Retail is a very broad term that encompasses a huge industry, employing millions of people and generating trillions of dollars per year in sales revenue. Retail is the sale of goods to consumers—not for them to sell, but for use and consumption by the purchaser.
This knowledge can help you gain an understanding of the processes involved in getting merchandise to the shelves and the effect a supply chain can have on pricing and sales.
What Is Retail?
Retail involves the sale of merchandise from a single point of purchase directly to a customer who intends to use that product. The single point of purchase could be a brick-and-mortar retail store, an internet shopping website, or a catalog.
Retailing is all about attracting consumers through product displays and marketing. Inventory must be kept, shelves must be kept full, and payments have to be collected. Retailers are more than places to purchase merchandise, however—they provide manufacturers an outlet so that they can focus on creating their products.
In essence, retailing is the culmination of many different processes brought together to create sales.
How Does Retailing Work?
Retailers rely on a system that supplies them with merchandise to market to consumers. To acquire inventory and ensure they have the products they want to sell, relationships must be established with businesses that operate within the retail supply chain.
The retail supply chain consists of manufacturers, wholesalers, retailers, and the consumer (end-user). The wholesaler is directly connected to the manufacturer, while the retailer is connected to the wholesaler.
The roles of the key players in a typical retail supply chain are:
- Manufacturers: Produce goods using machines, raw materials, and labor
- Wholesalers: Purchase finished goods from the manufacturers and sell those goods to retailers in large bulk quantities
- Retailers: Sell the goods in small quantities to the end-user at a higher price, theoretically at the manufacturers suggested retail price
- Consumers: Buy the goods from the retailer for personal use
There are exceptions to this traditional supply chain, however. Some of the world's largest retail companies—like Walmart and Amazon.com, for example—are large enough to deal directly with manufacturers without the need for a wholesaler in the middle of the transaction, because they have their own shipping and storage facilities.
Wholesalers purchase merchandise from manufacturers at negotiated prices. They then mark up their prices to cover their purchasing and generate profit—retailers, in turn, do the same. While this seems as if it might raise prices for consumers, it actually keeps prices lower than if manufacturers had to market their own goods and provide shopping experiences for consumers.
Retail is highly influenced by consumer behavior, the seasons, economic conditions, geography, and many other factors.
Retailers have to understand their market segments to be able to attract customers and sell merchandise. For example, a Walmart in Florida might not stock many heavy winter coats, but one in Maine probably will.
Customer experience is also something retailers work to achieve. Consumers differ greatly in their preferences in shopping. To provide a unique shopping encounter, some retailers offer services in addition to retail transactions like personal shopping consultations, gift wrapping, or other encounters to add to the experience, exceed customer expectations, and build brand loyalty.
Types of Retailers
There are different types of retailers that specialize in various sales techniques and cater to different consumer types. They each provide different experiences—sometimes offering direct purchasing from a manufacturer, or providing a wide range of merchandise. Others are based more on convenience.
Traditional department stores sell a wide range of merchandise that is arranged by category into different sections in the physical retail space. Some department store categories include shoes, clothing, beauty products, jewelry, housewares, and more.
Grocery Stores and Supermarkets
These retailers sell all types of food and beverage products, and sometimes also home products and consumer electronics as well.
Warehouse-type facilities such as Sam's Club stock a large variety of products packaged in large quantities and sold at prices lower than retail. They generally sell in bulk or in quantities not otherwise available in other retail outlets.
These specialize in a specific category and brand-name products. Victoria's Secret and Nike are examples of specialty retailers, generally selling only merchandise that carries their brand name or is associated with it.
For on-the-go consumers, these are usually a retail location that primarily sells gasoline—they sell a limited range of grocery merchandise and auto care products at a premium "convenience" price.
Discounters sell a wide variety of products that are often privately labeled or generic brands at below-retail prices. Discount retailers like Family Dollar, Dollar General, and Big Lots will often source closeout and discontinued merchandise at lower-than-wholesale prices, which passes savings onto consumers.
Internet shopping websites ship the purchases directly to customers at their homes or workplaces, without the expenses of traditional brick-and-mortar retailers. They usually sell merchandise for a lower-than-retail price, using warehouses for storage and developing relationships with warehouses, vendors, and sometimes manufacturers to provide goods at reduced prices.
- Retailers provide consumers with goods from the manufacturer.
- Retailers reduce the costs of goods sold for manufacturers.
- Retailers provide customer experiences that manufacturers and wholesalers would be hard-pressed to achieve.
- Different types of retailers use different tactics to generate sales.