What Is the Retail Industry? Its Impact on the Economy

Examples of Famous Retailers

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

Definition: 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 on the supply chain before the products end up in your shopping cart.

Importance of the Retail Industry to the U.S. Economy

In 2016, the U.S. retail industry generated $1.087 trillion. That’s 5.9 percent of U.S. gross domestic product. The largest category within retail is automotive. It makes up 19 percent of the retail industry. Grocery stores are 15 percent and general merchandise is 14 percent. 

Since retailing provides a way for products to get to consumers, it also supports the $1.08 trillion wholesaling industry. It contributes to the $2.175 trillion U.S. manufacturing industry. (Source: "GDP by Industry," Bureau of Economic Analysis.) 

Retailers create almost five million jobs. Many of these are entry-level positions, paying around $10 an hour. Despite the low pay, they provide solid training on dealing with the public. These positions also teach employees math skills.

Here's more on the latest jobs statistics. (Source: "Retail Sales Workers," Bureau of Labor Statistics.)

The most important time of the year in retailing is the holiday shopping season. It starts the day after Thanksgiving. Almost 20 percent of annual retail sales occur between Black Friday and Christmas.

 This season includes Cyber Monday, the biggest day of the year for online sales. It also includes Green Monday. It's the last day to order online to make sure you receive your gifts before Christmas.

How Retail 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. This is called vertical integration.

This price increase is known as a markup or the retailer's profit margin. It's typically 100 percent (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.

Internet Retailing

Internet retailing is the fastest-growing segment. By 2020, it is expected to reach $523 billion, at a growth rate of 9.32 percent each year until then. Here's more on the latest U.S. Retail Trends.

Mobile devices, especially cell phones, are becoming the biggest source of internet traffic. By 2020, 270 million shoppers will use their mobile devices to research and buy products.

That’s up from 244 million customers in 2015. Tablet use has been declining, while iPhone and Android phone use has been growing. (Source: "Online Sales Will Reach $523 Billion by 2020 in the United States,” Internet Retailer, January 29, 2016.) 

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. But retailing includes even the smallest kiosks at your local mall.

Examples of online retailers are Amazon, eBay and Netflix. Even though they are growing the fastest, they still only represent 15 percent of the total retail industry.

Many retailers focus on home sales. These include Schwan's food and Casper mattresses. 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.​​

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 both brick-and-mortar stores and online delivery. Large stores often also provide food services, like a restaurant. This lower cost and increased consumer appeal is an example of economies of scale.

How Is Retail Measured?

Retail is measured by retail sales. The U.S. Census publishes a report of retail sales every month. The most current statistics are in the U.S. retail sales report