What is Retail?
A retail sale occurs when a business sells a product or service to an individual consumer for his or her own use. The transaction itself can occur through a number of different sales channels, such as online, in a brick-and-mortar storefront, through direct sales, or direct mail. The aspect of the sale that qualifies it as a retail transaction is that the end user is the buyer.
Types of Retail Businesses
There are an estimated 3.7 million retail establishments in the U.S., from stores to restaurants to salons to gas stations, pest control providers, and auto mechanics. Those businesses employ close to 42 million people, making retail the nation’s largest private sector employer.
There are four major categories of retailers:
- Hardlines – things that tend to last a long time, such as appliances, cars, and furniture
- Soft goods or consumables – things like clothing, shoes, and toiletries
- Food – things like meat, cheese, produce, and baked goods
- Art – things like fine art, as well as books and musical instruments
Within those categories you’ll also find different types of retail stores. Some of the most common types include:
- Department Stores – the oldest, and often largest, place for consumers to shop for a variety of products under one roof. Target and Macy’s are examples.
- Big Box Store – major retailers that specialize in one type of product, such as electronics. Best Buy and Bed Bath and Beyond are examples.
- Discount Stores – department stores that stock discounted items and lower priced brands. Walmart and Kmart are examples.
- Warehouse Stores – these no frills warehouses often require you to be a member to access their low prices. BJs and Costco are examples.
- Mom-and-Pop Stores – smaller, often niche stores run by small business owners. These are your corner stores and local storefronts.
- E-tailers – online retailers that sell via the internet and have products delivered to your door. They typically do not have physical stores. Amazon and etsy are examples.
Retail Finances
The retail supply chain generally consists of four players: manufacturers who produce the goods, wholesalers or distributors who buy from manufacturers and resell to retailers, and retailers who buy from wholesalers and then sell to consumers. At each step in the chain there is a markup, or profit margin, built in to the purchase. Manufacturers calculate their cost of making a product and then add on a profit percentage before selling to wholesalers. Wholesalers do the same thing, adding a profit percentage to what they paid for the products. And retailers add their own profit margin to the cost of the product before selling it to their end customer, the user.
So a product that costs $1 to make, might be sold to wholesalers for $2. Wholesalers buy it for $2 and then sell it to retailers for $4. And then retailers buy it for $4 and sell it to buyers for $8. That’s how everyone along the way makes money.
Point of Sale
To complete a sale, retail stores have traditionally had customers bring their purchases to a cash register, where a clerk tallies the total cost and rings up the sale. Today, some supermarkets have self-check-out lanes, where customers can scan their items and check out using a credit card or cash. Customers buying online shop on their computer screens, click to select the products they want, and then type in their credit card information to complete the sale.