Are you dreaming of having your own store? There are a lot of things that you need to understand before starting your retail store. Opening a retail business is more than just leasing a store, putting in shelves and creating your display.
Here are some things you need to know when starting a retail store:
The store owns you, not the other way around.
Once you post those opening and closing times, you make an unbreakable commitment to your customers to be open on time and be there for the full span of hours that you are supposed to be open. Customers expect that you open on time at that time on all days that you are open, and close at the time you stated. Even if the business is slow, you don’t close your store an hour before your advertised time. Customers will also be irate with you if they line up outside your store for 30 minutes because you are late in opening the store.
Customers expect that you stand by those advertised hours. If not and the customer rushes to your store before the time they expect you to close to see that your store is closed, you don’t only lose that sale but you may lose a lifetime customer. You also lose any referral they may send your way. Customers feel entitled that you will be there, open when you say you are while offering the quality and experience that they expect from your retail store.
Be prepared to pay a lot of taxes.
One thing that may surprise you when you run a retail business is the astonishing array of taxes that need to be constantly filed and paid. Whether your business is doing well or not, you will spend a lot of time assessing, collecting, and paying taxes. Check with your state the types of taxes that you need to pay. You may be required to collect and pay sales tax, which is the retail point-of-purchase tax paid by the customer. Other taxes include real estate tax, retailers use tax, retailers occupation tax, payroll tax, quarterly tax, local taxes, value added tax (for some countries/areas), and on and on.
Note that tax laws vary from state to state, and collecting sales tax can be tricky if you are selling online or out of state. Be sure to know the rules in your locality, including areas where your business has a physical presence whether it’s a store, office, warehouse, employees, and in some states, online affiliates.
Choose the right suppliers
Finding the right supplier is essential to the success of your retail store. Choose the wrong one and you can find your shelves empty and your customers going to your competitors.
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In choosing suppliers, don’t just automatically go with the leading suppliers in your product categories, or even the cheapest. Instead, work with those who are looking to build a great relationship with you, and who have time to answer your questions and concerns. As such, be open to working with smaller, growing or new entrants to the market. These suppliers may be more willing to work with a smaller retailer like you. Plus, you are more likely able to negotiate trading terms with them, which could help improve your cash flow and bottom line.
Understand the cost of starting your retail store, including hidden costs.
It is important to know how much it will cost you to open your own retail store. Make a list of all the expenses that you need to pay to get your store up and running. You will need to pay for:
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- Rent and operating costs = includes rental lease security deposit, rental payment in advance, utilities security deposit
- Location improvement costs = covers construction costs (materials and labor); as well as store fixtures such as mannequins, shelves, and racks, cash counter, bookcases, among others
- Miscellaneous operating expenses = such as hangers for clothing, liability insurance, association fees and dues, office and cleaning supplies or labor cost
- Technology and equipment = such as specialized point of sale software, high-speed internet or telecom services; telephones and computer, etc.
- Marketing = includes exterior and interior signage, logo design, business card, trademark registration, flier design and printing, etc.
- Public relations = including cost of grand opening, media and advertising around the grand opening.
Plan for hidden or unexpected expenses. You don’t want to have unnecessary surprises that could throw off your entire plans for your retail store.
Always have a contingency plan, whether for big or small events.
No matter how great your concept or successful your business, there may be unexpected events that could throw you off your feet. A number of things could happen, and some might affect your retail store more than others.
A customer may have an accident in your store and slaps you with a lawsuit, or your products may be deemed unsafe by regulators. Your store could be robbed with your employees held at gunpoint. Or your store could be severely affected by weather and other unexpected events, such as a tornado, floods, earthquake, or something else.
Macro events that you have no control of can also severely affect your business. You may find your retail store struggling to survive when an economic recession hit (read the article “How to Recession-Proof Your Retail Business”) or a major act of terrorism like 9/11 affecting how people consume and purchase from you.
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Be sure that you have adequate business insurance coverage; as well as security and contingency measures in place. There are a lot of things that could go wrong, and some of them can’t really be planned for but have to be dealt with when it happens. The key is to be aware of the potential of any macro events that could singularly wipe out any business, and not to be caught totally off guard and flatfooted when it happens.
The battle between storage vs. selling spaces
Retail space is expensive; thus, it makes sense to maximize selling spaces and minimize non-selling storage space. However, a retail store needs enough storage space to handle inventory needs, especially as your business grows, but you know that you cannot sacrifice your already limited retail floor.
As a retail store owner, you will be doing the balancing act of your storage vs. selling spaces. It is important to preserve the attractiveness of the store, and maximize product display while ensuring that you have adequate inventory. Failing to balance these two needs could potentially damage sales and the business.
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It is important to carefully plan out how you will deal with increased need for storage in your retail store. You can design your shelving and display spaces to maximize storage while keeping the retail floor space intact while ensuring full exposure of the products to customers. You can also check whether the store owner/mall developer offers off-site storage spaces (downside is that it may be quite a distance to your store) or will allow you to use conex storage boxes outside your store. If you have the resources, you can also consider renting another space to serve as storage. You may also want to set up special systems with suppliers and easy drop off points to deal with this issue.
Retail business is exhausting
Depending on what you are selling, retail business can be tiring, even back-breaking. Expect your feet to hurt — really, really bad — as you could be on your feet for 8 hours at a stretch. If you are selling heavy items such as books, lifting those boxes of books can put a big strain on your body. Be sure to wear comfortable footwear and outfit, especially if you will be at your store the whole day.
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There are guarantees to success in retail business. You need to expect to work hard, and think about your strategies and decisions and how they contribute to your bottom line. The average profitability in retail is 3% with 2 to 3 years to reach profitability. You can aim to get your retail business to do better than this, but plan and prepare financially to be the rule, not the exception.