66 Retail Terms and Definitions for Beginner Retailers (2024) - Shopify (2024)

The retail industry is booming, and so is ecommerce. With a$5.3 trillion contribution to GDP, retail is the largest private-sector employer in the US, supporting aroundone-fourth of the country’s workforce. By 2027, ecommerce is expected to account for41% of all retail sales.

With numbers like that, it’s important to stay on top of the latestretail industry terminology. If you’re struggling to build customer loyalty, for example, not knowing what customer lifetime value (CLV) is might make you focus too much on acquiring new customers instead of retaining existing ones.

We’ve created this retail terms glossary to simplify your job. It contains a list of essential retail terms you need to know, with tips on how to implement them.

66 retail terms every retailer should know

3PL (third-party logistics)

3PLs handle ecommerce logistics like inventory, storage, shipping, fulfillment, and returns. FedEx and ShipBob are popular 3PL options. Choose a 3PL experienced in your industry and with networks near transportation hubs for fast, personalized service.

Assortment

This is the way products are arranged in physical or online stores to draw customers. When making an assortment plan, consider your store position, product families, and customer tastes. Use assortment planning software to help, if necessary.

Augmented reality (AR)

Through this technology, 3D objects appear to be right in front of you. UseAR in your ecommerce store to let customers virtually try on clothes or accessories, or test out new wallpaper and furniture. This technology helps buyers feel more confident about their choices, reducing return rates. Shopify lets youadd AR to your online store.

Here’s a look at howKylie Cosmetics lets retail shoppers try its products.

Average order value (AOV)

Theaverage amount customers spend per order, calculated by dividing revenue by the number of orders. Increase AOV through upselling, cross-selling, package deals, and free shipping thresholds. Shopify sellers can find AOV details incustomer reports.

Average transaction value (ATV)

The average amount buyers spend per transaction, including taxes and fees. Calculate by dividing revenue by the number of transactions. ATV shows the effectiveness of your product pricing. Increase ATV through upselling and flexible payment options.

Note: ATV includes taxes and fees, so AOV is better for understanding buyer behavior.

Back order

When an order is out of stock and you promise to deliver it to the customer once restocked.

Barcode

Scanner-readable codes of parallel dark lines and white spaces indicating numbers for product identification. Barcodes help with faster checkout and efficient inventory tracking.

Brick and click

This retail industry term applies to a business with a physical and online presence that offers a seamless shopping experience, like buying online and picking up in-store (BOPIS). Shopify provides anomnichannel platform for handling sales across different channels.Steve Madden,Allbirds, andRothy’s are well-known omnichannel brands using Shopify.

Brick-and-mortar

A traditional retail business that customers can visit to view and buy products in person. Think of your neighborhood mom-and-pop shops.

Buyer

Retail buyers source, choose, and buy products for stores to sell. Buyers need industry knowledge, negotiation, and communication skills to research markets, place orders, analyze sales data, and build supplier relationships.

Cash on delivery (COD)

When customers pay for goods after delivery instead of when ordering. If returned, the online retailer typically covers shipping.COD offers convenience and flexibility, helping you make more sales and build brand loyalty. It’s common in apparel, furniture, and food delivery industries.

Here’s apparel brand Suta offering a COD option.

Catalog

A popular retail store terminology,product catalogs are like detailed menus for your store (online or brick-and-mortar), providing information like price, description, and images for every item. Usecatalog management software for consistency across sales channels.

Category management

Grouping similar products into categories to help with sourcing, merchandising, and sales. Through logical store organization and targeted promotions,category management saves resources and improves customer experience.

Chargeback

When a buyerdisputes a charge and seeks reversal from their card issuer. Unlike returns, chargeback funds are held from the business until the issue is resolved, and the merchant is charged a fee. To avoid chargebacks, usefraud detection software, set clear return policies, and keep detailed transaction records.

Click and collect

Anomnichannel feature allowing customers to buy online and pickup in-store (also calledBOPIS). Almosttwo-thirds of US retailers offer or plan to offer BOPIS. Shopifylets you offer curbside pickup, allowing customers to select their nearest pickup spot during checkout.

Conversion rate

The percentage of visitors who buy or take action in your physical or ecommerce store. Agood ecommerce conversion rate is somewhere around 2.5% to 3%. Improve yours by optimizing page speed, adding testimonials, creating powerful CTAs, and using live chat.

Cost of goods sold (COGS)

The cost of making a product including materials, labor, and factory overheads, but excluding marketing, sales, or distribution costs.

COGS = (Beginning Inventory + Purchases) – Ending Inventory

ReduceCOGS by cutting direct costs through better supply agreements, efficient production, and waste reduction.

Cross-selling

Suggesting related or complementary products to customers who have completed or are about to complete a purchase. Cross-selling improves customer experience, increases AOV, and boosts brand loyalty. Amazon attributes35% of its sales to “Frequently bought together” recommendations. Offer discounts, bundle complementary items, and show product-compatible recommendations for cross-selling.

Here’s an example of cross-selling by sustainable apparel brand United By Blue.

Customer lifetime value (CLV)

Measures a customer’s total value (or the net profit you can earn) over their entire relationship with your company. Higher CLV means more customer loyalty and less time and money spent on acquiring new customers. Improve CLV with exclusive discounts, loyalty programs, and upsells.

Dead stock

Dead stock is unsold, outdated, or low-demand products that can result from seasonality (sweaters in summer) or lack of consumer interest. Minimize dead stock by using inventory management software, ordering conservatively, researching customer preferences, and promoting or discounting slow-moving items.

Demand forecasting

When you estimate future customer demand using historical data and market insights. A solid forecast helps you better manage inventory, supply chain, and warehousing. Forbetter forecasting, study past sales data, talk to buyers, monitor market conditions, and invest in forecasting software.

Facing

Arranging products at the front of shelves with labels visible.Facing makes your store look organized and helps customers find things easily.

First in, first out (FIFO)

Under theFIFO accounting method, the oldest bought (or produced) items are used (or sold) first. Popular with perishable goods, this method helps with inventory management and tracking costs of goods sold.

Flagship store

An important retail store term, a flagship store is a company’s mostimportant, largest, and busiest store, such as the Burberry and LEGO flagship stores in London.

Fulfillment center

A fulfillment center handles order fulfillment for ecommerce businesses, including receiving, processing, packaging, and shipping orders. Fulfillment centers help streamline your supply chain and ensure timely delivery. Shopify merchants can opt for theShopify Fulfillment Network (SFN).

Gross margin

The difference between the cost of producing a product/service and its selling price.

Gross Margin = [(Total Revenue - Cost Of Goods Sold) / Total Revenue] x 100

By comparinggross margins, you can find your bestselling items and prioritize selling those.

Inventory management

Keeping track of the movement of goods and materials to minimize stockouts and surpluses while increasing operational efficiency.

For example, a restaurant usesinventory management software to track ingredients, monitor dish popularity, and reorder supplies, minimizing food waste and ensuring menu items are always available.

Use inventory management software to optimize inventory across multiple locations.

Inventory turnover

Measures how quickly a company sells its average inventory. A high ratio generally indicates strong sales and efficient inventory management.

Inventory Turnover = COGS / Average Inventory Value

For example, a retailer with $8,000 in COGS and $2,000 average inventory has a four-times turnover.

Inventory automation software helps track turnover better, especially for brick-and-click businesses.

Just-in-time (JIT) inventory

Receiving goods from suppliers only as needed.JIT lowers holding costs, improves efficiency, frees up cash for business growth, and is popular with tech, automobile, and fast food industries. To implement JIT, track sales data, partner with reliable vendors, and use integrated inventory software.

Key performance indicator (KPI)

KPIs measure progress toward performance goals in areas like profit, sales growth, and employee retention. KPIs are derived from annual business objectives and can be set at various levels, from top-level to department-specific metrics.

Keystone pricing

Setting the selling price at double thewholesale cost.

Under keystone pricing:

Retail Price = Wholesale Price x 2

Though thispricing strategy is popular in retail vocabulary, as it provides a healthy profit margin, it might not always be the best option for attracting customers.

Last in, first out (LIFO)

LIFO assumes the newest inventory is sold first, matching current sales with current costs. This method gives lower profits and taxes than FIFO and is only allowed in the US. In reality, constantly pushing older stock back would make it unsellable.

Loss leader

Discounted products that retailers use to entice customers, hoping they’ll buy other profitable items. Useloss leaders to gain a foothold in competitive markets, gradually raising prices as you build a customer base.

Manufacturer suggested retail price (MSRP)

Commonly used for high-ticket items like electronics and automobiles, MSRP standardizes prices across locations and retailers but limits your ability to compete on price. Consider your costs and profit margins when deciding whether to adhere to MSRP, as deviating significantly could jeopardize your relationships with manufacturers.

Margin

This retail term 101 calculates yourgross profit percentage on an item.

Retail Margin = [(Selling Price – COGS) / Selling Price] x 100

Higher margins are common for luxury or specialized products, while slimmer margins are typical in high-volume competitive sectors.

Most ecommerce businesses aim for a 30% to 40% gross margin, but it depends on factors like industry and product type.

Markdown

Unconditionalprice reductions retailers use to drive sales and clear inventory.Retail markdowns can be temporary or permanent and include tactics like discount codes and seasonal clearances.Shopify POS helps you to create automatic dollar or percentage discounts.

Merchandising

How you present and promote products in your store to boost sales.Merchandising tactics include eye-catching displays, strategic product placement, and spotlighting promotional items.

Minimum advertised price (MAP)

Suppliers advertising products below a set price to protect brand value and retailer margins. You can still sell items in-store for less than theMAP, but you can’t advertise those lower prices.

Minimum order quantity (MOQ)

The smallest number of units or total order value you must purchasefrom a supplier. Suppliers setMOQs to make sure they profit on each order and avoid waste, but you also benefit by getting bulk discounts. Optimize MOQs by negotiating the best deals with suppliers and automating MOQ tracking with technology.

Mobile commerce (m-commerce)

Online transactions completed via smartphones or tablets, such as mobile shopping, mobile payments, and mobile banking. To boostm-commerce sales, optimize your website for mobile, create an omnichannel experience, develop your app, and leverage chatbots. UseShopify’s mobile tools to simplify mobile purchasing for customers.

Multichannel retailing

Selling throughmultiple channels, such as physical stores, online marketplaces, and your own website, thus offering buyers flexibility and convenience and attracting them to your business.

Focus on your platform first, ensuring consistent branding, prices, and customer experience before expanding to third-party marketplaces.

Net profit

One of the popular retail industry terms, net profit measures your actual earnings after accounting for all expenses.

Net Profit = Gross Profit – Retail Operating Expenses

Net profit margin shows if your business is generating sufficient profit to stay afloat.

Net sales

Net sales are the money your business makes minus the sales-related deductions, not accounting for COGS.

Net Sales = Total Sales – (Returns + Allowances + Discounts)

Net sales help gauge your business’s performance, but don’t confuse it with gross profit (which you get after deducting COGS from net sales).

Omnichannel retailing

Omnichannel retailing is common retail jargon that means selling across multiple channels, such as physical stores, ecommerce, and social commerce, to provide a cohesive customer experience.

Around70% of buyers spend more on companies with great omnichannel offerings. Omnichannel brands include names likeWarby Parker,Glamnetic, andLazy Oaf.

TheOaf World section of Lazy Oaf’s website offers a seamless brand experience. Curated content like quizzes, editorials, and artist stories showcase the brand’s ethos and personality alongside its products.

Open-to-buy (OTB)

An inventory management strategy to calculate how much material to buy based on inventory at hand, in transit, and open orders.

OTB = Planned Sales + Planned Markdowns + Planned End-Of-Month Inventory - Planned Beginning-of-Month Inventory

OTB plans help you manage your budget for buying merchandise, but remember to make realistic forecasts based on your inventory and finances.

Planogram

Detailed store layout plans to optimize product placement and displays to drive sales and create a cohesive shopping experience.Planograms help use store space efficiently and positively influence buying decisions. Create planograms using specialized software or hire an expert.

Point of purchase (POP)

POP displays highlight specific products or offers when shoppers are ready to buy, encouraging impulse purchases and creating a more engaging experience. Examples include POS (point of sale) terminals, self-checkout kiosks, and digital coupons. Place POP displays near checkout or high-traffic areas to increase brand visibility and customer purchases.

Point of sale (POS)

A system of hardware and software for accepting payments and tracking sales. You can use it to sell in-store, online, or on the go. Look forfeatures like mobile checkout, inventory management, and customer data.Shopify POS offers all these and more.

Pop-up shop

This common retail store terminology means short-term retail spaces that let you connect with customers face to face, create buzz, maximize sales, and test out physical retail.

Nedda ownsPure Paws Dog Bakery in Australia and regularly organizes the Geelong Dog Lovers Market, where 20 to 40 pop-up shops offer pet products and services.

When opening apop-up shop, find a safe, visible, and convenient location for your target audience.

Private label

Private label products are made by one company but sold under a separate brand, allowing you to offer exclusive items, expand your product line, and compete on price. You can handle branding and marketing while the manufacturer manages production and quality control.

For example,Amazon Basics is a well-known private label brand under Amazon that sells electronic goods, home décor, pet supplies, and travel accessories.

Purchase order (PO)

A document sent to a supplier to request products or services. It specifies items, quantities, prices, and delivery dates, becoming a legally binding contract after acceptance. POs help monitor and manage purchases efficiently.

Radio frequency identification (RFID)

RFID uses radio waves to track information from tags on product labels or packaging, providing real-time data on inventory and transactions. Though costly, it streamlines inventory management, prevents theft, and locates items easily.

Retail audit

Analyzes your store’s health by examining sales data to identify top-selling products and underperformers, helping you make decisions about inventory and merchandising. Conductretail audits regularly to measure profitability, prevent losses, and assess performance, then share the findings with your team.

Retail price

The price a customer pays in-store, influenced by production and shipping costs. Use online calculators like Retail Dogma’sretail price calculator, but also consider how pricing affects customer loyalty and brand perception.

Return on investment (ROI)

ROI tells you how much profit you’re making compared to what you’ve spent on producing an item.

ROI = (Gain From Investment – Cost of Investment) / (Cost of Investment)

Track ROI to make sure your investments are paying off and experiment with new ideas for better returns.

Reverse logistics

Reverse logistics manages product returns from customers back to your warehouse. A smooth returns process, like prompt returns or replacements, builds trust and loyalty with shoppers.

Safety stock

The extra inventory kept on hand to avoid running out during demand spikes or supply delays. Thesafety stock amount needed depends on sales fluctuations and restocking time, but a good rule of thumb is to keep two to three times your average daily sales on hand.

Sales per square foot

Sales per square foot help optimize your brick-and-mortar store’s space if you have multiple stores. It shows how effectively your store uses its space, helping you decide whether to upgrade, downsize, or rearrange layouts.

Sales Per Square Foot = Net Sales / Store Square Footage

Shrinkage

The difference between recorded and actual inventory, often caused by theft, fraud, errors, or damage. Minimizeshrinkage with clear policies, a loss prevention manager, and tightened accounting and inventory practices.

Stock keeping unit (SKU)

SKUs are ID numbers for your products that help keep track of inventory, often connected to your product’s barcode. An example of an SKU is EFG-78901, where each character represents a product attribute like size and color. Create your barcodes from SKUs using Shopify’s freebarcode generator.

Supply chain management (SCM)

SCM involves planning, controlling, and executing all the steps, from sourcing raw materials to product delivery. By optimizing procurement, inventory, fulfillment, warehousing, and logistics, you can reduce costs, speed up delivery, and boost customer satisfaction.

Trade show

Events where companies showcase products and network within their industry.Retail Fest (Australia) andFFANY Market Week (US) are popular retailtrade shows. Attend trade shows to generate interest in your business, build relationships, and discover trends. Engage your network with samples, demos, and conversations, and collect leads for followup.

Universal Product Code (UPC)

Aunique barcode that helps track and sell products, required by most retailers and platforms like Amazon. Apply for yours throughGS1.

Upselling

Upselling encourages customers to purchase pricier items or add extras, thus boosting sales. Offer upgrades throughout the customer journey, from highlighting premium products pre-sale to suggesting enhancements at checkout and pitching add-ons post-purchase.

Take a look at Verve Coffee Roasters offering free shipping with extra purchase.

Visual merchandising

Visual merchandising creates eye-catching displays and experiences that draw customers in and encourage buying. It helps highlight your products’ best features and create a memorable shopping experience. Play with colors, lighting, layout, sounds, and scents to create an immersive atmosphere reflecting yourbrand personality.

Wholesale price

When you sell products in bulk at a lower price to a “middleman” who resells them to consumers and other retailers at a higher price. Calculate the wholesale price by subtracting the retailer profit margin from the retail price.

Stay on top of the latest retail terms with these resources

So there you have it. All the essential retail industry terms you need to know to run your business smoothly. Bookmark this page and keep it handy for quick reference. Remember, even if it feels like a lot now, these terms will soon become part of your daily retail vocabulary with regular use.

Want to stay abreast with the latest trends in the retail world? We recommend reading someretail publications. Staying informed gives you a competitive edge among peers.

Happy selling, and here’s to your retail success!