The retail market plays a crucial role in our economy, with its size expected to reach 1.7 trillion U.S. dollars by the end of 2025, up from 883 billion dollars in 2020.
That’s an impressive projected growth of 92.6% over just six years!
With fierce competition, there’s no room for error. So, understanding what is retail and the different business models is essential before starting your retail business.
In this article, we’ll discuss what retail is, break down its business model, and guide you on how to choose the perfect location for your retail business, backed by data.
What is Retail?
At its core, retail is the sale of goods and services to the final consumer. It involves the process of sourcing products from manufacturers or wholesalers and then selling them directly to individuals for personal use.
This act of retailing can occur through multiple channels, including physical stores, online shops, and even mobile apps.
We can say that retail is the connecting bridge between the production of goods and the ultimate consumer.
What sets retail apart is its focus on selling small quantities of products to individual consumers, unlike wholesale, which targets bulk sales to businesses.
This connecting bridge can be anything from a small kirana shop to big retailers which we’ll get into later on.
The Business Model of Retail
Given that the cost of opening a retail store involves many factors, it’s essential to understand the question ‘What is retail?’ and its business model before opening a store.
Business model in general defines how a company designs its operations to deliver value to customers and generate revenue.
In the context of retail, the business model outlines the method by which a retailer acquires products, sells them, and profits from the transaction.
There are several types of retail business models, but all share the common goal of selling products or services to the end consumer.
Key Elements of a Retail Business Model
To understand how retail businesses operate on a daily basis and what is retail, we should first understand the key elements that make up the retail business model:
i) Value Proposition
The value proposition of your store is what will make it stand out from the competition. This could be anything from offering the lowest prices and providing unique products to delivering exceptional customer service and other unique selling points of your store.
For example: Zudio captured a huge chunk of market share with its aggressive pricing strategy. The price of their products appeals to a major market and that’s one of the major factors that drove them to success.
Similarly, you should find out what your USP is and build your retail strategy around it to attract and retain customers.
You can read Zudio’s success story to understand its business model and the key takeaways we have laid out that help in your retail journey.
ii) Customer Segmentation
Understanding your target market helps you connect with the right audience and shape your product offerings.
Using location demographics like age, gender, household income, population density, and purchasing power can make a huge difference in how you segment your target audience. Your retail and marketing strategies should revolve around these insights and stay adaptable.
For instance, you can run geo-targeted ad campaigns with personalized product recommendations based on location data.
Demographics Data of a Location
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iii) Product Offering
The range of products offered can make or break a retail business. The right product mix must align with customer preferences and market demand.
Deciding on the product mix should not be a guesswork based on what you see. You should assess the location demographics to understand which products would sell better to your ideal customers.
Here, location intelligence can aid you in choosing the right product mix by assessing existing sales data, and location data, to find the most popular products and preferences within a specific area.
Additionally, consider adding impulse buy products that are cheap yet necessary for customers to boost retail sales.
| GeoIQ helped a major eyewear brand identify the best-selling product lines for each target location, optimizing its product mix to match local demand.
Once you’ve determined the product line, you need to figure out how to source these products efficiently to ensure a smooth supply chain, avoiding stockouts or overstocking.
iv) Distribution Channels
The distribution channels you will choose don’t necessarily need to be a physical retail store.
It can also be e-commerce websites or mobile apps. Choose the one that best suits your budget and your target market needs.
Several factors affect the retail location selection, such as foot traffic, proximity to competitors, accessibility, parking availability, and the demographics of the surrounding area.
Analyzing these factors ensures you select a location that aligns with your target audience’s spending capacity and needs, giving your store the best chance for success.
v) Cost Structure
Every retail business model has a cost structure, which includes expenses such as inventory management, staffing, marketing, technology infrastructure, rent (for physical stores), and distribution costs.
These costs are recurring, so it’s crucial to manage them efficiently to boost profitability.
For example, if you’re operating a physical store, controlling rent and staffing expenses can significantly impact your bottom line.
But while hunting for low-rent commercial properties you might land on a location where your target audience is scarce. Utilize location intelligence platforms to identify properties in a location that has enough demand while falling under your budget.
vi) Customer Relationship
Retail is all about building strong relationships with customers, which can be achieved through loyalty programs, personalized marketing, exceptional customer service, and other effective retail strategies.
Ultimately, a business model that focuses on nurturing customer relationships fosters repeat business and strengthens brand loyalty.
vii) Key Partnerships
Retailers often form partnerships with manufacturers, suppliers, logistics companies, etc., to help run their business effectively.
Though it might seem like an expense, These partnerships can lower operational costs and improve your overall supply chain efficiency.
Once you decide to open a store, try to join hands with the best logistics and supplier partner in your location to make the everyday tasks smoother.
Different Categories of Retail Stores
As you may already know, retail is a broad industry. Each category of retail store focuses on different customer needs, types of products, and purchasing behaviors.
If you’re wondering which categories of retail stores would suit your needs and budget, read our comprehensive article on retail store formats.
For now, let’s take a closer look at the major categories of retail stores in India.
1. Franchises
The number of franchise outlets is growing rapidly as we speak.
Franchise stores are retail outlets that operate under a brand’s name (franchisor) but are owned and run by independent operators (franchisees).
Franchisors have standard guidelines for all their product, so the experience of a customer would be consistence across locations, irrespective of who owns a franchise outlet.
You can start such a franchise outlet with an investment of as low as Rs. 50,000. Read our 10 low-cost investment franchise picks to choose the one that best suits your goal!
Examples of Franchise Stores in India:
- Domino’s Pizza
- KFC
- Apollo Diagnostics
- Reebok
2. Independent Stores
These are independently owned stores, such as Kirana shops, typically operated by individuals or families. They’ve been a staple in India for generations and are the go-to choice when you need to quickly restock essentials.
These stores can include a variety of types, such as:
- Grocery shops
- Sweet shops
- Local boutiques, and more
In addition to these traditional stores, independent mobile service centers and accessory shops are also gaining popularity with the rise in mobile usage.
3. Departmental Stores
Departmental stores are large retail outlets that offer a broad selection of products across multiple categories, all housed under one roof.
These stores are organized into distinct sections, each specializing in a specific product category, making it easy for customers to find everything they need in one place, essentially serving as a “one-stop shop.”
These stores are often owned and managed by reputable names within the region that you can find nearby.
4. Supermarkets and Hypermarkets
Supermarkets primarily focus on offering groceries and household items, aiming to provide products at affordable prices and often incorporating loyalty programs to attract a wider customer base.
Hypermarkets, on the other hand, expand their product range to include categories like clothing and electronics, often featuring food courts to improve the shopping experience.
This type of retail model is typically led by well-known names in the industry.
Examples of Supermarkets and Hypermarkets:
- Big Bazaar
- DMart
- Spencer’s
- 1 India Family Mart
5. Specialty Stores
Specialty stores are dedicated to a single niche, focusing exclusively on a specific product category. Known for their expertise and specialized knowledge, these stores may not offer a wide range of products but excel in their particular segment.
Specialty stores can include a variety of types, such as drugstores, ethnic wear shops, electronics stores, and more.
Their deep understanding of a specific category enables them to curate an exceptional shopping experience for customers.
Examples of prominent specialty stores:
- Tanishq
- Fabindia
- The Body Shop
- Bata
Conclusion
Though we’ve outlined the answer to the question “What is retail”, it’s clear that this industry has a changing nature and adapts continuously to meet the changing consumer needs and market dynamics.
For long-term sustainability in the business, staying agile, responsive to these shifts, and choosing the perfect location will be the key to building a successful retail business.
