When you start a retail business, no one hands you a glossary packed with all of the terms and retail lingo you need to know. As you move through the various stages of establishing your business within the retail market, you’ll come across a ton of retail jargon that you need to get your head around, but who really has the time to study a retail dictionary?
Our A-Z guide helps clue you in to some of the most important and common terms you’ll need to know as a retailer.
1. Anchor store
Anchor stores are large, usually popular retail stores (think Macy’s, JCPenney, etc.) often found in shopping malls and shopping centers. They are usually located in prime spots such as entrance and corner locations.
They serve as one of the biggest draws to visiting shopping malls and centers, and they’re important to smaller retailers situated close by because they help drive foot traffic to these smaller stores.
2. Augmented reality
Augmented reality (AR) in retail is the concept of adding virtual content to customers’ physical shopping experiences. As the term suggests, technology augments reality to help customers better visualize products and enjoy an immersive try-and-buy experience.
For example, IKEA customers can view pieces of furniture against the background of their own homes by using their phone cameras.
3. Average transaction value
Average transaction value (ATV) measures the average amount your customers spend on each purchase or transaction. It’s important to measure your ATV to help evaluate your product and pricing strategies.
To calculate your ATV, take the total value of each of your transactions from a certain time period (day, week, month, quarter, year, etc.) and divide that number by the total number of transactions during the same period.
4. Big data
Big data is just that: big. The term refers to huge sets of data that are impossible to break down without the help of technology.
In terms of retail, this information is collected from customers, sales, inventory, and POS data, and it can be invaluable in terms of customer insights and how it can be used to influence retail strategy. For example, analyzing big data can help businesses pinpoint where they can reduce costs, increase personalization, and generate more sales.
5. Brick and mortar
Brick and mortar refers to businesses that operate from a physical location as opposed to online retail and e-commerce stores. The term is derived from some of the materials commonly used to build physical stores.
6. Cash wrap
Cash wraps are the main checkout areas within retail stores where customers pay for their items. This is where retailers place their POS systems and other retail software that helps them to process sales. Retailer promotions, such as stocked shelves, are often placed near cash wraps to help tempt queuing customers to make impulse purchases.
Chargebacks are charges that are returned to credit cards and bank accounts when a customer disputes a purchase made from their account. In cases of chargebacks, customers deal with their card or bank provider rather than directly with the merchants.
Chargebacks occur for a multitude of reasons (friendly fraud, merchant error, true fraud) and often cost retailers a service fee of $25 or more, which is why they are keen to avoid chargebacks wherever possible.
8. Contactless payments
Contactless payments refer to those powered by near field communication (NFC), which enables fully wireless transactions. They include some credit and debit cards, payments made with smartphones, and smartcards. Customers tap or wave their card or phone above a payment terminal instead of swiping or inserting the card.
9. Dead stock
Dead stock is bad news for retailers. The term refers to products that have never sold or have been lying in stock for a long time. This can happen due to seasonality but also because products simply aren’t popular or retailers have overbought. These items represent lost money since retailers have spent money to acquire them and keep them in inventory but have made no return on investment.
10. First in, first out
First in, first out (FIFO) refers to an inventory valuation method where it’s assumed that businesses will sell their oldest inventory first. It’s the preferred method of inventory valuation or inventory costing because it’s easy to manage, allows for more accurate financial statements, and is recognized as a valuation method for businesses with international locations.
Footfall measures the number of people who enter a retailer’s premises. Calculating footfall helps retailers identify the in-store purchasing opportunities they have and gives businesses an idea about the status of their marketing efforts.
12. Inventory management
Inventory management refers to tracking and managing stock quantities so businesses don’t have too little or too many of any item or product. There are many types of inventory management systems that retailers can use to make sure the right levels and quantities of inventory are available at the right time and in the right locations.
13. Keystone pricing
Keystone pricing is the practice of selling products at double the wholesale price. This practice is often used to cover the costs of storing and transporting goods and is an easy way to secure a decent profit margin.
14. Key performance indicators
Key performance indicators (KPIs) are common in every industry, but in retail they refer to metrics that help merchants determine if they’re meeting their goals. Common examples of retail KPIs include sales per employee, conversion rate, gross and net profit, year-over-year growth, and Gross Margin Return on Investment (GMROI).
15. Last in, first out
Last in, first out (LIFO) is an inventory valuation method where it’s assumed that the last items placed in inventory are the first sold.
Some businesses use the LIFO method to lower their taxes. However, this method is not permitted by the International Financial Reporting Standards (IFRS) if your business operates internationally. To use this method, businesses also need to seek permission from the IRS.
16. Mobile payments
Mobile payments refer to digital sales transactions made with mobile devices. Mobile payments are usually facilitated by an app downloaded onto a phone. Common types of mobile payments include NFC payments, QR codes, and Magnetic Secure Transmission (MST) payments.
17. Omnichannel retailing
Omnichannel refers to retailers with both a physical and an online presence. Omnichannel retailing intends to create a cohesive and integrated user experience for customers at every point where they connect with the business. This means enabling them to buy, interact, and engage across all sales channels simultaneously and interchangeably.
For example, omnichannel retailing allows customers to see an item on social media and click through directly to the retailer’s website to purchase the item.
18. Point of sale software
Point of sale (POS) software is used to take in-person payments. Retail POS systems offer functionality that helps retailers manage their inventory, provide business reporting and analytics, manage customers and employees, and integrate with other software systems to help run the business.
19. Pop-up store
Pop-up stores are short-term physical stores and are usually operated by an online retailer. Their purpose is to provide an opportunity for online retailers to interact with customers and drive brand awareness.
20. Radio frequency identification
Radio frequency identification (RFID) refers to the use of radio waves to read data from chips embedded in product labels or packaging for the purpose of inventory management. The data often include an identifying inventory number or product-related information such as stock and batch numbers and production dates.
21. Stock keeping units
Stock keeping units (SKUs) are identification codes on certain products that allow businesses to keep track of items in inventory via barcodes. SKUs are usually readable with a barcode scanner and include product information such as size, color, brand, etc.
22. Virtual terminal
Virtual terminals are web-based applications that allow retailers to process payments when there is no debit or credit card present. Customers’ card details can be taken over the phone or in person and processed using no physical hardware. In order to accept virtual payments, retailers need to have a payment gateway and a merchant account already set up.
When retailers sell wholesale, it means that they sell their products in bulk and at a discount to wholesale distributors, who then sell it to customers or sometimes other retailers. The benefits of selling wholesale include reducing handling times and costs involved with retail.
Pop quiz, anyone?
No one is going to quiz you on all of the retail terms out there, but it’s good practice to know some of the most important ones.
As your retail business grows, you’ll become more comfortable distinguishing your ATVs from your POSes, and your LIFO method from your FIFO.