The Retail Industry and Its Impact on the Economy

Woman shopping
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The retail industry is a large part of the U.S. economy, and it shows no signs of slowing despite a gloomy economic forecast.

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.

By The Numbers

  • Consumption accounts for a large portion of the U.S. gross domestic product, so retail sales have a large impact on the overall economy.
  • In October, retail sales were $694.5 billion, up 1.3% from September and 8.3% from the same month last year.
  • October's jump was a change from a stagnant August and September.

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.

Note

Retailers can sometimes make more money if they bypass wholesalers and purchase directly from the factory.

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.

Examples of online retailers are Amazon, eBay, and Netflix. Even though they are growing the fastest, they still only represent 12% of the total retail industry.

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.​​

Note

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. 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.

Note

Although two-thirds of online shoppers prefer to buy from brick-and-mortar stores, they decide based on price. Shopping online makes it easier to compare prices.

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.

Note

Most stores that did stay open instituted policies to allow social distancing.

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

Even before the pandemic, the popularity of online retailing was destroying shopping malls. Research from the State University of New York at Buffalo showed that 96% of the decline in shopping mall revenue was due to Amazon alone.

Note

Well-known brands such as Payless, Z Gallerie, and Charlotte Russe announced bankruptcy in the first four months of 2019.

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.

Frequently Asked Questions (FAQs)

What are the types of jobs available in the retail industry?

Retail sales workers help keep retail stores operating by stocking shelves, checking out customers, and otherwise maintaining a pleasant shopping environment. Other industries overlap with the retail industry. There are marketing professionals who help attract customers to retail stores and real estate agents who help find prime retail locations. Check the BLS handbook for more information about retail sales workers and related occupations in the industry.

What is CRM in the retail industry?

Customer relation management (CRM) systems are designed to improve customer service and improve sales. CRM software compiles customer information, creates convenient communication methods, helps employees better understand each customer, and more.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. U.S. Census Bureau. "Advance Monthly Sales For Retail And Food Services, October 2022."

  2. United States Census. "Annual Retail Trade Survey: 2019," Download "U.S. Retail Trade Sales (1998-2019)."

  3. United States Census Bureau. "Quarterly Retail E-Commerce Sales 4th Quarter 2020."

  4. Pew Research Center. "Online Shopping and E-Commerce, 1. Online Shopping and Purchasing Preferences."

  5. Omni Agent Solutions. "Chinos Holdings, Inc."

  6. Prime Clerk. "J.C. Penney Company, Inc."

  7. Stretto. "Neiman Marcus Group LTD LLC, et al."

  8. State University of New York College at Buffalo. "Impact of Online Shopping on Shopping Malls," Page 41.

  9. CB Insights. "Here’s a List of 81 Bankruptcies in the Retail Apocalypse and Why They Failed."

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