DECA Retail Merchandising Practice Exam

Which integration term involves a retailer that expands into wholesaling?

1. Forward integration

2. Backward integration

3. Vertical integration

4. Horizontal integration

The correct answer is: Vertical integration

The concept of vertical integration refers to a company's expansion into different stages of production or distribution within the same industry. In the context of a retailer expanding into wholesaling, this action reflects vertical integration because the retailer is moving into a new part of the supply chain, specifically the wholesale segment. Vertical integration can take two forms: forward integration and backward integration. Forward integration occurs when a business moves closer to the customer, such as a manufacturer selling directly to consumers. Backward integration, on the other hand, happens when a retailer moves upstream in the supply chain, such as taking over the supply of raw materials or components used in their products. Therefore, by expanding into wholesaling, a retailer is integrating vertically to control more of the distribution for its products, enabling it to potentially lower costs, increase efficiency, and have better control over inventory and pricing. This strategic move allows them to influence other parts of the supply chain, hence fitting the definition of vertical integration.