What Is the Meaning of Retail Sector?

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The retail industry is 4.3 million employees strong and produces trillions of dollars in revenue every year. Retail as an industry differs from other sectors in one crucial way: They do not create a product. Instead, retailers purchase products from manufacturers in bulk. Those products are then sold to consumers at a markup.

TL;DR (Too Long; Didn't Read)

Companies that sell goods to the public, either through stores or online, make up the retail sector.

The Basics of Retail

Manufacturers are under no obligation to only work with one retailer, and consumers are less brand loyal than they were in previous generations. This means that the retail sector is extremely competitive. The most well-known brands have been in business for ages and have extremely well-researched knowledge of their target demographics. This gives these older companies a foothold in the industry, provided they have high-quality and in-demand products.

Retail makes its money by selling finished goods to customers in exchange for cash. In the United States, retailers can sell nearly anywhere, provided they have permits or permission to do so. Malls, as we know them, are fading, but they remain one of the best examples of retail and what it encompasses.

Everything from pumps to posters is considered part of the retail industry. There are also a few types of businesses you might not think of, such as hair salons and equipment rental companies, that are considered part of the retail sector.

Retail Industry Meaning

Retail is also the vehicle by which manufacturers sell their finished products. For example, a newly made car will be taken to a car lot to sell. A furniture maker will sell her products to a store that will, in turn, sell those items. Because access to customers is the only way to sell a finished product, manufacturers tend to sell their products directly to retailers instead of using an intermediary.

You can choose to use an intermediary like wholesalers and distributors. These companies will gather products from all over the world, repackage them and send them to retail stores. The benefit of the middleman method is that you don’t have to spend time sourcing. The wholesaler or distributor does that for you.

Competition in the Retail Sector

There are countless types of retailers operating within the economic ecosystem of the United States. Since no one business should be a monopoly, consumers have their pick of where they shop. People are creatures of habit; if their parents bought at X store, they are likely to do the same. To lure customers away from their habitual shopping locations, retailers will run ads, offers sales and engage in other promotional activities.

That said, not all retailers are competing with each other. Instead, they are competing within their specialty within the industry. For example, some department stores offer a wide range of products, such as clothes, cookware and home appliances. Other stores are even more narrow in their scope.

Shoe stores are an excellent example of a single-focus sort of store and niche within the retail space. Regardless of the amount of product that they sell, there will always be competition from other shoe stores. How do stores that offer the same goods compete with one another?

Ways That Stores Compete

When it comes to retailers, there are a few areas where competition can occur. These are:

  • Quality
  • Quantity
  • Price
  • Selection

Quality of Goods

Retailers are looking for the best, highest-quality goods that they can find to sell to customers. Some retailers have deals with manufacturers that they will serve as the manufacturer’s only sale outlet. Other retailers have their own branded manufacturing that feeds their stores. Quality-checking and assurance is a significant factor for these retailers in order to maintain their reputation.

Quantity of Goods

Quantity of goods doesn’t mean that a retailer must have the most product. Instead, it is a two-fold idea. First, retailers need to have an appropriate stock of items in store.

Large retailers and brands have complex systems in place that automatically measure sales, and production is designed to work off of those numbers. Smaller locations could have a specialized POS (point of sale) system that does much of the same work. Careful inventory control management is essential for all retail companies.

Second, quantity refers to a range of goods that a store will carry. Department stores like Target or Macy’s have a wide selection that ranges from housewares to automotive. These companies will not only pay attention to stocking, but they also focus on sales. Product categories that sell well will continue to be carried, and those that do not will be discontinued.

Price of Goods

When selling goods, retailers also need to pay attention to how much they are charging for any specific product. They can compare those numbers to competitors’ to see if they are over- or under-pricing products. Comparing and contrasting sales numbers with competitors allows a retailer to remain competitive.

Selection of Goods

Selection can be a challenging concept to master, particularly for many new retailers. It’s critical to have enough stock to lure customers and keep them interested. However, if you have too large a selection, you run the risk of muddying your brand identity.

Brand identity defines your company. Large clothing retailers are one of the more apparent examples of changing brand identity. Depending on the performance of certain product styles, these retailers often make quick changes to their product lines.

Major Retail Categories

There are five major categories that retailers tend to fall under. These categories are very different from each other in nearly every way except for one: They sell products that they didn’t make. In the case of some retailers, such as stores that sell food, the product is manipulated before being sold, but the restaurant hasn’t made the raw ingredients; instead, they were brought in from outside interests.

Grocery/Supermarket Retailers

Food is the foundation of the human hierarchy of needs. We can’t survive without a range of foods to eat, so it’s understandable that the grocery industry is expansive. People spend around $55 billion per month on groceries in the United States, and there are approximately 40,000 supermarkets/grocery stores in operation. Those numbers also include grocery/bakery outlets that make up some 69% of the retailers in this category.

Because food is a necessity, there are countless grocery brands through the United States. Some of these brands use different names and sell various products depending on their region. Even the name and products in the grocery store are a form of advertisement. On top of the tailored name and regional approaches, grocery stores and supermarkets are forever offering sales and coupons.

Unlike other retailers, grocery stores and supermarkets cannot allow their products to sit on the shelves very long. The shelf life of products is a constant battle for these retailers. Since the product has to move quickly, grocery stores have invested a great deal of capital in finding the best method for not only tracking products when they sell but tracking the lifetime of these products.

Food Retail and Block-Chain Technology

Grocery stores are responsible for block-chain technology. In fact, the first product with a barcode was gum (Wrigley Juicy Fruit). Modern block-chain technology is how Bitcoin works, and barcodes have become so prevalent that they are used in popular media as a way to show conformity and oppression.

Department Stores (General Merchandise Stores)

The very first American department store was founded in 1825. Aaron Arnold, a British immigrant, opened Arnold Constable to sell small dry goods in New York City.

In the past, general stores and department stores were one and the same. General stores offered a variety of shelf-stable foods, working clothes and some minor housewares. Today, however, the department store is more focused on general non-food goods.

Macy’s opened its doors on Oct. 28, 1858, making it one of the oldest department stores in the United States. Department stores sell a wide variety of items such as clothes, automotive parts, toys, sporting goods and housewares.

How Department Stores Segment Goods

Department stores separate their products in a variety of ways. Some stores separate items by who is shopping, such as children’s products. This is most common in low- to mid-range price points.

Other department stores section their goods by the brand. For example, Vera Wang designs would have their own section. For high-end clothing retailers, there is no significant need for them to separate by gender, as most designers have a distinct niche that they work in.

Specialty Retail Stores

Bookstores, sporting good stores and pet supply stores are examples of specialty stores. These brick-and-mortar locations sell a vast selection of products in a single product category. Because these stores have a specialized product, their staff typically has more in-depth knowledge of their stock than a typical department store employee would. These stores also tend to be able to order single items for customers or to gauge interest, due to their relationship with suppliers.

Online Retail Stores

Since retailers have started moving online, money generated by them has skyrocketed. In fact, Americans spend $51 billion a month in online retail and through catalog purchases. These retailers tend to have fewer employees than brick-and-mortar stores do. Many small retailers even sell through large sites such as Etsy or eBay.

By doing business this way, online retailers do not have to worry about having physical points of sale. Instead, they can operate out of a small office or even out of their homes. Because they do not have physical locations, however, online retailers that want to grow larger must spend a significant portion of their budgets on advertising.

Restaurants as Retail Industry Players

Americans love going out to eat at restaurants. In fact, we spend over $60 billion per month eating out. Despite the level of dining, whether it be fine dining or fast food, all restaurants fall under the same category as far as the retail industry is concerned.

Restaurants differ from other retailers in that they offer something that is typically made on location. This isn’t considered manufacturing for many reasons. One of the most obvious of these reasons is that restaurants prepare items to order from raw materials that were brought in by a distributor.

Bars as Retail Industry Players

Bars are another type of retailer. Alcohol sales make up a significant portion of the money generated by food services. Night clubs, bars and specialty alcohol sellers, such as those that you would see at concerts or festivals, also fall under this category.

Another reason why restaurants bars are slightly different than other retailers is that they have to have a license to operate and require government inspections to continue operation. Health inspections happen on a regular schedule. The business knows that there should be a health inspection coming in a certain time frame, but they do not know the exact date that they will be inspected. The reasoning for this sort of setup is that the restaurant cannot take extra measures to prepare for the inspection.

References

About the Author

Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing (www.wordsmythcontent.com) and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.