According to Statistic Brain, those opening a retail store have about a 50/50 chance of succeeding. After four years, about 47 percent of retail stores are still operating. Twenty-five percent of the failures occur in the first year.
Even though a high percentage of retail businesses fail, Dun and Bradstreet completed a business failure report that showed some interesting statistics about why businesses fail. They don't just fail because they have tough competition, but a big reason they fail is that the business owner is inexperienced or untrained. What does that mean for you as a new business owner? There are some things you can do to make sure you have the best chance possible of succeeding in your business endeavor and that will give you a competitive advantage.
Choose a Niche
The first thing you have to do is choose the type of retail store you'll own. While it is important to choose a niche and to be true to the mission statements of your business, you don't want to create such a narrow type of store that only a handful of people will want to purchase product from you. For example, a bath and beauty store allows you the flexibility to offer a wide range of topics, but a handmade soap only store doesn't.
Look into the future and think about how you might want to expand your business. Can you easily add products that still fit with your overall theme? If not, then your focus may be too narrow.
Startup Costs
Figuring out how much money you'll need to start a retail business can be challenging. The Small Business Administration advises that you calculate your budget by including the costs of starting and running your business for the first several months to the first year. These costs include:
- The price of any equipment and inventory you need to get started, such as clothing racks, computers, and product to sell
- Cost of rent, utilities, franchise fees (if purchasing a franchise) and other fixed expenses
- Cost of variable expenses, such as employee wages, replacing inventory and shipping costs
While you may need to estimate some of these costs, Entrepreneur.com offers a startup cost calculator that can help you remember the different categories and will help you come up with a cost range.
Location
The location of your store can make or break you. There are many factors that go into whether a location will be successful. If you are not tied into your current location, you may want to check out Kiplinger's list of the 10 best cities to start a business. However, since most people start businesses where they already live, here are some tips to choose a location anywhere that will work for your business:
- Choose a location that gets a lot of foot traffic. If people are walking past your store, then they are more likely to walk into your store.
- Choose a location that matches what you sell. If your product is loved by young, college people, then look for a location near a university.
- Make sure you can afford the rent even if you don't do well at first. While the store inside the upscale mall may be appealing, the cost of leasing the space may be more than your store can support at first.
- Find out what local licenses and laws are for the area. Can you place signage out front? The right signage can serve as advertising.
Keep in mind that malls typically have a set of rules or bylaws. Make sure that the hours you have to be open and the rules you have to follow are not detrimental to your business.
Getting Product or Stock
When you purchase an existing business, you will be purchasing all the contact information on that business's suppliers. Starting a new business, you will have to locate them on your own. But how?
- Trade Shows: Your first stop is at a trade show that specializes in your product. For jewelry stores, it's the gem shows; for toy shops, toy fairs. To get into these - at least the wholesalers parts not opened to the general public - you will need a reseller's ID. Get one through your city or state. At trade shows, you can make contacts with many companies that sell products wholesale to your kind of store. Take cards, catalogs, and brochures. Many of the booths offer trade-show specials, so bring a credit card and be prepared to part with some serious money.
- Trade Publications: Most specialties have some sort of publication specific to it. For New Age stores, it's the periodical New Age Retailer. In these magazines, new products are reviewed, trends are discussed, advice columns appear, and - perhaps more importantly - wholesalers advertise here. Find the trade pub that covers your area and subscribe to it. Be prepared to prove you are a retailer; these magazines aren't for general subscribers.
- Vendor Reps: Vendor representatives are roving salesmen for the suppliers, and in general, they find you. How they do is a mystery, but once one rep finds you, the rest of them will find out and start calling to schedule appointments. Get into the grapevine by asking the first wholesaler you contact if they have a vendor rep who services your local area. When reps call, they bring the catalogs, samples of new lines, and a lot of savvy on what sells well. These representatives usually service more than one wholesaler and can take orders for multiple lines. A visit from a rep who handles several accounts can be an afternoon's work.
How much inventory do you need? It is really hard to say how much it will cost you to stock your store; this is so dependent on the size and value of your items. A jewelry store with lots of very small, expensive items will require a larger investment than a book store. You'll find articles here on LoveToKnow that provide specifics on the cost to start businesses, such as Cost for Opening a Restaurant and Opening an Online Consignment Shop. Intuit, creator of QuickBooks, has also put together a list of the average overall startup costs for a variety of business types.
Setting Up the Store for Good Flow
Another thing to consider as you start your retail store is whether customers can easily move through your store to view products. You'll want to consider the location of the cash register. It should be easy to locate but allow room in case there is a line to check out. You also don't want it to interrupt the flow of shopping.
One example that comes to mind is any PacSun store. While they've been successful, they put their cash register right in the center of the store and interrupts shopping, forcing you to move around it.
However, stores like Aeropostale typically place the check out area to the side and at least halfway back. This allows the shopper to access the entire store without moving around a counter.
When planning out your merchandise displays, try to think about what might draw the interest of passersby. The goal is to get people to come into your store.
Hiring Employees
You might be able to get by with just your family running the business for a bit, but at some point you're going to have to hire help. Perhaps you need a vacation, or you have to extend your hours for the holidays. Whatever the reason, how your employees interact with your customers can help you succeed or drive you to failure. In an article on Hiring Employees, Ann J. MacDonald shares that it is important to make sure you have a list of the "exact duties" required for that position, as well as a work schedule and number of hours the employee will work.
Investopedia points out that you'll want to make sure you completely understand the cost of hiring a new employee. For example, while you might pay $10/hour, that is not the total cost since many employers, even small ones, offer insurance and vacation time. There also will be training costs involved.
You'll want to make sure:
- You hire the most qualified people you can afford.
- Those employees love your store, the product, or something about it.
- They are well-trained in customer service and knowledgeable about your products.
Keep in mind the costs involved in training employees and focus on retaining the good employees you have so you are not constantly investing in new employees' training and then losing them to other retailers.
Marketing
There are various ways to get the word out about your new store. You may want to hire a PR and marketing team, get your site online, and even mail postcards to local citizens. Microsoft suggests holding a grand opening to get the word out and entice people into your store.
- Take advantage of free publicity by talking to local newspapers and radio station to see if they want to cover your grand opening event.
- Get local celebrities and leaders on board by having a special cocktail party or evening just for them.
- Start some buzz online by setting up social media pages and posting regularly about special events, sales, and news.
- Host classes and workshops that help people learn how to use your product or service better.
Marketing is about more than just buying an ad or two. Try to network with others in the community, talk about your store, invite people to visit, and follow up with your customers by placing them on a special mailing list. This allows you to remember birthdays and anniversaries, and inform them when you get a new product or hold a sale.
Additional Tips to Succeed
Some additional things to keep in mind as you strive to be in the 47% who are successful with their retail stores:
- Stay up-to-date on training. Attend conferences and trade shows in your industry.
- Add new products so your store stays current and fresh.
- Keep an eye on competitors. What are they doing better than you? How can you change that?
- Keep careful records and review them regularly. Where are you wasting money? Where are you losing money? What needs to change?
With a lot of hard work, determination and the knowledge you've gained at LTK, your retail business has a higher chance of succeeding. Know that you aren't alone. There are many other entrepreneurs who've paved the way before you and are happy to help with advice or just a bit of encouragement.
