What Is Retail? Definition & Guide (2023) - Shopify (2024)

Retail describes the sale of a product or service to an individual consumer for personal use. Retail transactions occur through different sales channels, such as online, in a brick-and-mortar storefront, in direct sales, or via mail. The defining feature of a retail transaction is that the end user is the buyer.

Types of retail businesses

There are about three million retail trade businesses in the United States. Retail is the largest employment sector in the country, with 9.8 million employees directly tied to the retail sector.

Walmart, Amazon, and Costco are the largest retail companies in the world.

Retailers are often described by the types of goods they sell, such as:

• Hardline retailers, which sell things that tend to last a long time, such as appliances, cars, and furniture
• Soft goods or consumables retailers, which sell items like clothing, shoes, and toiletries
• Food and grocery retailers, which sell produce and baked goods
• Art retailers, which sell fine art, as well as books and musical instruments

Within those retail categories, you’ll also find different types of retail stores. Some of the most common store types include:

• Department stores: The oldest, and often largest, place for consumers to shop for various products under one roof. Target and Macy’s are examples.
• Big box stores: 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 value brands. Dollar General and Aldi are examples.
• Mom-and-pop stores: Smaller, often niche stores run by small business owners. These are your corner stores and local storefronts.
• Ecommerce stores: Online retailers that sell via the internet and deliver products to your door. Vuori and Ring are examples.

Retailer vs. retailing

In simple terms, retailing is the act of selling goods directly to the end user. A retailer is the performer of the action. Here are two common types of retailers:

Independent retailer

An independent retailer is an entrepreneur who builds a retail business from the ground up. They often juggle multiple roles, from buyer to salesperson to brand marketer.

Franchise

A franchise is a ready-made business. Franchises have trademarked names, product lines, and an existing business model. Retail establishments can enter into deals to become a franchisee and benefit from the franchisor’s established market position—in return for a fee.

Retail supply chain

The retail supply chain consists of four players:

1. Manufacturers who produce goods
2. Wholesalers or distributors who buy goods from manufacturers
3. Retailers who buy goods from wholesalers
4. Consumers who buy goods from retailers

1. Manufacturers

Manufacturers start the retail supply chain by transforming raw materials into finished goods. For example, a toy manufacturer might take plastic, paint, and other materials to create a line of action figures.

2. Wholesalers

Wholesalers buy goods in bulk from manufacturers at lower prices and then sell them to retailers. For instance, a book wholesaler might buy thousands of copies of a new novel from a publisher, and then distribute them to bookstores nationwide.

3. Retailers

Retailers buy goods in large quantities from wholesalers or directly from manufacturers, then sell those goods in smaller quantities to the end users. A local hardware store, for example, might buy pallets of paint from a wholesaler and then sell them individually to shoppers.

4. Consumers

The consumer is the end of the retail supply chain. They buy goods from the retailer in small quantities to satisfy personal needs or wants. Consumer retail purchases can be anything—from buying a snack at a convenience store to hiring a landscaping team for your backyard.

Retail markups and profit margins

At each step along the chain, a markup or profit margin is built into the purchase price. Manufacturers calculate the cost of making a product and add a profit percentage before selling to wholesalers.

Wholesalers do the same thing, adding a profit percentage to the price they paid for the products. Retailers add their own profit margin to the cost of the product before selling it to the end user, the customer.

So, a product that costs $1 to make might sell to wholesalers for $2. Wholesalers could then sell it to retailers for $4, who sell it to buyers for $8.

Point of sale

A point of sale is where the retail transaction happens. In a physical store, this could be a cash register or a self-check-out lane. For ecommerce, it’s the online checkout where you enter your credit card information to complete the purchase.

Omnichannel retailers

Retailers with points of sale across multiple platforms, such as online and in-store, are known as omnichannel retailers.

To offer a seamless shopping experience, many omnichannel retailers use Shopify POS, which integrates online and in-store sales for real-time inventory tracking.

Making commerce better

Retailers aim to source high-quality products at competitive prices from wholesalers. At the same time, they also compete to provide the best customer service. That means success in the retail industry isn’t just about identifying the right products to sell; it’s also about creating a shopping experience that meets the evolving demands of consumers.