Retail Industry Terminology Every Retailer Should Know
Whether you’re a long-time retail brand or you’re just getting your feet wet in the industry, understanding fundamental retail terminology is key. From inventory management to account and margin metrics, this industry is filled with specific terms and retail acronyms that can be overwhelming, especially if you’re trying to make informed business decisions.
What is Retail Terminology?
Retail terminology encompasses any language, merchandising term or metric specific to the industry.
Think of this as a bite-sized retail glossary that can help you comprehend all of the lingo you’re hearing day-to-day and keep you up to date on the latest retail trends.
An Essential List of Retail Terms
Demand Planning is the process businesses use to anticipate customer demand while minimizing excess inventory and preventing supply chain disruptions. In essence, it’s an educated estimate of how much product you will sell to your customers.
Inventory Planning is the process businesses use to forecast and determine the optimal amount of a product to have in order to meet customer demand. A solid inventory plan helps regulate which products should be in stock, how much of each product to maintain and when to reorder.
Inventory Management involves tracking, ordering, storing, and selling stock. It covers the entire process, from sourcing products to selling them. The goal is to have the right amount of stock in the right place at the right time while controlling costs to make a profit.
Merchandise Planning is a facet of inventory management. It means having the right products available at the right time, place and quantity to meet customer demand and maximize profits.
Forecast is a prediction based on historical sales data and market trends.
An Inventory Manager plays a pivotal role in any retail business as they are responsible for meeting inventory goals and working with the merchant to determine how much product to buy.
A Merchant is the person responsible for deciding what products to sell so you can meet the sales goals for your business.
On-Hand Inventory (OH Inventory) is the quantity of products a company owns and has available in stock. Its purpose is to ensure there is enough product to meet customer demand.
A common retail abbreviation, Weeks of Supply (WOS) is a metric that calculates the number of weeks a retailer’s inventory is projected to last while taking into consideration current stock levels and sales rates. To calculate, take your On-Hand (OH) Inventory divided by eight weeks of your Average Weekly Sales (AWS). Looking for other common retail equations? We’ve gathered them all for you in our Retail Fundamentals.
Average Inventory is the typical amount of inventory you have on hand over a specific period. To calculate, sum your Beginning of Period (BOP) Inventory with your End of Period (EOP) inventory and divide by the number of inventory periods used. Looking for other common retail equations? We’ve gathered them all for you in our Retail Fundamentals.
Margin is the difference between the price that a business pays for a product and the price it sells that product to customers.
Gross Margin is how much profit you’re earning after you account for the costs of producing or acquiring the goods sold.
Gross Margin Return on Investment (GMROI) measures how much profit you make for every dollar spent on your inventory purchases. The formula for calculating GMROI is: Margin $ / Average Inventory Cost. Looking for other common retail equations? We’ve gathered them all for you in our Retail Fundamentals.
A Markdown is a reduction in a product’s selling price. Although this is seen as positive from a customer standpoint, it’s ultimately a loss for the retailer.
Open-to-Buy (OTB) is an inventory planning strategy that helps you decide how much inventory to purchase based on units, costs or revenue. A good OTB tool helps you plan monthly receipts and manage reorders and changes in season. You can calculate lead time from suppliers and forecast sales, helping you determine how much additional inventory you need to maintain your ideal on-hand or weeks-of-supply levels.
Unproductive or Excess Inventory means having more products in stock than what’s needed. This usually happens when too many items are ordered or when sales forecasts don’t match actual demand.
Stockout or Out-of-Stock (OOS) is a term in retail that you want to avoid in your business. A stockout happens when a specific product is unavailable at the time a customer wants to buy it. This creates a frustrating experience for shoppers and will impact your sales.
Hardline is a common retail store term that refers to goods that are durable and reusable. These are typically less personal items, like appliances or electronics.
Softline products generally refer to any goods that are literally soft, like clothing. In a national retailer, these products are sold on the carpeted area of the store floor.
Consumer Packaged Goods (CPG) is another common retail abbreviation that refers to fast-moving products that are used frequently such as food, beverages, over-the-counter medications and personal care items.
Sourcing is the backbone of any retail business. It encompasses finding products to sell in your store, negotiating prices, making sure products arrive on time and finding vendors to manufacture finished goods or produce raw materials.
Sell Through Rate (STR) is a retail metric that measures the percentage of your inventory sold compared to inventory received over the same time period, or [units sold/units received x 100]. The higher your STR, the better because it means you were able to sell your products quickly. Looking for other common retail equations? We’ve gathered them all for you in our Retail Fundamentals.
Potential Sales is the estimated amount of sales a business expects to make in a certain time period. It’s also used to highlight the amount of sales a brand missed out on because they were out of stock.
Sales Recapping is the process of comparing and contrasting your current sales performance with the sales performance you had planned or forecasted. It involves analyzing sales data to identify patterns and compare actual sales with forecasts. Retail brands use this to understand the reasons behind sales performance by assessing top-selling items, categories and certain customer preferences.
A Reorder is when you place a new order for a product before it runs out. You want to set up a system to reorder your products before you completely sell out.
We hope this guide of retail terms helps you better understand the ins and outs of the industry. If you need support with implementing the practices and plans mentioned above, our dedicated team of retail experts is here to help. Get started today with a free discovery call.