How does retail work? (Including definition, types and tips)
By Indeed Editorial Team
Published 22 March 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Various sectors have crucial roles in the economy. The retail industry creates jobs for millions of people and contributes significantly to the gross domestic product (GDP). Learning how retail works can help you decide whether you wish to pursue a career in retail. In this article, we define what retail is, examine how it works, review types of retail services, examine examples of retail businesses and provide helpful tips for running a retail store.
What is a retail business?
A retail business is an enterprise that sells products and services to customers. Retail transactions can occur across a single or multiple purchase points, such as a website, physical shop, catalogue or direct sales. Most retailers purchase their stock in bulk from wholesalers or manufacturers to sell to the buying public as individual units. End-users purchase these items from retailers in small quantities.
How does retail work?
The processes involved in operating a retail business include:
Running a successful retail business requires entrepreneurs to set objectives and plan every detail, including:
Staffing: The business requires adequate qualified staff to provide a satisfactory customer experience. Planning this enables the enterprise to decide the number of employees they need and their qualifications.
Market research: Businesses can be economically viable only if a significant number of people need their products. Market research can help the enterprise learn consumer preferences and behaviour, ascertain the demand for its products and discover ways to advertise its products and services to prospective customers.
Logistics: The retailer organises how products reach its stores and customers. Retailers can establish how they order, transport and store products.
Finances: Retailers establish how they fund their activities, set revenue targets and develop strategies for attaining those income goals.
Location: Retailers determine the best site for their stores. They can choose online or physical shops to get various benefits.
Retailers can find suitable suppliers after considering various factors, such as:
Price: Retailers find suppliers offering goods that meet the set standards at competitive prices.
Quality of service: Retailers establish suppliers' reputations and track records. They also check vendors' capacities and safeguards to ensure they can satisfy the retailer's needs.
Credit and payment policy: Retailers find suppliers offering the best payment terms. For example, they can prioritise vendors providing discounts and lengthy payment periods.
Retail businesses work to fulfil customers' demands. Fulfilment may extend beyond moving products from supplier to consumer. It is a detailed process with several steps, such as:
Developing a systematic procedure: Retailers create protocols to facilitate the movement of goods from suppliers to stores and customers. They also establish checks to ensure the goods received and shipped are acceptable.
Storing the products: Retailers can store goods in warehouses to bridge the gap between supply and demand. Proper warehouse management can ensure the storage facilities are in ideal locations, accessible and secure.
Delivery: Retailers can optimise their logistical activities to ensure they can punctually and conveniently meet customers' demands.
Promotion and marketing
Retailers can promote their products to attract potential customers. They can display their products in physical stores or e-commerce websites to invite prospective customers to purchase them. Retailers can use various promotional and sales strategies and channels to entice prospective customers to buy their products. For example, they can offer discounts, list their items' benefits or use influencers to promote their commodities through social media, the internet or paid advertisements.
Sales, service and support
Retail businesses can make their purchasing processes easier to give customers the best experience. They can have representatives in physical locations or online to guide customers. Trained professionals can help customers make purchase decisions by highlighting the difference between products or helping clients locate products. They can also manage any returns, address complaints and provide after-sales services.
Types of retail services
The main types of retail services may include:
Clients select products and make all purchase decisions by themselves. Having chosen their goods, they go to a sales check-out to pay. The shop can have scanning equipment that determines the amount to charge the customer.
Self-selection can resemble self-service but allows customers to receive guidance during the selection process. An example of self-selection retail services is a furniture outlet. Clients can enter the premises and select items of furniture. They may occasionally get more information and guidance from the seller when evaluating alternatives. The customer then decides what to buy.
The customer may need more information on aspects related to the products they buy. They may require credit facilities or a guarantee to return goods or exchange them for others under specific circumstances. For example, a small electronics store can reassure customers by advising them and offering financial incentives, like consumer loans. If customers have issues with a machine they buy, the retailer can help them contact the primary company to arrange returns.
The retailer may fully participate in the buying process and offer additional aftersales service. For example, a retailer that sells a complex machine can send experts to install it and verify that it is working correctly. The manufacturer may handle such services directly in some cases, whilst in other cases, the full-service retailer can manage all the after-sales services.
Examples of retail businesses
Examples of retail businesses include:
Supermarkets can be vast marketplaces with almost everything in one location. Most supermarket chains target the residential market segment since most customers visit them to restock their household supplies. Supermarkets are popular because they often sell numerous products in the same outlet, making shopping easy. They may also sell several varieties of the same product from different brands.
Convenience stores are small retail stores located near local customers. They provide local people with quick access to everyday essentials and open for extended hours. Convenience stores usually have fewer product categories and varieties than supermarkets.
Department stores are larger retail stores that sell various products in different sections. Each department handles a specific product category. For example, an electronics department can sell television sets, light bulbs and other appliances in different areas.
These are stores that attract customers by giving discounts. They buy their products in bulk at subsidised prices, enabling them to sell them at discounted prices. These shops can sell selected goods at a loss to attract customers to buy other more expensive products. They can tempt potential customers with strategic advertising and strategic placement of costly items in the shop.
These retail businesses sell one or two product categories. Speciality stores usually have a narrow product line, but they have almost everything related to their specialities. For example, there's a higher likelihood of finding a specific book in a bookstore than getting it in a book section at a supermarket.
Used goods stores
Used goods stores sell pre-owned items, such as electronics and cars. Off-price stores sell products that have minor defects which have arisen during manufacturing or in transit. Both stores usually sell items at lower rates and stocks often last for a short period of time.
E-commerce stores are online shops that sell wide varieties of specialist goods. Buyers browse product catalogues online, add selected items to carts and place orders. Buyers can pay when they place their orders or upon delivery. E-commerce stores may charge extra for delivery. Most consumers prefer this retail setup as they can place orders and have goods delivered using their electronic devices.
Tips for running a successful retail store
Here are helpful tips for running a successful retail store:
Find a suitable location
Choosing the best site for the shop can ensure the retail outlet has enough clients and is profitable. Factors to consider are the shop's supply, regulations, clients' location and operating expenses. For example, a grocery store benefits from being near a residential area and with easy access such as parking.
Have proper merchandising
Merchandising is how the store displays its products. It's useful to arrange merchandise clearly to enable clients to find, identify and select items quickly. Retailers can do this by placing similar items together and organising them as per themes and colour schemes.
Value customers' feedback
Retail businesses serve their customers' interests. Evaluating their performances can help these outlets improve their products and services. A retailer can ask clients to rate the store's performance or give written feedback in a suggestion box. They then analyse the feedback and implement the necessary changes to ensure buyers are content. Happy customers may return if service in the shop has satisfied their needs.
Related: 10 essential retail skills
Update the retail store
User experience is essential in physical outlets and online stores. It's important to follow and copy market trends and the best ways to engage customers. Clients can be happy if the retail store has employees who offer excellent customer service. Content customers may return or recommend the business to friends and family members.
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