What is the retail business model and how does it work?

Entrepreneurs launch their businesses as a result of their recognized needs in the market. They often set up their operations, build a customer base, and make a profit before thinking about the type of business model that best aligns with their company. This is because as businesses grow, their owners will inevitably stop reflecting on what is working to ensure sustainability and what is not, identifying areas for improvement. What they are unconsciously doing is further defining their business model.

A business model is not only how your company makes and sells a product or service but also how it can maximize profits by optimizing its value chain. Defining your business in these terms helps clarify your value proposition to potential customers and further differentiate yourself from the competition.

In previous articles, we have seen Different business models including social media, Peer-to-peer business model, and the direct-to-consumer model. Here, we focus on the retail business model and how to fine-tune your company’s strategy and maximize its effectiveness to meet its objectives.

What is the retail business model?

is the retail business model A type of business model Where companies sell their products to customers from a specific point of sale—whether it’s a brick-and-mortar shop online store or on social media. Online, a company can sell their products on various platforms that have built-in commerce features such as Instagram Shop.

The retail business model also contrasts with wholesale, where retail is sold Direct to consumer And the purchase volume is low. This model also outsources manufacturing, warehousing and distribution, which further contribute to standard company costs. In this case, business owners must mark their prices to cover these additional costs.

How does the retail business model make money?

The retail industry is highly competitive as there are numerous companies offering the same products and services. This is because the nature of the goods sold are mostly considered essentials which we will look at in more detail later, include groceries, banking and gas.

Retail model business owners can increase revenue by thinking of ways to differentiate their company’s offerings to attract customers. For example, you can create a retail destination such as a bookstore, where you can enjoy a cup of coffee while sampling a variety of readings.

In addition to providing an in-store experience, retail business owners can also increase their revenue by managing their costs. You can do this by hiring conservatively to keep costs down and investing in assets that generate income.

Another way retail businesses make money is by managing inventory. Too much of it means higher storage costs and less cash flow when too little, but you run the risk of running out of something and customers going elsewhere to get it.

Encourage repeat purchases by building customer relationships. Some ways to do this include incentives like loyalty points and discounts for members.

If you have a budget for your business, you can also consider cost-effective advertising such as promoting your products in catalogs, email and SMS marketing.

Examples of retail business models

While most retailers offer their products and services from a physical store, more and more are selling products online. Consumers often like the convenience of these offers, as they save not only money on gas, but time as well

Here are some examples of businesses based on the retail model:

  • grocery store Because they offer non-durable and non-durable goods, they are sensitive to price fluctuations.
  • Furniture and appliances. Examples include Home Depot and Costco.
  • clothing store Macy’s, Nordstrom, and Nike are also some of the companies that use the retail model.
  • Services like banking, travel, pharmacy and real estate. Examples include organizations such as JPMorgan Chase Bank, Intrepid Travel, CVS Pharmacy and RE/MAX Real Estate.
  • Gas station. Shell, Exxon, and BPOs fall under this model and like grocery stores, this retail segment is also dependent on external factors like oil prices.

Department stores like Costco, Target, and Walmart fall into more than one of the above categories because they offer food, clothing, furniture, and appliances. However, due to the competitive nature of the retail business model, it makes more business sense, as a startup, to start in one category and specialize in it before expanding into other areas.

Potential challenges to retail business models

Incorporating technology

The first potential problem your company may face is not being able to innovate fast enough, where you risk losing customers because your operation mode is outdated. For example, not including e-commerce as a sales method alienates customers who would rather stay at home or visit friends than come to your store.

Lack of online presence is a missed opportunity to recognize trends and get to know your customer better through analytics software. Retail businesses can secure return business by becoming more customer-centric to maintain their loyalty. Some ways to ensure this include making your products or services easily accessible, for example, making your website and online store mobile friendly. Professional customer service followed by product consistency and quick delivery times are other ways to build a strong working relationship with your clients.

Not incorporating technology into your business to optimize processes, such as automating simple and repetitive tasks to increase efficiency, also puts your company at a disadvantage. Having said that, make sure the people you hire are digitally savvy because AI and the human element are complementary.


Another potential challenge is a staff turnover where you are unable to meet employee expectations. You can retain talented employees by creating room for growth within your organizational structure by giving individuals tasks they can take ownership of. Upskilling employees through training is another way you can motivate employees while closing skill gaps among your employees.


In short, a retail business model is one in which you sell your products or services—either traditionally or online—directly to consumers. You can make money as a retail business owner by monitoring and closely controlling costs to retain revenue after the additional costs of outsourcing manufacturing, storage and warehousing required by this model.

We’ve also seen some examples of this model, and although the brands mentioned are established, they all started with your same entrepreneurial ambitions.

Finally, we investigated emerging barriers, where adaptability becomes key to building a sustainable retail business. Looking at these points will help you decide if this is a business model that will work for your business.

Marie Francois Robinson on LinkedIn
Marie Francois Robinson

Staff Writer: Marie Francois is a writer with a strong foothold in the adult learning space. His focus is creating valuable content based on his experience in business development. She draws inspiration from Maya Angelou’s wise words, ‘When you learn, teach. When you grow up, give.’

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Article Tags:

Business Models · Business Opportunities · Featured · Find Your Way · Grow Your Business · Your Mindset

Article Category:

Business Models · Find Your Way · Grow Your Business · Productivity · Sales · Your Mindset

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