Understanding What Retail Is, Characteristics, How It Works, and Its Types

The retail industry is said to have stable growth so that businesses in this field are still the choice of many people. However, what are the characteristics of a retail business and how does it work?

Well, to understand more about the world of retail, let's explore the concept in more depth in this article.

What is Retail?

Retail is the activity of selling products or services directly to consumers for personal needs.

Quoting from Shopify, a transaction is categorized as retail if the buyer of the product or service is the end user.

For example, when you buy a loaf of bread at a bakery to eat yourself, the transaction falls into the retail category.

However, if a restaurant buys bread in large quantities to be used as a cooking ingredient, it is a business-to-business (B2B) transaction, not retail.

Retail transactions can occur through various sales channels, including:

• Physical stores (brick-and-mortar)
• Online stores (e-commerce)
• Direct sales
• Catalogs or mail
• Telephone
• Social media

Characteristics of Retail You Need to Know

Reported from The Balance, retail has several unique characteristics that distinguish it from other types of trade.

Let's discuss them one by one.

1. Selling Directly to End Consumers

One of the main characteristics of the retail business is direct sales to consumers. Where, retailers sell their products without intermediaries.

For example, when you go to a store to buy food or clothes, you interact directly with the seller.

It is important for retailers to build good relationships with customers, so that they feel satisfied and want to come back again.

Remember, a positive shopping experience can increase customer loyalty.

2. Product Display

The appearance of products in stores greatly influences purchasing decisions. Retailers must pay attention to how to display products to attract customers' attention.

For example, if you enter a store and see products that are neatly and attractively arranged, you might be interested in buying.

Strategic product placement and the use of attractive colors can also make the shopping experience more enjoyable.

3. Have a Wide Selection of Products

In the retail business, it is important to provide a variety of product choices from different brands.

Customers like to have many choices when shopping, and retailers must ensure that they have sufficient stock.

For example, if you go to a supermarket. There, you will see many different brands of laundry soap.

The purpose of providing a variety of products is so that retailers can meet the various needs and preferences of consumers.

4. Acting as an Intermediary for Producers

Retailers act as a liaison between producers and consumers. They buy goods in large quantities from producers and sell them in small quantities to customers.

In this way, producers do not need to sell their products directly to each consumer. Because if done it can be complicated and time-consuming.

Here, retailers act to facilitate this process by providing products that are ready to be purchased by consumers.

5. Helping Marketing

Retailers also play a role in promoting the products they sell. Retailers often provide discounts or special offers to attract customers.

For example, when a store holds a sale or gives vouchers. This promo can make people more interested in buying the product.

In this way, retailers help brands gain more exposure and increase sales.

How Does a Retail Business Work?

The retail system works through a supply chain involving several parties. Here are the roles of each:

1. Manufacturer

• Tasked with making products from raw materials.
• Determines the base price of the product.
• Usually sells in very large quantities.
• Focuses on production, not marketing to end consumers.

2. Distributor or Wholesaler

• Buys products in large quantities from manufacturers.
• Has storage facilities or warehouses.
• Distributes to various retailers.
• Provides lower prices for large purchases.

3. Retailer

• Sells in small quantities to end consumers.
• Adds a markup to make a profit.
• Focus on service and shopping experience.

4. Consumers

• The final buyer who uses the product.
• Buying for personal or family use.
• Not intending to resell the product.

Getting to Know Various Types of Retail

After discussing what retail is and its characteristics, now also get to know the various types that exist around us.

Types of Retail Based on Products Sold

Here are the types of retail based on the products sold:

1. Convenience Products

When you suddenly need shampoo or toothpaste, where do you go?

Generally, people will go to the nearest minimarket. This is called convenience products.

Where, these products have the following characteristics:

• Often purchased routinely
• Prices are relatively affordable
• Easy to find anywhere
• Quick purchasing decisions

Examples include soap, snacks, soft drinks, or daily household needs.

2. Shopping Products

When you want to buy a new laptop, do you buy it the first time you see it? Of course not!

This type of product usually requires careful consideration because:

• Prices tend to be more expensive
• Purchases are not routine
• Need to compare specifications and prices
• Take time to decide

Examples included in this category are branded clothing, household furniture, or electronics.

3. Specialty Products

Specialty products are a category for exclusive goods.

For example, luxury watch lovers are willing to travel long distances to certain boutiques to buy their favorite brands.

Characteristics of specialty products:

• Have prestige value
• Consumers are loyal to the brand
• Limited distribution

Premium prices

Examples are luxury cars, designer jewelry, or rare collectibles.

4. Unsought Products

Next, unsought products are products that we only look for when we really need them. Characteristics:

• Rarely sought
• Unplanned purchases
• Usually due to emergencies
• Need special education

Such as insurance, medical devices, or funeral services.

Types of Retail Based on Business Size

Here are the types of retail based on business size:

1. Department Store

Here you can find almost everything you need. The advantages are:

• One-stop shopping experience
• Various choices of products and brands
• Professional customer service
• Strategic location in shopping centers

2. Specialty Store

Unlike department stores, this store focuses on only one product category. The advantages are:

• Staff is very knowledgeable about the product
• More complete collection for certain categories
• More personal service
• Specific shopping experience

3. Convenience Store

Minimarkets or convenience stores are the modern evolution of traditional grocery stores. Here are the advantages:

• Strategic location
• Long opening hours
• Fast service
• Guaranteed product quality

Interestingly, each type of retail has its own role in meeting consumer needs.

Nothing is better or worse, all are here to serve different market segments.

As a consumer, understanding the various types of retail can help you choose the place to shop that best suits your needs.

Interested in knowing what happens behind the scenes in the world of retail and distribution? Immediately join the Supply Chain Management class from prasmul-eli.

In this class, you will learn about how the supply chain operates, as well as strategies that can be applied to increase efficiency and effectiveness.