We all interact with retail businesses on a daily basis, and most of us probably know someone working in this sector. But for those of us who are interested to start a business in this sector, we might feel confused over where to start from or what establishing this business actually involves. So in this article we are are going to start with answering the questions of: What is Retail? What are the different types of retail businesses? and how this business model work?
According to the North American Industry Classification System (NAICS), retailing is the final step in distribution of merchandise. Retailers sell merchandise directly to the end consumer in small quantities, and are categorized into 2 main types:
- Store retailers
- Non-store retailers
How Retail Business Works?
The business model of retailing involves buying merchandise in large quantities from wholesalers (or manufacturers) at low price and selling it in small quantities to the general public at higher price. The difference in price is called gross profit.
Retailers operate the business through different functions to deliver this final service of making merchandise available to the end consumer to buy through a convenient channel at a profitable margin for the business.
Importance of The Retail Industry
Economists always keep an eye on the retail industry and its quarterly sales reports, because it is one of the most vital sectors of the economy.
Not only do these sales measure consumption and demand, but this sector is actually the largest private-sector employer in the U.S, supporting 1 in 4 U.S jobs. There are currently 52 million working Americans employed in retail.
From a customer’s point of view the importance of this industry also lies in the convenience it provides for customers to fulfill their daily shopping needs through the different retailing channels.
Frequently Asked Questions About Retail
Yes, it is.
Ecommerce falls under the non-store retailers sub-sector. This sub-sector also includes selling through infomercials, selling through catalogues, door-to-door selling, in-home demonstration and selling through vending machines.
A retail or ecommerce business will typically have the below functions:
Buying: Involves choosing the product assortments and dealing with suppliers
Merchandising: Ensures products are allocated to stores in right quantities at the right time
Visual Merchandising: Organizes how products are displayed in the stores to drive sales of merchandise
Operations: Ensures stores are operating on a daily basis according to company’s standards & procedures
Sales: The sales team on the floor that serves the final customers
Warehousing & Logistics: Deals with receiving goods, storage of goods and delivering goods to the stores or final customers (ecommerce)
Marketing: Promotes the company’s products through different channels and drives traffic to the stores
Audit: Ensures stores are following the company’s guidelines to prevent stock loss or financial loss.
Finance & Accounting: Dealing with all the financial aspects of the business from budgeting to final reporting.
1. Clothing & accessories stores
2. Furniture & home furnishings stores
3. Building materials & garden equipment and supplies dealers
4. Electronic & appliance stores
5. Food & beverage stores: grocery stores, supermarkets, convenience stores, specialty food stores..
6. Health & personal care stores: Pharmacies, beauty supplies, cosmetics, optical goods..
7. Sporting goods, hobby, book and music stores
8. General merchandise stores: Department stores, warehouse clubs and superstores..
9. Gasoline Stations
10. Motor vehicle & parts dealers
11. Miscellaneous store retailers: Florists, office supplies, gifts, used merchandise
12. Non-store retailers: Electronic shopping, mail orders, vending machines, direct selling..
To start a retail or ecommerce business you first need to decide about which type of retail business you want to be in.
After that you will start deciding about the products you want to carry in your store and where & how to source these products from and at what margin can you sell them.
Then you will start looking at different locations and choose the best location for your retail business, that also complies with your budget.
Read Also: How to Rent a Retail Store?
Based on all the information that you have gathered in the previous steps, you will then draft down your
financial projections for your business. This is to know whether buying and selling these products at these margins, and paying the costs related to the business will result in profit at the end. It will also show you how much cash you will have available, to make sure you can meet your expenses, pay your suppliers and also pay yourself on time.
You will finally need to determine how much capital you will need to start and how you will arrange for this capital.
If you have already decided about which retail segment you want to be in and familiarized yourself with all the different retail functions, you can start by reading our New Store Series, where we show you the process we follow every time we open a new store.
If you are still new to this industry, we recommend reading all the materials here on Retail Dogma first and get to know more about retail math, financials and the different functions of retail and then proceed to the preparation stage to open your retail or ecommerce business.
You can start learning from here.
- Starting a Retail Business
- How to Make Money Through Ecommerce
- How Do Retail Stores Make Money?
- How Much Inventory Do You Need?
- Retail Budgeting Process
- P&L Management
Retailer & Founder of Retail Dogma, Inc.
Rasha has 12 years of retail & ecommerce experience. She has started an ecommerce business in 2008, and later worked at H&M, Bath & Body Works, Victoria’s Secret and Landmark Group. She has lived in 4 different countries, speaks 3 different languages and holds a master’s degree in Strategic Management & Marketing.