Retail is how producers of goods and services get their products to the consumer. Retailers often get their goods directly from the manufacturer. That is when a commodity becomes a finished product. Retailers can also buy products from a middleman, known as a wholesaler or distributor. The wholesaling company consolidates the products from around the world. It repackages them for easier marketing and distribution. Retailers are the last stop in the supply chain before the products end up in your shopping cart.
How Retail Works
Retailers make money by purchasing goods from suppliers and manufacturers. They raise prices well above the cost of labor, equipment, and distribution. Everyone along the supply chain does this. This price increase is known as a “markup” or the retailer’s “profit margin.” It’s typically 100% (double the cost) at each stage. That’s called “keystone markup.” It’s needed to cover costs and provide enough profit to pay stockholders or private owners.
Examples of Retailers
The most common examples of retailing are traditional brick-and-mortar stores. These include giants such as Best Buy, Walmart, and Target, but retailing includes even the smallest kiosks at your local mall. Many retailers focus on home-delivery sales. These include Schwan’s food and Casper mattresses, while others sell through home-based parties. The most well-known are Avon, Pampered Chef, and Cocoa Exchange. A small group relies on TV channels like QVC, the Home Shopping Network, and Evine. Many retailers combine different distribution methods. One example is Kroger, which offers both brick-and-mortar stores and online delivery. Large stores often also provide food services, like a restaurant. This reduced cost and increased consumer appeal is an example of economies of scale.
Online Retailing
Online retailers experienced a boom during the COVID-19 pandemic. With most people staying home, online shopping increased and accelerated the already growing trend. Mobile devices, especially cell phones, are becoming the biggest source of internet traffic. At least 15% of U.S. adults shop online every week. Over half of Americans have used a cellphone to make an online purchase. Almost half (45%) of Americans use their cell phones while in a store to find a better price online. Another 12% have used their phones to pay for an item while in a store.
The Future of Brick-and-Mortar Stores
Shopping centers and other brick-and-mortar stores have faced many challenges since the rise in popularity of online shopping. The COVID-19 pandemic has made those challenges even harsher. Many well-known stores are still struggling to survive.
COVID-19 Pandemic
In March and April of 2020, state governments instructed non-essential retailers to close. Residents were asked to shelter in place in order to reduce the spread of the highly contagious coronavirus. Grocery stores, convenience stores, and pharmacies were allowed to remain open. Restaurants were only allowed to offer take-out. Many large-scale warehouse-type stores limited the number of customers allowed in the store at one time—an action that might cut revenues. Others had to hire more workers to meet a surge in demand. Many stores, including non-essential businesses, expanded pick-up capabilities. Several well-known department stores declared bankruptcy due to levels of high debt during the pandemic. These included J. Crew, JCPenney, and Neiman Marcus. These stores plan to remain in business.
Online Retail
High-end retailers were not exempt from filing for bankruptcy, as Barney’s New York, Roberto Cavalli, and Sonia Rykiel also liquidated. The shift to online shopping was not the only reason why they failed. Many retailers refused to shift to changing consumer preferences. Others took on too much debt or otherwise made poor business decisions.
