What Is Retailing and Is It Important to the Economy?

How Retailing Is Measured and Examples of Famous Retailers

Retailing
That personal touch means retailing will never disappear completely. Photo: Lorraine Boogich/E+/Getty Images

Retailing is how producers of goods and services get their products to you, the consumer. Retailers generally get their goods directly from the manufacturer. That turns commodities into a finished product. They also buy the manufacturer's products from a middleman, known as a wholesaler or distributor. The wholesaling company consolidates the products from around the world and repackages them for easier marketing and distribution.

Retailers are the last stop of the supply chain before the products end up in your shopping cart.

How Is Retailing Measured?

Retailing is measured by retail sales. The U.S. Census publishes a report of retail sales every month. For more, see What Is Retail Sales?

The Census surveys companies in the following categories: Motor Vehicles and Parts, Furniture and Home Furnishings, Electronics and Appliances, Building Materials, Food and Beverage, Health and Personal Care, Apparel and Footwear, and all other merchandise including sporting goods, books, and music. Here's the Current U.S. Retail Sales Statistics

Importance of Retailing to the Economy

Retailing generates $966 billion a year, or 5.7% of U.S. Gross Domestic Product (GDP). That's nearly double the housing industry. For more, see Components of GDP.

Retailers generate nearly 5 million jobs. Many of these are entry-level positions, paying slightly above $10 an hour.

Despite the low pay, they provide solid training on dealing with the public and math skills. Here's more on the latest Jobs Statistics. (Source: BLS, Retail Sales Workers)

Since retailing provides a way for products to get to consumers, it also supports the $1.08 trillion wholesaling industry and parts of the $2 trillion U.S. 

manufacturing industry. (Source: BEA, GDP by Industry.) 

The most important time of the year in retailing is the holiday shopping season, which starts the day after Thanksgiving. Nearly 20% of annual retail sales occur from Black Friday through Christmas. This season includes Cyber Monday, the biggest day of the year for online sales, and Green Monday, typically the last day to order online and make sure you receive it before Christmas.

How Retailing Works

Retailers make money by raising prices well above their cost of labor, equipment and distribution. Everyone along the supply chain does the same thing. Retailers can sometimes make more money if they bypass the wholesaler and purchase directly from the factory. Some large retailers often manufacture best-selling items themselves, which is known as vertical integration.

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." It's needed to cover costs and provide enough of profit to pay stockholders or private owners.

Internet Retailing

Internet retailing is the fastest-growing segment. In 2015, it was $341.7 billion, or 10.6% of the total. Although that's a small share, it's a 75.8% increase in just four years.

It's expected to grow to nearly $500 billion by 2018. Here's more on the latest U.S. Retail Trends.

Mobile devices, especially cell phones, are becoming the biggest source of internet traffic. In 2014, nearly 60% of online shoppers used their mobile devices. Tablet use has been declining, while iPhone and Android phone use has been growing. (Source: ForecastTrends, Mobile Use, Internet Retailer.) 

Examples of Retailers

The most common examples of retailing are the traditional brick-and-mortar stores. These include giants such as Best Buy, Wal-Mart, and Target. However, even the smallest kiosks at your local mall are retailers.

Examples of online retailers are Amazon, eBay, and DellDirect. Even though they are growing the fastest, they still only represent 15% of total retail sales.

Many retailers focus on home sales, such as Avon or Schwan's. Others sell through home-based parties. A small group relies on TV, such as the Shopping Network.

Retailers don't just sell goods, they also sell services. Restaurants, hotels, and bars are all included in retailing. 

Many retailers combine different distribution methods. An example is Kroger, which offers brick-and-mortar stores and online delivery. The largest stores provide food services, like a restaurant. They do this to achieve economies of scale. That lowers costs to you, the end customer.