Retail Decoded: A Glossary of Key Terminology to Know
The fashion, beauty, and lifestyle retail sectors are dynamic and fast-paced industries that constantly evolve to meet consumer demands. For aspiring retail brands, understanding these industries requires more than just a passion for products; it involves mastering the nuances (and lingo) of the market, staying ahead of trends, and leveraging the right strategies to succeed in an increasingly competitive landscape.
This guide will provide a glossary of essential retail and e-commerce terminology that every aspiring retail brand should know. Whether you’re starting a new brand or looking to expand an existing one, this guide will equip you with the knowledge to navigate the complex world of retail.
Average order value (AOV)
AOV is a key metric in retail and e-commerce that measures the average amount spent by customers per transaction. It is calculated by dividing the total revenue by the number of orders over a specific period. For example, if a store generated $10,000 in sales from 200 orders, the AOV would be $50.
Average Transaction Value (ATV)
This refers to the average amount of money spent by a customer in a single transaction. ATV is a key metric for retailers as it helps them understand customer spending habits and evaluate the effectiveness of upselling and cross-selling strategies.
Bestseller
A bestseller is a product that has sold in large quantities and is popular among customers. Bestsellers are often highlighted in marketing campaigns to attract more customers and drive sales.
Brick-and-mortar
This is a physical retail store or business that customers can visit in person, as opposed to an online store. The term comes from the traditional building materials used in physical stores. Brick-and-mortar locations offer customers the ability to see, touch, and try products before purchasing, and they provide immediate fulfillment of purchases.
Consumer
This is an individual who purchases goods or services for personal use. In retail and commerce, the term “consumer” often refers to the end-user of a product, distinguishing them from customers who might buy products on behalf of other people, such as parents buying bay food or children’s clothing.
Conversion
This refers to the action a user takes on a website or platform that aligns with the business’s goals, such as making a purchase, signing up for a newsletter, or filling out a contact form. It is a key metric in measuring the effectiveness of marketing efforts.
Conversion rate
The percentage of visitors to a website who complete a desired action, such as making a purchase. For example, if 100 people visit a website and five of them make a purchase, the conversion rate is 5%. It’s a crucial metric for measuring e-commerce performance.
Cross-selling
Cross-selling is a sales technique where a seller encourages the customer to purchase additional, related products or services. For example, suggesting a customer buy a pair of socks to go with the shoes they are purchasing.
Customer
A customer is an individual or business that purchases goods or services from a retailer or supplier. Unlike a consumer, a customer may not always be the end-user of the product; they might resell the product or use it for business purposes.
Customer journey
This is the complete experience a customer has with a brand, from the initial awareness of the product or service to the final purchase and post-purchase interactions. It includes all touchpoints, both online and offline, that influence the customer’s decision-making process.
Customer lifetime value (CLV)
This is the total revenue a business can expect from a single customer over the course of their relationship.
Customer relationship management (CRM)
CRM is a strategy and technology system that businesses use to manage interactions with current and potential customers. CRM systems help companies organize customer data, track sales leads, and improve customer service and relationships.
Dead stock
This is inventory that has not been sold or used and is unlikely to be sold in the future. It can result from over-ordering, changes in consumer demand, or poor sales performance. Dead stock ties up capital and storage space, making it a liability for retailers.
Direct-to-consumer (D2C or DTC)
A business model where a brand sells its products directly to customers, bypassing third-party retailers or wholesalers. This model allows brands to have greater control over their pricing, branding, and customer experience.
Drop shipping
A retail fulfillment method where a store doesn’t keep products in stock but instead transfers customer orders to a third party, who ships the products directly to the customer.
E-commerce
The buying and selling of goods or services over the internet and this includes online stores, marketplaces, and digital platforms.
Fast fashion
This is a type of business model that focuses on quickly bringing the latest fashion trends to market at affordable prices. It’s often associated with high turnover of inventory and frequent product releases.
Forecast
In retail this refers to the prediction of future sales, demand, or inventory needs based on historical data, market trends, and other relevant factors. Accurate forecasting helps businesses manage inventory levels, reduce waste, and meet customer demand.
Fulfillment
The process of receiving, processing, and delivering orders to customers, including warehousing, packing, shipping, and logistics.
Gross margin
The difference between revenue and the cost of goods sold (COGS), expressed as a percentage of revenue. Gross margin indicates how much of each dollar of revenue a company retains after paying for the cost of production.
Inventory
Also known as “stock”, this is the complete list of available products a business has, including their quantities and locations, which is crucial for stock management and order fulfillment.
Inventory management
The process of ordering, storing, tracking, and controlling a company’s inventory. Effective inventory management ensures that a business has the right products in the right quantities at the right time, reducing costs and optimizing sales.
Inventory turnover
A measure of how often inventory is sold and replaced over a specific period. A high turnover rate indicates efficient inventory management.
Key performance indicators (KPIs)
These are metrics used to evaluate the success of a business in achieving its goals. Common KPIs in retail include sales growth, conversion rate, and customer satisfaction.
Markdown
A markdown is a reduction in the original selling price of a product. Markdowns are typically used to clear out excess inventory, attract customers, or respond to competitive pricing, usually during sales events or promotional periods.
Marketplace
An online platform where multiple sellers can list and sell their products to customers. Marketplaces such as Amazon, eBay, and Etsy offer a wide range of products from various sellers, allowing customers to compare prices and make purchases through a single site.
Markup
The amount added to the cost of a product to determine its selling price. It represents the retailer’s gross profit on the product. It is usually expressed as a percentage of the cost price. For example, if a product costs $10 and is sold for $15, the markup is $5 or 50%.
Minimum Advertised Price (MAP)
This is the lowest price at which a retailer is allowed to advertise a product for sale, as specified by the manufacturer or supplier. MAP policies are designed to protect brand value and maintain fair competition among retailers. While MAP sets a floor for advertised prices, it does not dictate the actual selling price, allowing retailers to sell below MAP in certain circumstances.
Merchandising
Also known as visual merchandising, this is the process of promoting products in a way that appeals to customers and encourages sales. It includes product display, pricing strategies, and inventory management.
Omnichannel retailing
A multichannel sales approach that provides a seamless shopping experience across online and offline channels. Customers can interact with a brand through various touchpoints such as mobile apps, websites, and physical stores.
Point of sale (POS)
The place where a retail transaction is completed. It also refers to the systems used to process sales and handle payments. It involves the process of customers making a payment for goods or services, and the POS system records the sale.
Procurement
The process of sourcing and purchasing goods or services from suppliers, involving activities such as vendor selection, negotiation of contracts, ordering, and payment. In retail, procurement ensures that the business has the necessary products to meet customer demand.
Product lifecycle
The stages a product goes through from introduction to growth, maturity, and decline. Understanding this helps brands manage inventory and marketing strategies.
Profit margin
The percentage of revenue that exceeds the costs of producing a product or service. It is calculated by dividing the net profit by the revenue and multiplying by 100. Profit margins are used to measure a company’s profitability.
Proforma invoice
This is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. It details the estimated costs, including the price of the goods, shipping charges, and any other related expenses. It is often used in international trade to secure payment before goods are shipped.
Purchase order (PO)
A document issued by a buyer to a supplier, indicating the types, quantities, and agreed prices for products or services the supplier will provide. A PO serves as a formal offer and is legally binding once the supplier accepts it. It helps businesses manage orders and track spending.
Recommended retail price (RRP)
The price at which a manufacturer suggests a retailer should sell a product to consumers. Also known as suggested retail price (SRP), the RRP serves as a guideline to ensure consistent pricing across different retail channels. However, retailers are not obligated to adhere to the RRP and may adjust prices based on market conditions, competition, or promotional strategies.
Stock keeping unit (SKU)
This is a unique identifier assigned to each product in a retailer’s inventory. SKUs help businesses track inventory, manage stock levels, and organize products efficiently. Each SKU represents a distinct item, including variations in size, color, or style, allowing for precise inventory management and sales analysis.
Stockout
A stockout occurs when a product is temporarily out of stock and unavailable for purchase. Stockouts can result in lost sales and dissatisfied customers. Effective inventory management and demand forecasting are crucial in minimizing stockouts and ensuring products are readily available to meet customer demand.
Supply chain management
This is the management of the flow of goods and services from suppliers to the final customer, involving sourcing, production, logistics, and distribution.
Third party
In retail and e-commerce, this refers to an external entity that provides services or products, but is not directly affiliated with the brand or the customer. Examples include logistics providers who handle shipping and warehousing, and third-party marketplaces, where products from multiple sellers are sold.
Units per transaction (UPT)
UPT is a metric that measures the average number of items purchased in a single transaction. It is calculated by dividing the total number of units sold by the total number of transactions. UPT is used to assess sales performance and understand customer buying behavior, particularly in relation to product bundling and promotional strategies.
Universal product code (UPC)
A barcode used to identify products and track them through the supply chain. The UPC consists of a series of black bars and numbers that are scanned at the point of sale to retrieve product information and manage inventory. UPCs are widely used in retail to streamline checkout processes, reduce errors, and improve inventory accuracy.
Wholesale
The sale of goods in large quantities at lower prices, typically to retailers who then sell them to consumers at a markup.