Start-Up Expenses of a Shoe Retail Store Business
How much does it cost to start a shoe retail store? There are no hard and fast rules in setting the price tag of a shoe store business. Your start-ups costs will be influenced by a number of factors, including:
- Size and design of the store
- Target market
- Inventory selection
- Level of marketing
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Given the factors above, the price tag can be anywhere from $20,000 to as much as several hundred thousand dollars!
Using the common start-up expenses of a retail shoe store listed below, create a worksheet with your projected costing for each item to get a clear idea of your start-up expenses:
Store Construction and Design
- Store construction/remodeling (flooring, painting, carpentry, etc.)
- Interior design and decorating costs
- Fixtures and Leasehold Improvements (fire alarms, restroom upgrade, heating, air conditioning, etc.)
- Installation costs (lighting, etc)
- Displays, showcases, shelves/racks, sales counters and sales registers
- Back-office furniture, shelving and fixtures
- Lease payments/Rent
- Utilities and other deposits (telephone, water, electricity/gas, cleaning)
- Insurance (fire, theft, etc.)
Fees and Permits
- Legal fees
- Licenses and permits
- Professional fees
- Merchant account fees (for accepting and processing credit cards)
- Store signage
- Advertising and promotion for launch
- Opening Inventory
- Bags and boxes with store logo
- Gift wrapping supplies (if gift wrapping is offered)
- Cash (reserves and on hand)
- Office Supplies
- Sales receipts
- Cleaning supplies (window cleaning, trash cans, mop)
- Salaries and wages
- Payroll-added costs
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- Computers, copy machine
- Point of sales systems (Credit card and check processing machines, bar code reader, cash drawer, cash register, POS software, etc.)
- Fax machine
- Security cameras and equipment including fire extinguishers
- Sales floor equipment (baskets, bags, shopping carts, customer seating areas, specialty lighting)
- Other signs (Exit, restroom and store hours signs)
- Other equipment (drink fountains)
- Unplanned expenses
- Miscellaneous fees
Gross Profit Margin
It is important that you have a good idea of the expected gross margin of your retail store. Gross margin is the difference between net sales and cost of goods sold; it is what is left over after deducting cost of sales from sales and converting that to a percent. For example, if the sales of your shoe store are $150,000 and your cost of sales are $78,000 then your gross margin is $72,000 and that converts to 48 percent (100*(72,000/150,000)).
According to the Annual Retail Trade Survey of the Bureau of Census, the annual gross margin as a percentage of sales for shoe retail industry is 42.6% in 2002. This is relatively high compared to food and beverage stores with 28.5 gross margin, gasoline stations at 19.3 and electronics/appliance stores at 27.8.
Total Fixed Expenses
As you operate your store, you will be incurring fixed or ongoing expenses. Below are estimated fixed expenses that your store may incur (estimates can be below or above your actual costs):
Estimated Fixed Expenses of a Shoe Retail Store Business
|Expenses||Monthly Estimate||Annual Estimate|
|Rent (2,000 square feet at $3,000/month)||$3,000||$36,000
|Utilities (light, heat, air conditioning, phone)||$500||$6,000|
|Wages (2 clerks at $8/hour for 20 hours a week)||$1,280||$15,360|
|Payroll tax (estimate at 10%)||$128||$1,536|
|Fees and accounting (licenses, permits, accounting)||$175||$2,100|
|Insurance (liability and loss due to fire, etc.)||$600||$7,200|
|Loan Payment (assume that $50,000 was borrowed at 10% interest per year)||$1,062||$12,744|
|Miscellaneous Expenses (office supplies, janitorial or cleaning services, etc.)||$200||$2,400|
|Owner's Salary/ Compensation||$3,500||$42,000|
|TOTAL FIXED EXPENSES||$10,945||$131,340|
|Sales Required (Total Fixed Expenses / Gross Margin)||$25,692.49||$308,309.85|
Given the above projections, you will need to sell the following number:
- Sales of $856.42 per day if open 7 days a week
- At an average price of $59.95 per pair of shoes, that means around 14 to 15 pairs of shoes sold per day
Choosing Your Merchandise
The type and quality of your merchandise will shape the image of your retail store. Customers will come and patronize your store due to the quality of your inventory (among other reasons such as customer service). Your inventory can also spell the success or failure of your business: choose too much of a shoe style that no one wants to buy, you may be staring at the death of your business.
Below are some suggestions on how to best choose your inventory for your shoe business:
1. Check your sources and ask how their shoes are manufactured.
Stay away from those that manufacture their brands from sweatshops and other politically hot buttons. Carefully review the companies that you are dealing with, including consumer complaints and lawsuits (use the Web to research).
2. Product segmentation.
Given your original vision for your retail store, think the types of shoes you want to offer. You may want your store to focus on women shoes, categorized as follows: casual, boots, sling backs and mules, outdoor and athletic, wedding, pumps and career shoes, etc. Now devise a percentage to allocate each category. For example, you may want to dedicate 10% of your inventory to casual shoes; 10% for outdoors; 5% for weddings, etc. You can also use this approach when thinking of brands you want included in your store.
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Note that factors such as trends, weather and customer preferences need to be taken into consideration when determining the percentages for each product category or brand. For example, boots may occupy a very small percentage of your inventory for the summer, but orders for this type of shoes will increase for the fall and winter seasons.
3. Put a tracking system in place.
It is critical to know which merchandises are moving from what categories/brands, and which are not. There are a number of inventory management software systems currently available, although its price may be too high for start-up shoe stores without deep capitalization. Instead, develop a system that could allow you to track the movement of merchandises. You can assign stock numbers that will include the following information: stock aging code (whether a number or letter) to help you know when the stock came into the store, retail price, item information (supplier, style, size, color), stock keeping unit (S.K.U. number) and other information you may deem important.
Recommended Books on Starting a Shoe Retail Store Business:
- How to Start a Shoe Design Business
- Sneaker Store Athletic Shoe Shop Start Up Sample Business Plan NEW!
- Step-by-Step Guide for Running a Retail Store Business: How to Operate and Market a Retail Shop to Maximize Profits
- The Retail Doctor’s Guide to Growing Your Business: A Step-by-Step Approach to Quickly Diagnose, Treat, and Cure
- Fashion Entrepreneurship: Retail Business Planning
- Starting a Shoe Retail Store Business
- How to Succeed in the Shoe Store Retail Business
- Starting a Children’s Shoe Store: Finding Suppliers
- Managing for Bottom Line Cash Flow in Retail
- What You Need to Know When Starting a Retail Store: Tips to First-time Retailers