What Is Retail? Understanding the Industry's Quick Evolution

I sell, therefore I am...

In a world teeming with online marketplaces and constant digital innovations, starting or growing a successful retail business can feel overwhelming. The challenges are real, the competition is fierce, and the stakes have never been higher.

But understanding the core principles of retail is the key to unlocking success.

Navigating the retail world requires thoughtful planning. From choosing the right products to delivering top-notch customer service, every detail matters.

Luckily, technology offers a helping hand. With the use of retail management software, businesses can streamline operations, gain valuable insights, and boost profitability, creating a more efficient and sustainable retail experience.

Ready to begin your retail journey? In this article, you’ll find the tools and knowledge you need to turn your retail dreams into reality.

What is a retail sale?

A retail sale occurs when a business sells its products or services directly to an individual customer for personal consumption. The key distinguishing factor is that the buyer is the end user, which defines the transaction as a retail sale.

Retail falls within the business-to-consumer (B2C) market, where retail transactions occur exclusively between businesses and consumers. Together, these transactions form what we refer to as the retail market.

Traditionally, retail transactions took place in brick-and-mortar stores, where customers would select their items, bring them to the cash register, and pay using cash or a credit card at checkout.

However, retail is constantly evolving. Today, consumers can make purchases through various channels, including e-commerce, direct sales, and direct mail marketing. In this digital age, retail software has simplified the buying and consuming process.

Many retail businesses now adopt a multichannel approach, allowing them to sell products both in-person and online, enhancing convenience for their customers.

Importance of the retail industry

The retail industry plays a vital role in the economy, serving as a critical link between manufacturers, warehouses, consumers, entrepreneurs, and the overall market. Retailers facilitate widespread distribution by offering a diverse range of products in significant quantities. Key reasons why retailing is important:

• Final destination in the supply chain: In a retail transaction, the end consumer purchases goods or services directly from the retailer, marking the final step in the supply chain. Retailers play a crucial role in understanding customer preferences and relaying this feedback to wholesalers. By capturing customer insights, retailers can enhance the overall efficiency of the retail supply chain.
• Bulk to retail: Manufacturers often sell products in bulk, requiring retailers to purchase minimum quantities. Retailers then break down these large quantities into smaller amounts to sell to consumers in various formats, making it easier for customers to access the products they need.
• Convenience of shopping: Retail offers customers a choice of shopping environments, from department stores and retail outlets to supermarkets and convenience stores. This variety allows consumers to select their preferred shopping experience based on convenience and personal preference.
• Economic impact: The retail sector is a significant contributor to a country's economy, often ranking among the largest sectors by Gross Domestic Product (GDP). In the United States alone, retail businesses  are the largest private-sector employer, supporting 42 million jobs overall — roughly one-quarter of the U.S. workforce, underscoring the industry's importance as an economic engine.

Types of retail business

As consumers, most of us don’t come in close contact with manufacturers or wholesalers. However, we frequently interact with retailers. Types of retail business include online e-commerce stores, department stores, supermarkets, convenience stores, local specialty shops, and factory outlets.

For each business, different types of inventory are stocked for low-scale, single-point purchases. A lemonade mix from the grocery store or a button-down shirt from a fashion retailer are two examples of consumer needs. 

Major categories of retailers:

• Hardlines: furniture, cars, or home appliances
• Soft goods or consumables: clothing or toiletries
• Food: meat, produce, or baked goods
• Art: fine art, musical instruments, books, or concert tickets

Within these categories, retail stores use different marketing and sale strategies in order to form the best retail model for their customers. For example, some consumers go to a convenience store on a road trip for a quick snack, while others might be looking for a department store to update their wardrobe for a new job. 

To meet the demand of changes in consumer preferences, different types of retailers target different customer expectations and needs. Below are some examples of the different types of retail stores that consumers interact with the most.

• Department store: The oldest, most classic example of a place for consumers to shop. Target and Macy’s are both examples of large retail stores with a variety of inventory.
• Convenience store: Also known as mom-and-pop stores. An example could be your local corner store.
• Big Box store: A major retailer that typically has expertise in selling one kind of product. For instance, Best Buy exclusively sells electronics.
• Specialty store: These are smaller, niche stores run by small business owners. Consumers can normally find them in shopping centers or strip malls. Flower shops or a local bookstore fall into this category.
• Warehouse club/store: A larger warehouse-like store that has low prices, but requires a membership to access. Think Costco and Sam’s Club.
• E-commerce store: Retailers that sell online and deliver goods to your door, like Etsy or Amazon.
• Factory outlet/discount store: Both outlet and discount retailers sell products at a discounted price. Consumers buy brand-name products at outlet stores and discontinued generic-brand products at discount stores.
• Supermarket: These retail giants stock the widest variety of inventory. Supermarkets like Aldi, Walmart, Kroger, or Walmart offer household items, electronics, books, and food.

Types of retailers

Earlier, we discussed the consumer-facing side of retail, but what about the retailer's end of the process? How can a retailer form a business model? And if you’re looking to become a retailer yourself, where do you start?

Different retail models have pros and cons depending on the type of retail business. For example, independent retailers have the benefit of creativity since they build their companies from scratch. However, this model of retailing can be financially risky due to high fixed start-up costs and market barriers.

A franchise's creativity is limited due to specific guidelines in the licensor’s contract, but this model is less risky since the business has market power and financial credibility.

Check out the detailed explanations of each retail model below to see which is the right fit for you.

• Independent retailer: A grassroots method of starting a retail business. An independent retailer typically builds their company from scratch, and although the owner may hire assistants or extra help, they take on a lot of the work solo.
• Existing retail business: This is an established business. If you inherit or buy an existing retail business, you acquire ownership and the responsibilities of upkeep.
• Franchise: A detailed, trademarked business plan with a specific set of products, methods, and principles. A retailer can become a franchise when they agree to the franchise terms and conditions. The retailer or individual gets the right to run a franchise in exchange for payment to the franchise owner under a contractual agreement. McDonald’s is one of the most well-known franchises.
• Dealership: This is similar to the franchise method of running a retail business, minus the fees paid to the owner or licensor. A dealership has the right to sell a specific brand of goods but does not pay extra fees to the owner of the goods. A common example is a car dealership, where you can find dozens of vehicle brands, in contrast to McDonald’s, where you only can purchase McDonald’s food.

Retail supply chain

Before goods end up in the hands of a customer, they have to go through each step of the supply chain. Every time a product is bought or sold – whether it’s from a manufacturer to a wholesaler or from a retailer to a consumer – a price markup occurs.

Supply chain management is an essential part of leveraging retail finances. In order to make a profit, all players in the supply chain markup the price to cover the production or purchasing costs.

Components of a retail supply chain

A retail supply chain consists of various interconnected elements that work together to bring products from manufacturers to consumers. 

• Manufacturers: These are the initial sources of products, including raw materials or finished goods. Suppliers produce or procure items that will be sold in retail.
• Wholesalers: Once products are manufactured, they often move to distributors or wholesalers, who purchase in bulk and sell to retailers. They handle the logistics of getting products to various retail locations.
• Retailers: Retailers are businesses that sell products directly to consumers. This can include physical stores, online shops, or a combination of both. 
• Consumers: The end-users of the products. Understanding consumer behavior is essential for effective supply chain management, as it informs inventory levels, product availability, and promotional strategies.

Processes in the retail supply chain

The retail supply chain involves a series of critical processes that ensure products move smoothly from suppliers to consumers.

• Step 1: Procurement: This involves sourcing products from suppliers, negotiating contracts, and purchasing inventory. Effective procurement ensures cost efficiency and product quality.
• Step 2: Inventory management: Retailers must manage inventory levels to meet consumer demand without overstocking. Techniques like Just-In-Time (JIT) inventory and demand forecasting are commonly used.
• Step 3: Logistics and distribution: This encompasses the transportation and warehousing of goods. Efficient logistics systems ensure that products are delivered to stores or directly to consumers in a timely manner.
• Step 4: Order fulfillment: This process includes receiving orders, picking and packing items, and shipping them to customers. Fulfillment strategies can vary based on whether the retailer operates online, offline, or both.
• Step 5: Returns management: Efficient return handling is crucial for customer satisfaction. This process involves managing reverse logistics and ensuring that returned products are restocked or disposed of appropriately.

To keep it simple, think of a lemonade stand run by an eight-year-old down the street. Let’s say the lemonade mix is produced by a manufacturer at a cost of $1. They then sell it to a brand-name lemonade company for $2. The brand puts a fancy label on it and sells its mix to a local grocery store for $3.

The eight-year-old then goes to the grocery store and buys it for $4 and is now mixing it with ice-cold water on a hot summer day so that they, too, can make a profit within the supply chain. Cha-ching! $1 in profit for the manufacturer, $1 for the brand, $1 for the grocery store, and $1 for the kid.

Brick and mortar vs. online retail

Brick-and-mortar stores play a vital role in the retail landscape. They offer consumers the opportunity to interact with products in person, enhancing the overall shopping experience. 

One of the significant advantages of brick-and-mortar stores is their ability to create immersive shopping experiences. Customers can physically touch, see, and try products before buying, which can lead to higher satisfaction and lower return rates. 

However, while brick-and-mortar stores excel in customer experience, they often have limitations in inventory and product availability. They typically sell smaller quantities of goods compared to online retailers, which can offer a much wider selection due to their digital nature and lack of physical constraints. This distinction highlights the role of online retail, which has become increasingly relevant in today's marketplace.

E-commerce platforms, such as Amazon and eBay, leverage modern marketing techniques to enhance the online shopping experience. They provide consumers with access to vast quantities of products and services, often at competitive prices. Online retailers utilize various strategies to reflect the value of their offerings, including:

• Product reviews and ratings: Customer feedback serves as social proof, influencing potential buyers' decisions and enhancing trust in the brand.
• High-quality media: Detailed photos and tutorials allow customers to visualize products, making them feel more confident in their online purchases.
• Augmented reality (AR): Some online retailers integrate AR technology, allowing customers to visualize products in their own spaces, which enhances the buying experience.
• Flash sales and promotions: Online retailers often employ time-limited sales and discounts to create urgency and encourage purchases.
• Influencer marketing: Collaborating with influencers helps brands reach targeted audiences, build credibility, and create buzz around their products.

Both brick-and-mortar and online retail serve essential roles in the consumer market. Retailers that can effectively blend both approaches—known as omnichannel retailing—stand to benefit the most, creating a seamless shopping experience that meets customer needs across various touchpoints.

Challenges of retail

We’ve all heard the phrase "the customer is always right," but what does this truly mean for today's retailers? In an era of constantly changing consumer preferences, demands, and purchasing habits, retailers must be agile and responsive to the changing landscape.

In 2022, the balance of power has shifted firmly into the hands of the consumer—quite literally. With smartphones in hand, customers can easily scroll, add to cart, and complete purchases from virtually anywhere. This convenience has transformed shopping into an on-demand experience, requiring retailers to adapt quickly to keep up with evolving consumer behaviors.

As digital marketing techniques rapidly evolve—think TikTok influencers driving traffic to Amazon storefronts or seamless Instagram shopping experiences—retailers face the challenge of staying current with trends while ensuring customer satisfaction.

The influx of information from customer reviews, online searches, and social media platforms has empowered consumers like never before. This newfound knowledge shapes their preferences and purchasing decisions, often in real time.

To thrive in this information-driven environment, retailers must harness the power of technology. Investing in advanced retail software solutions can provide valuable insights into consumer behavior, enabling businesses to make data-informed decisions. By leveraging analytics, retailers can anticipate trends, tailor their offerings, and enhance the overall customer experience.

5 p’s of retail management

The 5 P's of retail management are essential elements that guide retailers in developing effective strategies to optimize their operations and enhance customer satisfaction. These components—product, price, place, promotion, and people—work together to create a cohesive retail strategy. Here’s an overview of each:

Product

The product refers to the goods or services offered by a retailer. Understanding the target market's needs and preferences is crucial for selecting the right product mix. Retailers must consider factors such as quality, design, branding, and packaging. Key strategies include:

• Product selection: Offering a diverse range of products that cater to the preferences of different customer segments.
  
• Product quality: Ensuring that products meet quality standards to build brand
  loyalty and reduce returns.
  
• Innovation: Regularly updating product offerings to keep pace with trends and consumer demands.

Place

Place refers to the distribution channels and locations where products are sold. Retailers must strategically select where and how to make their products available to consumers. Key aspects include:

• Store location: Choosing optimal locations for physical stores to maximize visibility and accessibility.
• Distribution channels: Deciding between various channels, such as brick-and-mortar stores, online platforms, or a combination of both (omnichannel retailing).
• Inventory management: Effectively managing inventory levels to ensure product availability while minimizing excess stock.

Promotion

Promotion encompasses the marketing and communication strategies used to reach customers and drive sales. It involves creating awareness and interest in products. Key promotional strategies include:

• Advertising: Utilizing various media channels—such as social media, TV, radio, or print—to promote products and brand identity.
• Sales promotions: Offering limited-time promotions, discounts, or bundling to encourage purchases.
• Public relations and events: Engaging with the community through events or partnerships to enhance brand visibility and foster customer relationships.

People

People represent the staff and customer service elements of retail management. The quality of interactions between employees and customers can significantly impact customer experience and brand loyalty. Key considerations include:

• Training and development: Investing in employee training to ensure staff are knowledgeable about products and provide excellent customer service.
• Customer engagement: Creating positive interactions that build relationships and encourage repeat business.
• Organizational culture: Fostering a culture that values customer satisfaction and empowers employees to enhance the overall shopping experience.

How to start a retail business

Conduct market research

Develop a business plan

Choose a business structure and register

Secure funding and find a location

Launch your business and market it

What can retail software do for your business?

Retail software empowers retail stores with essential tools and capabilities to leverage data, strategies, and methodologies effectively, enhancing customer satisfaction and business performance.

By harnessing the insights provided by this software, business owners and associates can make informed decisions regarding pricing, inventory management, and store layout. The primary goal is to optimize existing systems, elevate the consumer experience, and uncover opportunities to maximize sales.

Modern retail software and point-of-sale (POS) systems offer far more than just cash flow tracking; they deliver vital data on customer behavior, net profits, and product sales. This wealth of information enables retailers to make strategic decisions based on comprehensive insights.

Advanced POS solutions generate detailed inventory reports, allowing retailers to identify sales trends, track sales history, and receive alerts for low stock. Such automation not only saves time but also significantly improves inventory management efficiency.

Moreover, retail software provides a comprehensive view of inventory levels, ensuring that sales figures align with actual product usage. These systems can also be secured to prevent unauthorized access, enhancing overall business security against theft and fraud.

A streamlined checkout process facilitated by retail software leads to faster transactions, encouraging additional purchases and enhancing customer loyalty and satisfaction. A positive shopping experience not only fosters repeat business but also boosts overall sales.

By integrating retail software into their operations, retailers can navigate market complexities with greater agility, drive sales growth, and deliver an exceptional shopping experience for their customers.

Examples of retail software

Maybe the customer is always right, but with the best in retail software, businesses can do retail right, too. 

Retail management software

Retail management systems are designed to manage every aspect of a retail business via a single platform. These tools should encompass all of a retailer’s needs, from point-of-sale to back-office management. The smaller the business, the easier these tools are to use since there is less data that needs to be shared among store locations.

Retail execution software

Integrated with retail POS software, retail management systems, or retail task management software to gather data, retail execution software equips brick-and-mortar stores with tools that use existing data to optimize a store’s sales. Retailers can discover insights surrounding pricing, inventory management, and store layout.

Retail POS software

Retail point of sale is essential. Employees use Retail POS systems to ring up customers to complete purchases. Without a POS, tracking daily transactions and processing credit and debit cards becomes much more difficult.

Some retail POS systems even have back-office features similar to those found in retail management systems. Nowadays, many retailers put POS systems on mobile tablets to make setup and training as easy as possible.

Multichannel retail software

Customer experience is everything. Multichannel retail software ensures that customers have a consistent, streamlined experience across all channels of an e-commerce business.

Connecting offline with online shopping experiences and product information, multichannel retail is a digital marketing strategy that unifies business operations and logistics with data connected to catalog management, product information management (PIM), supply chain operations, and business intelligence tools. 

Retail analytics software

When it comes to strategic decision-making, retail analytics software plays a crucial role. Gaining an in-depth analysis of consumer behavior (shopping patterns) or detailed metrics (retail conversion rate, total sales volume) can make or break a retailer’s success.

The data business owners get from retail analytics software makes it easier for retail analysts and managers to measure company performance in real time.

Retail pricing software

Defining, managing, and analyzing the best pricing strategies for a product is the retailer’s key to improving profitability, sales, and customer retention.

Using predictive analytics and artificial intelligence (AI), retail pricing software informs the retail business about optimal product pricing. It helps retailers establish the best pricing strategy by analyzing historical data and discovering future trends. 

Retail task management software

In the world of retail, task prioritization is crucial for effective team communication between managers, franchises, and employees. With retail task management software, managers can use store data to create a streamlined task assignment system and empower workforce productivity.

Retail moves pretty fast. If you don't stop and look around once in a while, you could miss it.

Retail is an increasingly accessible industry for both businesses and consumers. The wide variety of transactions that take place within the retail marketplace is both intricate and widespread. The supply chain is made up of many parts, with retailers and consumers at the final stage of the process. 

Whether you are a consumer looking to freshen your purchasing power or a retailer hoping to gain knowledge and profit, the world of online shopping and e-commerce is a great place to study. 

Stay ahead of the competition and unlock the potential of the latest retail technology trends. 

This article was originally published in 2022. It has been updated with new information. robust