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What Is the Meaning of Retail Trade?

  Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
  Written by: Jane Smith      Updated January 22, 2019
Close-up of customer paying cashless with smartphone at counter of a store

Many people associate the words "retail trade" with a lecture from a droning economics professor and tune out whatever message follows. This attitude can bite today's entrepreneur right in the GDP. The gross domestic product serves as a measurement of the combined success of all sectors of the economy, including retail trade.

Tips

  • As the song "Portobello Road" says, retail trade includes "anything and everything a chap can unload." If you can provide goods or services at the right price in sufficient quantities for typical household use, someone will buy.

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GDP, or gross domestic product, measures the nation's economic health, and the retail trade sector holds first place according to the United States Census Bureau. What does the retail trade sector encompass? Selling tangible goods to customers tells only part of the story.

Providing services to customers plays a major role in the retail sector. Some retail service establishments will cut or color your hair and give you tattoos or piercings. Other service businesses may prepare your taxes or provide legal and financial advice.

How to Define Retail

When you sell your goods or services directly to a customer for home use, you engage in the retail trade. As of 2019, the U.S. Census Bureau cites a figure of 1,704,658 retail businesses, making retail the fourth-largest sector of the economy all by itself. In comparison, the professional, scientific and technical services sector constitutes the largest category at 2,099,787 businesses.

However, when you add the "other services" sector to retail, the total number of retail businesses expands to 3,450,729. This addition boosts the retail sector into first place in the U.S. economy.

Types of Retail Stores

Every retail store falls into one of three main classes: brick-and-mortar stores, catalog shopping and e-commerce. These three primary classifications can each subdivide into three or more additional categories. Brick-and-mortar stores provide a physical location other than the customer's home, where buyers may view and purchase products on display. For customers who prefer to shop from home, catalog shopping provides a selection of products curated to the season, usually as a spring/summer and fall/winter booklet.

Currently, e-commerce includes virtual showrooms, instant auctions and drop shippers and has recently expanded to include social media-based community yard sales. To ensure security and prevent fraud, buyers and sellers often meet at agreed-upon public locations such as police stations and church parking lots to exchange goods and money.

Brick-and-Mortar Retail Stores

Brick-and-mortar stores fall into two groups: fixed locations and transient venues. Fixed locations make it easy for customers to find you, while transient venues prevent customer fatigue with you and your wares.

In 2018, an industry survey revealed that 84 percent of the millennial participants expressed that they prefer to shop in department stores. What do they want in return for their patronage? Millennials want retailers to provide immersive and entertaining experiences that they can share with friends and family.

In 2018, those same polls predicted that by 2020, millennial spending would top 1.4 trillion dollars. Unless things change, industry experts fear that the upcoming generation – the digital natives born between 1995 and 2010 – may spurn the remaining department stores altogether and take their 44 billion dollar market share with them.

Fixed-Location Retail Stores

Picture a brick-and-mortar store. Do you see a classic department store with makeup and jewelry counters near the entrance and polished-looking employees who spritz you with perfume as you walk by? Did you take the elevator or an escalator to view the home furnishings department?

How about the kiosks at the mall where you can get your ears pierced and have a customized necklace made from sterling silver wire bent into the shape of your name while you watch? Did you picture an upscale beauty salon with shelves full of celebrity hair-treatment products that line glass and steel shelving and beckon you to step inside?

Believe it or not, the classic department stores from holiday movies such as "It's a Wonderful Life" and "Home Alone" may disappear for good if vendors do not create a more personalized experience that encourages customers to socialize with one another. Although many baby boomers have fond memories of department-store shopping, many millennials do not.

Other Fixed Locations

Besides department stores, fixed locations include discount shops such as Walmart and Target along with dollar stores such as Dollar Tree. For upscale customers, boutiques filled with pricey, decorative home furnishings ensure that the high-end consumer does not feel completely excluded.

Buying clubs such as Costco and Sam's Club round out vendors of new merchandise, providing brand-conscious bargain seekers with near-wholesale prices. Thrift stores such as Goodwill compete for market dominance in used home goods and sports equipment as well as clothing and toys.

Branded outlet stores sell factory seconds in warehouse settings. Factory seconds have small flaws that do not affect the item's usefulness. These small flaws do not reflect the brand's image or quality expectations, so companies offer deep discounts for these items. Merchants send anything with serious flaws to thrift stores and landfills.

Specialty Stores and Vendor Partnerships

Specialty stores include cell phone service providers and eyeglass makers, religious and New Age shops, book stores and gift shops. While some operate from stand-alone locations, you will find most of these vendors tucked between the anchor stores in shopping malls or grouped in a strip mall.

Some specialty stores such as PetSmart and Pet Supplies Plus cater exclusively to consumers with pets. Due to their large sizes and fixed locations, these stores often provide space for transient vendors. Pet rescues and veterinarians use these spaces to hold adoption events and seasonal pet-health screenings.

Pet-supply wholesalers at these pop-up events often donate merchandise and provide brand ambassadors to explain which products and services each animal might need. Your favorite pet supply store may also provide grooming services and obedience training for your fluffy companions as well as care and feeding advice for your feathered, frilled and finned family members.

About Transient Venues

Did you attend any traveling arts and crafts shows in the past few years, or feel the buzz of anticipation while awaiting the arrival of music festivals, carnivals or fairs in your hometown? The vendors at these events all take advantage of transient locations to keep interest high in the demand for their products and services.

About Catalog Sales

In 1886, during the heyday of catalog sales, Sears and Roebuck lead the pack. Customers found everything from buggy whips and carriages to corsets and crinolines between those pages. The catalog also offered farm implements.

Hard lines included wringer washers and fencing materials. Furthermore, the Sears and Roebuck catalog included complete sets of mechanics' tools. Not only did they offer to sell you a kitchen sink, Sears also carried the entire house in their catalog in the form of kit homes.

Catalog Company History

Montgomery Ward predated Sears and Roebuck by 14 years. It used mail-order catalogs to get customers to purchase goods and the U.S. railroad system to deliver them. Despite Montgomery Ward's cost advantage, Sears and Roebuck quickly surpassed them.

Soon, upstart company J. C. Penney came along and outsold both companies. Eventually, one incredibly industrious man joined the J. C. Penney staff. His family collectively owns the greatest total net worth in the U.S. as of 2018. His name? Sam Walton.

Catalog Companies Still in Business

Remember Watkins catalogs? They touted spices and baking supplies along with natural health and beauty products. Blair continues to feature women's ready-to-wear fashion, while Haband remains focused on men's casual clothing, including footwear and accessories.

Fingerhut catalogs dominated the 1970s, while beauty behemoth Avon still relies on brochures to sell its makeup, clothing and home decor. Avon now offers online shopping along with face-to-face sales in customers' homes.

About E-Commerce

Hear that buzzing sound? Your Amazon delivery from two hours ago just arrived on your doorstep. Thanks to e-commerce and drone delivery, your Christmas ham and baked macaroni casserole, sweet potato pie and charcuterie tray arrived just in time. You and your holiday guests sit down to a dinner that you did not have to spend days preparing. Without a single hair out of place, you take your seat at the dinner table just as Uncle Harry starts saying grace.

Most brick-and-mortar stores also maintain virtual showrooms where online buyers can browse, gather information about products they wish to purchase now or in the future, compare prices and view product reviews. These savvy customers fill a virtual shopping cart, click the checkout button and select a payment method, and their order ships to a local store for pickup or heads straight to the customer's home.

When Does the Retail Business Definition Apply?

The retail business definition applies to more than stores, at least according to the Bureau of Labor Statistics. Vending machine operators, distributors of home-heating oil and newspaper delivery services also fall under the retail umbrella.

Do you see that freestanding movie rental kiosk near the doors of your favorite store? Call that kiosk a retail business. The claw game machine beside it also fits under the retail business definition.

Is This a Retail Business?

Did you pass a sign advertising drive-through prayer near D'Iberville, Mississippi? No, the retail business definition does not apply there. That drive-through prayer window is an extension of the church that houses it. However, the definition definitely does apply to the drive-through wedding chapels in Las Vegas, Nevada.

Would you call a farm stand a retail business? It depends. Does the stand carry prepared goods alongside the fruits and vegetables, cheeses and smoked meats? Can you buy souvenirs such as T-shirts and baseball hats with pithy sayings or car cups and keychains? If so, you have found another retail business.

Who Defines Excellent Retail Customer Service?

Ideally, the customer defines excellent customer service. Highly satisfied customers provide free advertising. They tell their friends and family to expect an awesome buying experience at your establishment.

Unfortunately, a percentage of your guests will hesitate to let you know when their shopping experience fails to live up to their expectations. To prevent this, solicit reviews by maintaining a suggestion box at the register or store exits. Provide survey links on every receipt as well.

What Are Retail Goods?

Retail goods divide into two groups: perishable and nonperishable. Medications such as insulin and vaccines fall into the perishable category. Produce and dairy products such as milk and cheese also belong in the perishable group, as do meats and seafood.

On the other hand, nonperishables include canned goods and shelf-stable, prepackaged foods. Paper products and office supplies, cleaning products and personal hygiene items also fit the nonperishable definition.

About Retail Services

Thanks to new business models, delivery services such as Door Dash and Uber Eats will bring your favorite dine-in restaurant menu items to your workplace, campsite or home. Shipt, founded in 2014 and headquartered in Birmingham, Alabama, delivers groceries to any location including your home, office, motor home, yacht club or campsite.

Do you have a treehouse? Do you want to continue catching waves on your surfboard? No problem! Call Shipt. Be sure to tip your delivery person and leave a good review, though, because climbing that ladder or schlepping groceries at a marina takes serious muscle.

Instacart began providing grocery delivery in June 2012. Instacart's independent contractors will brave triple-digit temperatures to serve Arizona-born customers and snowbirds with equal enthusiasm and alacrity. Conversely, the icy roads and subzero temperatures in the Dakotas do not faze Instacart shoppers at all. You will see these resilient shoppers at Smart and Final, Sprouts, Sam's Club and Costco, along with Whole Foods Market.

About the Author

After earning a B.S. Ed. from Kent State University in 1995, Smith provided educational support in multiple Ohio school districts. Smith has managed nine employees and 86 independent adult care providers at a time. In addition, Smith has assisted two charities with successful 501 (C) 3 applications, serving on the board of one for three years. Currently, Smith serves as an independent Avon representative at Avon Beauty by Laura. Her writing chops include one published novel and close to 1500 articles in various online and offline publications.

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