Retail Operations: What They Are & How to Overcome Common Challenges

Retail operations

Retail operations are the activities that allow online and physical stores to function. 

The aim of retail operations is to enhance the customer shopping experience and lower the retailer’s costs. Efficient retail operations keep your business running smoothly. 

So how do you ensure efficient retail operations across both online and physical locations? This post will highlight the main challenges as well as some tips for maintaining successful retail operations. 

What are retail operations?

Retail operations are the activities, systems, and processes that enable online or physical stores to run efficiently. 

Retail operations include:

  • Supply chain management
  • Cash operations
  • Store layout (both online and physical locations)
  • Customer service
  • Order fulfillment
  • Physical inventory
  • Master data management
  • Promotions and pricing 

These processes directly impact the customer shopping experience and the business’s ability to succeed. 

Core functions of retail operations

  • Customer service
  • Store management
  • Inventory management
  • Payments and processing

All retail businesses need the same core functions to operate successfully. In medium-sized or small businesses, a few people or one individual may perform multiple functions. In larger businesses, some functions may have their own department. 

Customer service

Seamless omnichannel customer service is key for successful shopping experiences. Customer service is about more than providing support in the decision and purchase phase. Retailers must also provide customers with an easy, frictionless post-purchase experience.

Helping a customer

Solid customer service includes:

  • Customer inquiries 
  • Omnichannel help and support
  • Quick deliveries 
  • Easy refunds and returns

Store management

A key component of retail operations is giving customers a top-quality experience that makes shopping easy. 

Physical stores need to be accessible to all shoppers, easy to navigate, and well-staffed by knowledgeable team members. Think about how your hiring and training policies help team members feel prepared to deal with shoppers. 

The layout, music, and aesthetics of your physical store should add to the shopping experience. 

For online retailers, create an online shop that’s well designed, user-friendly, and easy to navigate. Customers need a simple roadmap to find what they’re looking for before heading to the checkout. 

Inventory management

Inventory management is the system you create to organize inventory throughout the supply chain. It includes everything from ordering goods to storing items properly. An efficient inventory management system enables your business to hold the optimal level of inventory.

Most online and physical retailers use inventory management software to track their stock.

Payments and processing

Retail operations include the payment methods you accept and how you process them at checkout. Most retailers have a point-of-sale (POS) system that enables them to serve customers, take payments, and keep track of sales.

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Retail operations challenges

No matter whether you’re setting up shop or running a thriving ecommerce store, maintaining efficient retail operations can be challenging.

Omnichannel customer journeys

Even prior to the COVID-19 pandemic, customers had begun to embrace the convenience of ecommerce retail. In 2019, ecommerce already represented around 25% of total retail sales.

Since the start of the pandemic, consumer intent to purchase goods through online channels has increased by 40 to 60 percent.

Retailers need to be online to maximize their sales, but it’s hard to maintain consistency across all channels, processes, and people. 

Retailers may find it challenging to distribute inventory correctly across all channels. For example, customers may prefer to purchase small items at your physical location and order bulky items online. 

If you know your customers’ preferences, you can better distribute your inventory. That’s why it’s important to have accurate data on customer purchasing habits. 

Inventory shortages

Purchasing the right amount of inventory to meet seasonal demand, regional trends, and customer preferences is challenging for retailers. 

Supply chain issues due to the COVID-19 pandemic have only further fueled the chance of product shortages.

At the end of 2020, around 56% of CEOs and senior retailers reported moderate supply chain disruption, while 12% reported heavy disruption.

Given all this, anticipating supply chain issues is tough. Maintaining accurate records, however, can help you forecast customer demand and prevent (or at least minimize) future inventory shortages.

Personalized experiences

Customers expect digital and in-person channels to deliver a personalized shopping experience.

This can feel like a tall order for brands with both a digital and physical presence. How do you ensure consistency for both online and in-store shoppers? How do you achieve personalization if you’re experiencing rapid growth? 

Store associates at physical locations have a unique opportunity to personally interact with each customer. In fact, 27% of consumers say they want to speak to more informed and knowledgeable store associates.

To meet this demand, retail giant Target is providing specialized employee education for certain products. For example, the company is staffing its new Apple-dedicated kiosks with “Target Tech Consultants” who have received training directly from Apple.

How to improve retail operations

  1. Automate where possible
  2. Unify online and offline selling
  3. Offer experiential retail
  4. Optimize inventory management
  5. Optimize returns and exchanges
  6. Streamline checkout

Optimizing retail operations is essential to improving profits for your retail store. Here are six ways to improve your business’s retail operations.

1. Automate where possible

    Automating parts of your retail operations will speed up your day-to-day admin, make it easier to accurately track your inventory, and help inform future purchasing decisions.

    Although it’s tempting, tracking inventory with lengthy spreadsheets can get out of hand quickly. It’s time-consuming and puts you in danger of human error and poorly informed business decisions. Instead, integrate all your POS and inventory management systems and let them do the tedious work for you. 

    When you automate your inventory management with high-quality software, you get access to helpful features like low stock alerts, automated purchase orders, and inventory reporting

    The best inventory management software accurately syncs your data in real time as stock is sold, received, or returned. 

    2. Unify online and offline selling

      Customers like to view goods in person before completing their purchase online.

      Hybrid shopping (a blend of online and physical shopping) is the primary buying method for 27% of consumers and 36% of Gen Z—more than any other generation. 

      Despite shifts towards more online purchases, nearly 3 in 4 (72%) consumers still rely on stores as part of their primary buying method. Store owners need to meet customer preferences for both online and in-store physical shopping.

      Alexa Allamano, the owner of Foamy Wader, a Shopify-based jewelry store with a physical store in Langley, WA, explains how she has successfully unified online and offline selling by offering “literal window shopping” with her “Scan to Shop” method for monetizing window displays. 

      “Using a system of scannable QR codes merchandised in my store windows allows me to capture sales and leads outside normal open hours,” she says. 

      Shoppers use their smartphone camera to scan the QR code next to an item in the window and be led to order that exact item on my website. One customer recently said it was like shopping online IRL.

      Alexa Allamano, Owner of Foamy Wader

      Since her business offers custom sizing, the click-and-collect approach drives online traffic from the store's foot traffic and guides shoppers through the personalized online experience. 

      By tapping into the BOPIS (buy-online-pick-up-in-store) trend, Allamano has met customer needs and seen positive results. “The benefit of this omnichannel approach has caused an increase in both my online and in-store average order value (AOV) of 10% and 19% respectively.”

      3. Offer experiential retail

        Shoppers are craving live in-person experiences. According to a Forrester Consulting Study, 32% of consumers plan to engage with brands through experiential retail in 2022. To stay competitive, 40% of brands said that experiential retail would be a top priority for them. 

        To create memorable shopping experiences for customers, focus on creating customer-centric interactions. These could be: 

        • Interactive product demos 
        • Workshops or classes
        • Community-based events
        • Pop-up showrooms 
        • Try-before-you-buy events 

        Experiential retail encourages customers to spend more time with your brand. For example, sportswear brand Lululemon embraces experiential retail at their Chicago flagship store. The idea was “to create a space where customers could spend three hours, rather than 30 minutes.”

        Instead of experiencing Lululemon through their clothing, customers could head to a health-food-beverage restaurant, a yoga studio offering classes, a workout studio featuring branded classes, and a meditation studio. 

        Lululemon experiential retail restaraunt

        4. Optimize inventory management

          Access to accurate real-time data is key for optimizing your inventory management. Be prepared to adopt new technology to make your existing inventory infrastructure more efficient. 

          RFID (radio frequency identification) tags enable you to better search, identify, and track items. Unlike traditional line-of-sight bar codes, RFID tags can be read at a distance and from any orientation for quicker inventory processing. This gives you better inventory visibility with the potential of more frequent updates.

          Syncing your POS with your inventory management software will automatically track product sales, returns, or exchanges, saving time, and improving accuracy. 

          Start performing quarterly inventory counts in cycles. Instead of counting everything at once, break it down into sections. Spend one cycle counting one area or type of inventory and the following counting period on another item type or section in your warehouse. 

          Conducting inventory counts will help reduce the chance of costly overstocking or frustrating stockouts

          📌 GET STARTED: Shopify POS comes with tools to help you control and manage your inventory across multiple store locations, your online store, and warehouse. Forecast demand, set low stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.

          5. Optimize returns and exchanges

            Total returns account for $428 billion in annual lost sales for U.S. retailers. Returns don’t need to represent the end of the customer journey with your business. Instead, returns are an opportunity to deepen your understanding of your customers’ requirements.

            BORIS (buy-online-return-in-store) offers the chance to meet and convert customers personally. Use the opportunity to learn more about the exact product specifics your customer is looking for and help them find it.

            To encourage customers to shop with your brand again, offer a return to gift card option so they can choose to buy something else at a later date. 

            6. Streamline checkout

              In retail, the online shopping cart abandonment rate sits at around 76%. And 18% of shopping cart abandonments are due to a long and complicated checkout process. 

              By streamlining your checkout process, you’ll make it easier for shoppers to click buy and follow through on their orders. 

              Tiffanie Hartenstein, the CEO of ORACLE Lighting, an automotive lighting company with a Shopify store, says that a streamlined and personalized checkout process is key to improving conversion rates. 

              We have minimized friction by reducing the number of steps to complete an order and providing all important information upfront. Other helpful additions have been incentivizing purchases through a loyalty program with Zinrelo and offering flexible payment options like quick pay and buy-now-pay-later.

              Tiffanie Hartenstein, CEO of ORACLE Lighting

              In your physical locations, using a mobile POS system enables store staff to take payments anywhere in the store and virtually eliminates lineups to pay at checkout. This line busting tactic gives customers an efficient checkout experience.

              Optimize your store’s retail operations

              Now that you know the core elements of retail operations, you’re ready to put in place these tactics to improve your retail operations. 

              Whether you’ve just set up your first online shop or are expanding to a physical store, these strategies will help your business succeed.

              Start selling in-person with Shopify

              Shopify POS is the easiest way to unify your sales channels and sell both online and in-person. Have all the tools you need to manage your business, market to customers, and sell everywhere in one easy-to-understand back office.

              Retail operations FAQ

              What does operations do in retail?

              Operations in retail is responsible for overseeing the day-to-day activities of the retail store. This includes managing staff, maintaining inventory, ensuring customer service standards are being met, managing the store budget, and ensuring store safety and security. Operations also works to continuously improve store processes and procedures.

              What are the four main functions of retail operations?

              1. Merchandising: This includes activities such as buying, pricing, and displaying merchandise. 2. Customer Service: This includes activities such as providing customer assistance, handling returns and exchanges, and resolving customer complaints. 3. Store Operations: This includes activities such as managing inventory, tracking sales, setting up displays, and maintaining store cleanliness and safety. 4. Financial Management: This includes activities such as setting budgets, controlling expenses, and managing payments and collection.