What is Retail? Defining Retail in 2024

Retail is a type of business model where merchants sell products to consumers for their own personal use.

Retailing, on the other hand, is the act of conducting retail business.

In today’s world, retail transactions occur through a host of different “channels” from the traditional brick-and-mortar storefront, to online ecommerce platforms, direct sales, and even via mail.

While the retail landscape makes up a crucial part of the global economy, many business leaders and consumers still don’t fully understand what retail means, or how it works.

Here, we’ll share our simple guide to what retail is, how it works, and the players in the retail landscape.

What is a Retailer?

A retailer is the person or group responsible for running a retail business and selling products to consumers.

Retailers can come in many forms, such as:

• Independent retailers: An individual or group who builds a business from the ground up, handling the management of the business themselves. Independent retailers juggle multiples roles, dealing with everything from product procurement to marketing.
• Franchise: Franchise owners purchase ready-made retail businesses from an existing company. Franchises have existing product lines, trademarked names, and business models. Retailers can enter into deals to become a franchisee, in exchange for a free.
• Dealership: A dealership is a cross between an independent retailer and a franchise. A retailer that works with a dealership has a license to send a specific brand of products, or multiple branded products, with no fees to the licensor.

How Retail Works: The Retailer Supply Chain

Retail relies on a supply chain that consists of four key players: manufacturers, wholesalers, retailers, and consumers.

Here’s how each player contributes to the retail process:

1. Manufacturers establish the retail supply chain by transforming raw materials into products that can be sold. For instance, they might create clothing from cotton and polyester, or toys from plastic, paint, and wood.
2. Wholesalers or distributors purchase products in bulk from manufacturers at a discounted price, then sell them onto retailers, often at a slightly increased price.
3. Retailers purchase the goods from distributors or wholesalers in large quantities, then sell those goods in smaller quantities to end users for their personal use. They’re also responsible for marketing the goods, and fulfilling orders.
4. Consumers end the supply chain, purchasing goods from the retailer to satisfy their specific needs and wants.

The Different Types of Retail

There are various types of retail models out there, particularly in today’s evolving digital market. In fact, according to industry statistics, there are more than three million retail trade businesses in the US alone, each with their own strategy for sales.

Most retailers are defined by the products or goods they sell. For instance:

• Hardline retailers: Companies that sell products designed to last a long time, such as cars, furniture, technology (computers and phones) or appliances.
• Soft goods or consumable retailers: Brands that sell items such as clothing, toiletries, shoes, and other essential items.
• Food and grocery retailers: Which sell produce, baked goods, beverages, and other forms of consumables.

Within each category, there are also various types of retail stores, such as:

Permanent Brick and Mortar Stores

Permanent brick-and-mortar stores are considered one of the most traditional types of retailers. They run a physical store, either leasing or purchasing a space where they can store and sell inventory.

These stores can come in a variety of styles, such as:

• Department stores: Large stores where customers can purchase lots of different types of products under one roof. Examples include Target and Macy’s.
• Big Box stores: Major retailers that specialize in one type of products, such as home décor (Bed Bath and Beyond), or electronics (Best Buy).
• Discount stores: Department stores that specialize in selling discounted items and value brands, such as Dollar General.
• Mom-and-pop stores: Smaller niche stores run by smaller business owners. These types of stores include local storefronts and corner shops.

Ecommerce or Online Stores

Ecommerce or online retail stores (otherwise known as e-tail stores), or digital environments where companies can sell products through the web.

Ecommerce can take many different forms in today’s world. You can sell products through your own site, created with a platform like Shopify, Wix, or WooCommerce.

Alternatively, you might sell through an existing third-party marketplace like Amazon, Etsy, or Ebay.

In some cases, it’s also possible to sell products directly through social media platforms, such as Instagram, Facebook, or TikTok.

Pop-Up Shops and Markets

Pop-up shops are an interesting form of retail activation that has grown increasingly common in recent years. In fact, one study found companies experimenting with pop-up shops have increased their sales by up to 46%.

With a pop-up shop, you only launch a physical store for a short time, such as a few days or a couple of months.

The impermanent store allows people to interact with your brand and test products in person, while building brand awareness for your social media stores, ecommerce store, or marketplace storefront.

Markets are another form of temporary retail opportunity which allow merchants to set up small tables or booths where they can sell their products to consumers.

Sometimes, these markets run on a regular basis, or they might be launched as one-time events.

One-time events are often considered “event-based retail” opportunities. For instance, you might participate in fairs, or festivals that allow vendors to sell their products.

How Retail Companies Make Money (Profits)

Every member of the retail supply chain makes a profit by adding a profit margin into the purchase price for the customer they’re targeting.

Manufacturers calculate their profit margin after accounting for the costs of creating and packaging their goods.

Wholesalers and distributors consider the cost of purchasing the product from a manufacturer, then add their own profit margins. Retailers then add another profit margin onto the item before it reaches the end customer.

For instance, if a product costs $1 to make, a manufacturer might sell it to wholesalers for $2, then the wholesaler could sell it to the retailer for $3, and the retailer sells it to customers for $4.

Every member of the retail supply chain calculates and applies profit margins using their own unique strategy. Often, the biggest “price bump” is added by the retailer.

This is because retail businesses need to account for various costs that incur additional expenses and overheads, such as shipments, logistics, running a physical store, or paying for ecommerce software.

The Importance of Retail for Our Economy

Retail is a cornerstone of our global economy. According to studies, the retail landscape is responsible for more than 52 million jobs just in the United States. In fact, around 1 in every 4 US careers has something to do with retail.

What’s more, there are more than 4.2 million retail establishments in the US, that account for around $1.6 trillion of the country’s GDP. Without retail, and retailers, the world would be a very different place, as would the process we used to access goods.

However, the retail landscape is constantly evolving. Just like many industries, retail has been affected by global transformation, digital evolution, and new economic trends.

While the styles of retail store we see in the modern world, and the strategies retailers use may change, retail will always remain a crucial part of our economy.

Frequently Asked Questions (FAQs)

The Bottom Line

Retail is a well-known business model that has had an impact on the world for some time now. Although the “retail” landscape has gone through various changes over the years, particularly with the rise of online and mobile selling, retail remains a cornerstone of our world.