics, illegal gambling and prostitution. They estimate that this unreported income totaled some $284 billion in 1981. Simon and Witte (1982) used a similar approach and estimated that $100-$177 billion evaded income taxes in 1974. Skolka (1983) studied the extent of moonlighting and do-it-yourself activities in two areas of Austria and concluded that a significant share of construction cost, 30 to 40 percent, was earned, or saved, by these two groups of workers.

Indirect

In an excellent recent article Frey and Pommerehne (1980) classify the indirect measures into four categories. The first uses the difference between national account estimates of national income and expenditures against income estimates from tax returns. After adjustments for coverage any "unexplained difference" could represent the underground economy. Park (1979) estimated this difference to be $82 billion for the United States in 1977.

Tax auditing techniques can also provide insight into the underground economy. Although the Internal Revenue Service does not favor the term underground economy they estimate that unreported legal source income was some $250 billion in 1981 (IRS 1983).

Traces of underground activity in the labor market have been used by O'Niell (1983) to estimate an underground economy of $154-349 billion for 1981. Finally, the monetary approach has been used by Gutman (1977) and Feige (1979) to derive underground economy estimates of $176 billion and $330 billion, respectively for 1976.

These very different analytical methods provide some indication of the magnitude and complexity of the underground economy.

MARKET SPECIFIC RESEARCH

While the concept of an "underground economy" has received a fair amount of attention at the macro economic level there is a dearth of research on its market specific impact. Greenberg, Sherman, Topol, and Cooperman (1980) studied the extent of street vending in New York City. They estimated aggregate sales of such vendors to be $113 million in 1979. Mooney (1981) noted that large retailers are effected by the "underground economy" because there appears to be more business available than prior relationships based on reported income would indicate. This can result in incorrect sales proJects and less than optimal site selection. Dolde (1981) also noted that the existence of an "underground economy" increased the difficulty inherent in estimating market potential for appliances. Neither Mooney nor Dolde presented any estimates of the magnitude of the underground sector affecting their firm's operations.

Smith (1982) estimated the amount of informal supplier (entrepreneurs in the underground economy) receipts by measuring the value of household purchases from such vendors. This research identified fifteen broad classes of goods and services purchased by consumers from informal suppliers. These ranged from $12.2 billion in home repair and additions, through $1.7 billion for goods purchased, to $3.3 billion for informally supplied catering services.

THE FLEA MARKET

This current research explores the flea market sector of the informal supplier market. Flea markets are a fascinating retailing institution that at first appear to be definiteLy out of sync with the twentieth century. In an era of the universal product code, stringent consumer protection regulations, shopping malls that resemble Hyatt hotels, and telemarketing it is of more than academic interest to explore the motives of these consumers. One would expect flea markets in feudal Europe or parts of the present day middle east, not in major metropolitan areas of the United States. Nationally the amounts spent in flea markets are far from trivial, totaling some $1.7 billion in 1981 (Smith 1982).

Even before the underground economy became a topic of practical, political, and economic interest, flea markets had attracted some attention in the social science literature. Pyle (1971 studied the persistence of farmer's markets as an alternative distribution system for agricultural products. The continued strength of this institution was explained by its social value, ability to serve the needs of both producers and consumers, and its economic advantages. The study concluded with the observation that flea markets offered a similar set of benefits to participants. Maisel (1974) also noted that the flea market was as much a place to socialize as it was s place to facilitate the informal exchange of goods.

Bellenger and Korgaonkar (1980) compared recreational shoppers (those consumers who enjoy shopping and consider it a leisure activity) with economic shoppers (those who are basically neutral to or dislike shopping and view it from a strictly time or money-saving perspective). Although they did not examine them in a flea-market context, their results indicate that recreational shoppers exhibit different preferences and are an especially profitable consumer segment.

Trinkaus (1980) investigated the price awareness of buyers at flea markets. He found comparatively low price awareness on the part of consumers and suggested that the chaotic nature of flea market transactions may cause this. Razzouk and Gourley (1982) found that most flea market shoppers ha. previously purchased products at the same flea market. They also found very little dissatisfaction with the products purchased. Consumer motives for shopping at flea markets were found to involve the search for bargains, the fun of being around people and just browsing, and the assortment of merchandise available.

The preceding review of the limited research dealing with flea markets indicated that consumers view shopping at flea markets to provide economic ( lower prices), shopping (assortment of goods and proven satisfaction), and social (the bargaining process or the enjoyment of other shoppers company) benefits.

METHODOLOGY

Data Gathering

Data for this research were drawn from a survey of flea market customers who were interviewed on a random basis by interviewers at 15 ma,) or flea markets located in suburban communities adjacent to a large Northeastern city. Within the context of the present research, a flea market was defined as organized market where vendors bring a wide variety of goods to sell. A total of 681 questionnaires were distributed during April, 1983. Of this number eleven respondents did not make even a single purchase. These respondents were eliminated, leaving a total effective sample of 670.

Questionnaire and Measurement Variables

The questionnaire used to generate the data for this research consisted of four major sections that relate flea market shopping behavior to household expenditure levels at flea markets.

Household Expenditure Levels. The first section asked questions about the type and amount of purchases made at flea markets during the past year. Questions about method of payment were also included. In this section subJects were asked to indicate whether or not they had purchased any of the following products at a flea market: appliances, antiques, housewares (e.g., china, glassware, and silverware), furniture or rugs, lawn mowers or maintenance tools, and small appliances. They were also given an opportunity to add other purchases.

Shopping Behavior. The second section of this questionnaire dealt with shopping behavior of respondents. Particular emphasis was placed on questions dealing with economic motives such as selecting the cheapest brand, selecting the brand on sale, or choosing a nationally advertised brand. Other questions dealt with any increase or decrease over the preceding years expenditures at flea markets; and, finally, returning to the same vendors before checking an; new ones.

Positive and Negative Disposition Attitudes. The third section of the questionnaire proved both positive and negative aspects of shopper attitudes about flea markets. Fourteen questions were asked to explore the advantages and disadvantages of flea market shopping. If respondents indicated that they would shop "more" or "less" at a flea market in the future, additional questions were asked concerning their agreement or disagreement with a number of statements about flea markets in general.

Hypotheses

Several hypotheses were generated from the literature on flea markets and from the consumer behavior literature in general. In order to compare the relationship between expenditure levels at flea markets, and shopping behavior, attitudes towards flea markets in expectations, the following hypotheses were developed:

H1: Risk reducing flea market shopping behavior would be positively related to expenditures at flea markets.

It is suggested that flea market shoppers would buy nationally advertised brands or the brands on sale, but not the cheapest brand. They would also return to vendors they had previously dealt with. This shopping behavior may reduce the risk shoppers may feel at flea markets.

H2: Favorable (negative) attitudes towards flea markets would be associated with higher (lower) expenditures at flea markets.

Those shoppers who have favorable attitudes towards flea markets, such as those who perceive friendlier service, or pleasurable experience shopping for bargains, will tend to spend more at flea markets. Those shoppers with more unfavorable attitudes towards flea markets, such as those who perceive poor quality, or the possibility of stolen merchandise, will tend to spend less at flea markets.

H3: Expectations concerning additional future shopping at flea markets would be positively related to present expenditures at flea markets.

Shoppers who are currently "heavy" buyers at flea markets will plan to purchase more at the flea markets next year, while those who are currently "light" buyers at flea markets will anticipate spending less or the same in the future.

H4: Flea market shopping expenditure levels would be positively related to shopping with friends.

Those buyers who shopped with friends would tend to spend more, possibly because of the "social" aspect of shopping than those who shopped alone.

RESULTS

Respondents reported that Jewelry, toys, and clothing were the product categories most frequently purchased. As Table l indicates, approximately 93 percent of the respondents had purchased Jewelry, toys or clothing at a flea market during the preceding year. Small appliances and china or kitchenware were purchased by approximately 20 percent of the respondents. Other product categories worth noting are: cosmetics (3 percent), pictures and postcards (2 percent), and linens (l percent).

TABLE 1

TOTAL EXPENDITURES BY CATEGORY

It is possible that logistical considerations, rather than consumer preference, dictate this product assortment. Specifically, interviewers noted the apparent vendor preference for small easily transported high turnover items. While not concerned with turnover consumers do appear to have a preference for small easily carried items. An overwhelming majority (91 percent) of the respondents reported that they always paid for their purchases with cash. This may be related to a desire on the part of the vendor to avoid paying the various taxes due, or it may be due to the size of the average purchase. or a desire to avoid bad debts.

The result of this study are summArized in Table 2.

TABLE 2

CHI-SQUARE ANALYSIS OF VARIABLES CROSS-TABULATED WITH FLEA MARKET EXPENDITURE LEVELS

Shopping Behavior

The hypothesized links between expenditure levels and shopping behavior and attitudes are presented. The results were mixed, with certain items significantly related to higher or lower expenditure levels.

In testing hypothesis 1 -- that risk reducing flea market shopping behavior would be positively related to expenditures at flea markets -- the results were mixed. Neither tile selection of the nationally advertised brand nor buying the brand on sale are significantly related to expenditure levels. However, a significant relationship is found between higher expenditures and the buyers who return to vendors where they had previously shopped. Avoidance of the cheapest brand was significant. This lack of a significant relationship with popular brands was not expected in t.lat it was hypothesized that the "risky" nature of flea market transactions would result in consumers using indicators such as brands to minimize the risk.

Favorable Attitudes

Hypothesis 2 was supported in that there was a link between several favorable attributes of flea markets and higher expenditures. The results strongly indicate a positive relationship between those who agreed that there were several advantages to shopping at flea markets and current expenditure levels. Those spending more thought it was fun to shop for bargains, that there was friendlier service, and they were pleased with the selection of products offered. Although it was not significant at the .05, level there was a positive relationship between expenditures and the perception of flea markets as places that offered low prices.

Unfavorable Attitudes

Also supporting hypothesis 2, the results reveal that those respondents who viewed several factors as being disadvantages of flea markets spent less money shopping at flea markets. Disadvantages such as poor quality, lack of guarantees, and the lack of return privileges were all negatively associated with expenditure levels. Concern that the products may have been stolen or that the vendor may not be paying required taxes were two other attributes that were negatively associated with expenditure levels. However, concerns over product selection or cost were not associated with expenditure levels.

Expectations

Supporting hypothesis 3 that expectations concerning additional future shopping at flea markets would be positively related to present expenditure levels, the findings indicate that those who expected to purchase more goods at flea markets in the upcoming year had significantLy higher current year expenditures. Respondents were also asked if they intended to purchase more, the same, or less at flea markets in the upcoming year. Most (44 percent) expected to purchase more while only 11 percent expected to purchase less.

Shopping with Friends

The finding did not support hypothesis 4 that those buyers who shop with friends will purchase more at flea markets than those shopping alone. Therefore, although certain favorable aspects of flea market shopping are linked to higher expenditures, such as "it's fun to shop for bargains," the size of the shopping group, when comparing one, or two or more shopping, did not influence shopping expenditures. The notion that some level of risk of purchase decisions at flea markets would be reduced by shopping with two or more people was not supported.

CONCLUSIONS AND IMPLICATIONS

This study is considered exploratory in light of the few attempts to study this retailing phenomenon. Therefore it has several limitations in terms of generalizability to a larger population. The possibly overwhelming cost and methodological difficulties that would be encountered in an attempt to generate a random sample of flea market customers dictated the use of intercept interviews at major flea markets within the sampling area. Smith (1982) and estimated that less than 20 percent of U.S. households purchased products at flea markets. Therefore, estimates of regional or national expenditures are not possible. The interviewing environment itself appeared to be more amenable to generating attitudinal and behavioral information concerning attitudes towards flea markets rather than a precise estimate of expenditures.

With these caveats in mind the following conclusions and implications can be drawn from the results.

These results suggest that the perceptions that consumers hare about flea markets are associated with their patronage behavior. Those that agreed with statements reflecting more positive attitudes towards flea markets, such as "there is a good selection of products" tended to spend more money. However, results were mixed, since several other items such as "products sold at low prices" were not found to be significant. The desire to explore some of the attributes associated with retail patronage sheds light on those factors consumers consider important. Thus, respondents with positive predispositions view flea markets as places with friendlier, more personal service; where they can have fun shopping for bargains. These traits suggest that "heavy" flea market shoppers are likely to be recreational shoppers. As Bellenger and Korgaonkar (1980) indicate, recreational shoppers enjoy shopping as leisure-time activity, and are a profitable consumer segment. Thus, the results indicate that flea market vendors may find it profitable to actively pursue this shopper and seek ways to satisfy their needs.

Among those shoppers who held negative attitudes towards flea markets concerns were voiced with both product related and ethical issues. However, these consumers did not express a concern over prices but rather quality, selection, guarantees, and return privileges. This apparent lack of concern with price is consistent with Trinkus (1980), who had found a low level of price awareness among flea market shoppers. It is possible that vendors will begin to react to some of these non-,?rice issues and the flea market may evolve into a more "formal" retailing institution.

"Light" shoppers at flea markets expressed reservations with the source of the products (were they stolen goods), as well as the possibility that the vendor was avoiding paying the required Waxes. These may be valid concerns and could be used as a theme for jurisdictions attempting to demarket consumer use of flea markets.

These concerns also suggest a need for additionaL more theoretical research investigating the possible influence of the level of perceived risk on patronage behavior at flea markets. Prior research including Hisrich, Dornoff and Kernan, 1972; Cox, 1967; Korgaonkar, 1982, expanded the relationships between level of risk and various patronage aspects. Purchasing at a flea market can be perceived as involving more risk and less guarantees. These perceptions .might be inhibitions for shopping at flea markets, despite the lower prices.

The results of the present research also suggest that future growth in flea market shoppers is more likely to come from additional purchasing from established customers. The customers who spend more "heavily" at flea markets now, also are those who plan to spend more next year.

In support of other studies on the underground economy which have identified the existence and growth of this form of informal retailing, the present study also found a vibrant market place and suggests growth. In our sample, an average household spent approximately $240 at flea markets during the preceding year. Households which spent the most also expected to increase their expenditures at flea markets. Certainly the present and future receipts of vendors will be difficult to tax because of the overwhelming use of cash in the transactions. It is also interesting to note that although concerns over stolen goods and vendor tax avoidance resulted in some consumers purchasing less at flea markets, it did not stop them from shopping at the flea market or making purchases while there.

The preceding discussion suggests the need for further research on the flea market and its impact on other forms of retailing. For example, the present study has concentrated on consumer attitudes towards flea markets as they relate to household consumption levels. Future studies may explore the organization of the flea markets, the vendors, and the public policy tradeoffs of an institution that is uniquely organized to allow for the avoidance of administrative and legal business obligations but can also provide subsidized entry into the formal economy. The subsidy in this situation being the ability to avoid some operating costs and tax payments.

It would also be advisable that future research investigate the behavioral and socioeconomic characteristics of the flea market shopper. It is possible that formal retailers could modify some of their present merchandising practices to appeal to this group.

Still further, an interesting avenue for future research would be to compare the buying decision process of flea market consumers with those who do not patronage flea markets. This investigation could have applications for both flea market vendors and other types of retailers in planning future retail strategies.

Finally, further research is needed in such areas as the "image" of flea markets, issues related to patronage effects of various merchandise and service shortages, and the relationship between changes in perception of flea market attributes and possible changes in customer patronage behavior.

REFERENCES

Bellenger, Dan and Pradeep Korgaonkar (1980), "Profiling the Recreational Shopper," Journal of Retailing, 56, 84-85.

Carson, Carol S. (1984), "The Underground Economy: An Introduction," Survey of Current Business, 64, 21-37.

Cox, Donald, ed (1967), Risk Taking and Information Handling in Consumer Behavior, Boston: Harvard University.

Dolde, Walter (1981), "Indications and Implications of the Underground Economy for Consumer Desirables," in Richard Bove and Thomas Klingenstein, Wertheim's Underground Economy Conference, Wertheim & Co., Inc.

Frey, Bruno S., and Werner W. Pommerehne (1980), "Measuring The Hidden Economy: Though This Be Madness, There Is Method In It," Vito Tanz, Underground Economy in the U.S. and Abroad, Lexington, MA: A.C. Heath.

Fiege, Edgar (1979), "How Big is the Irregular Economy?", Challenge Magazine, 22, 5-13.

Greenberg, Jerome, Elaine Sherman, Martin Topol, and Kenneth Cooperman (1980), "The Itinerant Street Vendor: A Form of Non Store Retailing," Journal of Retailing, (Summer), 56, 66-80.

Gutman, Peter M. (1977) , "The Subterranean Economy," Financial Analysts Journal, 33, 24-27, 34.

Internal Revenue Service ( 1983), Income Tax Compliance Research, Washington, D.C.: Department of the Treasury.

Hisrich, Robert D., Ronald J. Dornoff, and Jerome B. Kernan (1972) , "Perceived Risk in Store Selection," Journal of Marketing Research, 9 (November), 453-459.

Korgaonkar, Pradeep (1982) , "Consumer Preferences for Catalog Showrooms and Discount Stores: The Moderating Role Of Product Risk," Journal of Retailing, (Fall), 58, 76-87.

Maisel, Robert (1974) , "The Flea Market as an Action Scene," Urban Life and Culture, 2, 488-505.

Mooney, Robert (1981), "The Impact of the Underground Economy on the Retail Sector," in Richard Bove and Thomas Klingenstein, Wertheim's Underground Economy Conference, Wertheim & Co., Inc.

O'Neill, David (1983) , Growth of the Underground Economy, 1950-81: Some Evidence From the Current Population Survey, Washington, D.C.: Joint Economic Committee, Congress of the United States.

Park, Thae (1979) , "Reconciliation Between Personal Income and Taxable Income, 1947-1977," in Mimeographed, Washington, D.C.: Bureau of Economic Analysis.

Pearl, Robert and Kevin F. McCrohan (1983) , of Tip Income in Eating Places, 1982," Statistics Income Bulletin, 3, 49-54.

Pyle, Jane (1971) , "Farmers' Markets in the United States: Functional Anachronisms," Geographical Review, 61, 167-197.

Razzouk, Nabil and David Gourley (1982), "Swap Meets: Profile of Shoppers," Arizona Business, 29, 8-19.

Simon, Carl P. and Ann D. Witte (1982), Beating the System: The Underground Economy, Boston: Aubern House Publishing Co.

Skolka, Jini (1983), "The Parallel Economy in Austria," Paper Presented at the International Conference on "The Economics of the Shadow Economy," cited in Carson.

Smith, James (1982), The Measurement of Selected Income Flows in Informal Markets, Ann Arbor, MI: Survey Research Center. Institute for Social Research.

Trinkus, John (1980), "Buyer's Price Perception at a Flea Market. An Informal Look," Psychological Reports, 46, 266.

----------------------------------------