How To Start A Retail Business A Complete Guide
It takes more planning to open a retail business than you might think, especially in today’s highly competitive market. To open a successful brick-and-mortar store, You will need a business plan, including market research, a legal structure, an ideal location for your storefront, startup funding (around $100,000), and products and a team of employees ready to sell. You’ll also need to launch your online store and get marketing started.
13 Ways To Start A Retail Business
1. Develop a plan for a retail store business
A formal business plan is essential for any business. A business plan will give you a clear path, show that you have done market research, and set you up for success.
The Small Business Administration (SBA), outlines two types of business plans: lean startup and traditional. If you are applying for funding, such as loans, traditional business plans will be more detailed and appropriate. Lean startup business plans can be more informal and are best suited for businesses that are flexible and adaptable. A shorter one-page business plan is also possible.
We recommend that you follow a traditional business plan when opening a retail shop. This plan is more detailed and you don’t want to be unprepared. It will also give you a clear outline to present to potential investors or business partners, such as banks.
These are the nine elements of a traditional plan for a business:
- Executive Summary: A high-level paragraph that outlines the purpose and mission of your company, as well as why it will succeed.
Company description: Be specific about the details of your company, such as what problem you are trying to solve, how you will do it, who you intend to serve and what talent you have.
- Market analysis: Include industry outlook, trends, successful competitors, and your strengths.
Management and organization: Describe who will run your business, and what experience they have in a startup or retail environment.
- Product Line: Describe the products you intend to sell and why they are necessary. Also, include any research or development on proprietary products and private labels.
- Marketing and Sales: What are the strategies you’ll use to retain and acquire customers?
- Funding Request: If your organization requires outside funding, please outline your requirements and describe how you intend to use the funds.
- Financial projections: Describe how your business will be stable and profitable over the next five years, with a projected financial timeline.
- Appendix: Use this space to store any additional documents, such as product prototypes, pictures, credit histories and licenses, permits, and so forth.
Although it may seem overwhelming, the best way to make sure that readers are able to read the entire document quickly and absorb all the information. This includes the “why” behind the “how”.
There are many options when it comes to writing and formatting your business plans. You can also type in word processing software such as Microsoft Word or Google Docs.PowerPoint also allows you to create your business plan in a slideshow. This is a great way to present your plan to an audience.
2. Determine Your Niche & Select Products
Your retail business will be more successful if you create a niche. The competition is fiercer with retail giants such as Amazon and Walmart. Many large retailers like departmental and box stores carry similar products. A unique perspective can help you offer something that shoppers won’t find at their local Target.
A niche market is defined as a group of people who have a common interest. It is easier to be the preferred retail destination in that niche market if the interests are narrower. There may be many shops in the area that sell pet products. However, you might be the only one that specializes exclusively in dog costumes.
This guide on how to locate a niche market shows three steps that retailers can follow to discover their niche.
- List your hobbies: You will spend a lot of time in your chosen niche as a store owner. So your interests are a great place to start. Your store will be more authentic if you choose something that interests you.
- Research the potential of each niche: Do your research on Google Trends to ensure you are choosing a topic with high money-making potential. Also, check out the competitors on social media.
- Research potential profits: You can determine how profitable each niche is by looking at the industry statistics and Amazon bestsellers lists. This will allow you to compare sales figures for your selected categories. To get an idea of the potential profit margins, you can compare wholesale prices on websites like Alibaba to those at retail.
Source Products from Suppliers
After narrowing down your niche products, it is time to search for reliable suppliers. To determine how you can source products for your retail business, it’s important to first understand the options.
- Manufacturer: You develop the product idea and outsource its creation. This option gives you the most control but takes a lot of time.
- Wholesaler: Wholesalers create products and then sell them to retailers at a discount price. The items are then sold to retailers for a profit. This route is fast and allows you to have the most control over the product.
- Dropship: Drop shipping means that you sell products directly to your customers, and then outsource manufacturing and fulfillment. Dropshipping is the least hands-on option but it also has the lowest profit margins.
Research a few options before you choose a supplier. You can order samples from up to five suppliers. To narrow down the items you are interested in sourcing, ensure that quality assurance testing is performed. You can then nurture vendor relationships through effective communication and efficient payments. You may eventually be able to negotiate discounts, especially for large-volume orders.
Retail Market Research
Instead of narrowing down your interests and doing research on them, you can do primary market research to find out the needs and interests of your target audience. You can also study your target audience directly if you are opening a brick-and-mortar storefront. It is possible and probable that there are specific needs your store can fulfill.
These are some of the most effective market research strategies:
Send out surveys to your retail store
Surveys can be a quick and efficient way to collect a lot of useful information. Emails are often sent by established businesses to their customer base. However, if you don’t have a customer list, you can promote your survey via local Facebook groups or targeted Facebook ads.
You can start with a broad survey asking local customers why they love their favorite stores or what interests them. You can also send surveys to gauge customer reaction and interest in specific products as you move closer to selecting them. This type of product development survey is described in our customer satisfaction article.
Conducting Consumer Panels & Focus Groups
Surveys can provide more accurate data than a focus group or consumer panel, but these types of information-gathering sessions can provide nuanced details and deeper insights that might otherwise be missed in a survey.
Here are some tips for conducting focus groups
- Keep your group small: It is best to have between 8 and 10 people so that everyone can speak.
- Incentivize participants: Make it clear in your advertisements that there is cash or gift card compensation for their time.
- Select participants wisely: Ask participants to RSVP so that you know where they will be living or working. Before you start, have participants complete a contact form.
- Get started with the general questions: Asking general icebreakers questions gets the group going. Next, ask for feedback about products and shopping preferences.
- Make sure everyone has equal time: Your goal is to hear a range of opinions. Do your best to keep one or two people from dominating the discussion.
- Stay neutral: Don’t try to convince participants, but be open to their feedback. Focus groups are about gathering feedback. Consensus is not necessary.
3. Create Your Brand
Retail is not just about your products. Your brand is also important to customers. It is important to develop a brand because it attracts customers and builds strong relationships. Your brand identity is what defines you as a store. It gives you seven seconds to make your first impression. However, it can take up to seven impressions to build brand awareness. It is essential to have consistent branding.
Ask yourself why you are in business. Look at your competitors and consider what makes your store stand out. This information is essential to building your brand’s foundation. These are the elements of your brand:
- Visual branding includes logo and storefront. Fonts, signage, and colors are also available.
- Create a store name with a slogan that is completely unique to your business. To help you come up with new ideas, use this gratuitous business name generator.
- Your vision and mission statement will outline your commitment to serving your customers and community.
- Positioning within your niche, market, or community–and what makes you stand out from the rest.
4. Select a legal structure for your retail business
It is crucial to choose the right legal structure for your company. This will determine how taxes are collected and reported, how you get paid, and how much personal liability you have. There are many legal structures available, but the three most common are limited liability companies (LLCs), sole proprietorships, and corporations.
- Sole Proprietorship
- Limited Liability Company
- Corporation or C- Crop
5. Organize Your Financials
No matter what legal structure you choose it is important to separate your business finances and personal accounts from the start. A dedicated business account makes it easier to track income and expenses, which will help you stay on the right track financially. You’ll also have a much easier time filing taxes. You’ll also have a much easier time filing your taxes if you combine your personal and corporate finances.
Top choices for Retail Business Bank Accounts
There are many options when it comes to choosing a small-business checking account. You should look for a bank that is small-business friendly and has low fees. You should ensure that there are branches near your home or store. You’ll be likely to make any cash deposits as a retailer and change frequently, so it is important that you can easily get to the bank.
Other features such as online check deposits and mobile banking can make life easier. You should also consider whether the bank offers features that can help you grow your business, such as loans and business credit accounts.
Invest in Accounting Software for Retailers
A small business checking account is not enough. You will also need an accounting software program. Retail store operations come with many expenses, including shipping costs, wages for employees, advertising costs, and products. You can track your income and expenses accurately to see how much you make, where you have high expenses, calculate your product buying budget, and file taxes much easier.
QuickBooks has been voted one of our favorite accounting programs by small businesses. It is inexpensive, easy to use, and integrates well with many retail point-of-sale (POS) systems. (We’ll get into POS systems later). Retailers will love it because it offers retail-specific bundles, such as gross margin and inventory volume. It also integrates with eCommerce solutions. QuickBooks plans start at $10 per month and come with a 30-day free trial.
6. Start your online store
You might open a physical store but you may also be interested in opening one online. Multichannel retailers, including online, have earned more than $350 million in sales by 2020. Experts predict that multichannel sales will account for nearly half of all eCommerce sales by 2023.
Online stores can bring a lot to your bottom line. Online shopping can be a great way to reach more people than your physical store. It also allows you to maintain existing customer relationships through another channel.
An eCommerce platform integrates with your accounting software and POS system. You can either use templates or tools provided by most modern platforms to design your store. Or, you can hire professionals to assist you. Remember that selling online requires order fulfillment and shipping. While click-and-collect is technically possible, you will need to find a way to ship products to customers that aren’t in your area.
7. Secure funding for your retail store
Large upfront investment is required to open a retail shop. Signing a lease for a physical location is necessary. You will need to purchase products and set up payment processing hardware and POS systems. Advertise like mad, pay staff, and invest in a grand opening. This sounds expensive, but it is. It can cost as much as $100,000 to open a retail store.
You should have enough cash saved to fund your retail store. There are many options for funding small businesses that can be secured from outside sources. These are just a few of the options:
- Small-business loans are available from banks, credit unions, and your existing connections.
- Credit cards: If you are just starting out or have no business income, a business credit card might be a better choice. Credit cards will allow you to plan for unexpected expenses and give you more flexibility. To find out which credit card is right for you, visit our guide on the best small-business credit cards.
- Crowdfunding: Crowdfunding is an excellent way to generate buzz about your store and to get people personally and financially invested in it. You don’t have to return this money.
You should consider the following: upfront fees, interest rates (APRs), and application requirements.
Your IRA or 401k retirement account is another option to fund your business. This may seem like a strange idea. However, using your retirement account to finance your business does not necessarily mean that you are borrowing from or cashing out of your account.
8. Select a Storefront Location for Opening Your Retail Store
It can be overwhelming to choose a location for your company. How can you tell if your chosen area is profitable? Is it worth the effort to attract people to your area?
You should narrow your choices based on convenience and practicality when choosing a business location. Think about how far you are willing to commute each day for the foreseeable. Select areas that are easy to reach from your residence. Take time to explore each area and get familiar with specific. Neighborhood demographics and preferences, to find other local businesses.
9. Design Your Retail Store Interior
Once you have secured a retail storefront, it is time to plan the interior. Because it has such a significant impact on sales, strategically planning your store layout can make a huge difference. A well-designed layout will make shoppers feel welcome, help them find the right products, and will also make them feel more comfortable.
Select a layout structure
First, decide what floor plan you want. It will depend on what type of store you are opening. The three most common layouts for retail stores are:
Place your Checkout
A well-placed checkout will allow you to display products in prime retail space and encourage customers to shop more. Your instinct might tell you to position your checkout in the front of your store, where it is most visible. Or on the right-hand side of your shop where traffic flows. The best place for a retail checkout counter to be placed is usually on the left-hand side of a shop.
When they enter a store, shoppers naturally gravitate towards the right side. This is where you should place money-making and new products. Many department stores and large mall retailers have their checkout counters located at the back of their stores. For smaller retailers, however, it is easier for staff members to reach the register from the front and keep an eye at the entrance.
Outfit with Fixtures and Displays
After you have established the basic layout of your store and placed the checkout counter, it is time to start investing in signage, lighting, and display fixtures. You should start with the permanent parts of your store: counters and lighting fixtures, dressing rooms, and any fixed shelving.
These pieces are permanent so make sure you invest in quality items that will last a long time and will not go out of style. You can then outfit your store with temporary merchandise displays that are more affordable and easy to change with seasons or trends.
Position your products for success
The type of store and layout of your store will determine how you market your products. There are some simple ways to increase sales in any type of store.
- Eye Level is Buy Level: Products placed at eye level are more likely to get noticed and bought.
Display seasonal products and new arrivals in the center: Many retailers use a table display that is five to fifteen feet wide at the entrance. It’s usually updated nearly daily to showcase new products.
- Increase impulse sales at the point of purchase: Place small, inexpensive, but highly-attractive items near the check-out counter to increase add-on sales.
- Make it more comfortable: Shoppers who spend more time in your shop also tend to spend more money. Encourage shoppers to spend longer with Wi-Fi and product demos.
- Keep it simple: Shoppers who spend more time in your store also spend more money; encourage shoppers to stay awhile with Wi-Fi, product demos, and comfortable seating.
10. Select a Retail Point-of-Sales System and Install It
The first step to opening a retail store is choosing your POS system. POS systems combine sales and inventory transactions with other business management tools. This makes it easy for retailers to manage their businesses from one platform.
A POS system saves time, makes it easy to use, and gives you deeper insight into your sales, inventory, and customer data. Many POS systems have integrated payment processing, so you don’t need to deal with multiple providers. When choosing a POS, there are many things to consider. It is important to make a list of the features you desire before you begin seriously looking at different options.
We use these criteria to determine the best retail POS systems:
- Price: Most POS software programs have a monthly charge. Some also charge additional for advanced inventory management features.
- Installation and setup: Some POS systems can be installed by the user themselves; others require a professional installer.
- User-friendly: Check out the POS and read the expert and user reviews to find any problems or glitches.
- Inventory Management: To save time, ensure that the retail stock management system you choose has the ability to bulk upload orders and set stock alerts.
- Customer management tools: Almost all POS systems include a customer directory, but they differ in the loyalty, marketing, and customer feedback features that are available.
- Ecommerce functionality: If your plans include selling online, ensure that the POS you select has an online shop feature. This will allow inventory, customer, and order information to be synchronized between offline and online sales.
Select a Payment Processor & Credit Card
Next, you need to choose a merchant services provider or credit card processing company. Some POS systems allow you to pay directly while others require that you use a third party. When choosing a retailer credit card processing company, the two most important factors to consider are price and compatibility.
It can be difficult to determine the exact amount of credit card processing fees. Our credit-card processing guide outlines common terms and breaks down the different types of fees in great detail.
There are basically three types of card processing fees:
- Flat rate: This is a common option for convenience stores with lower sales (under $20) that charge processing companies a flat percentage.
- Interchange plus: The interchange fees charged by Visa, Mastercard, and other payment processors are passed on to the processing companies and a per-transaction fee is added. This is a good option for established specialty shops.
- Tiered: Processors charge different rates depending on which type of debit or credit card is used. We don’t recommend using a processor with this fee structure as it can be unpredictable and sometimes more costly.
Monthly fees may also be charged by some card processing companies. Some companies have longer application processes than others. A traditional merchant account may also have contracts or early termination fees. Before signing any contract with a credit card processing company, be sure to carefully read the fine print.
Another thing to think about is whether the payment processor can integrate with your POS system. Integrating with your POS system is key. This prevents human error and makes sure that your POS data matches your inventory and sales data. Here’s a guide for choosing the best retail credit card processors.
11. Hire & Train Retail Staff
You must also hire a solid team of employees to run your business. It can be difficult to navigate the hiring process if you’ve never hired employees before. The new employee checklist covers all the details, including obtaining an employer ID number (EIN), registration for state and local taxes, and so forth.
- Write Attractive Job Posts
- Training before Your Grand Opening
Also read: Top 10 Hiring Platforms for Your Business
12. Create your Marketing Plan
Once your store and brand are in place, it is time to create a retail strategy. Your marketing strategy will provide the framework for your launch, as well as post-launch and future planning. This will ensure that you attract a diverse range of customers.
Make Your Grand Opening a Success
You have put in a lot of work to conceptualize your store and build it from scratch. Grand openings are a great way to get your business out there.
Market in Advance
It is very disheartening to plan a party and then have no one turn up. This is not what you want for your business. You can make sure that your event is attended by inviting friends and family. Also, you should start advertising as soon as possible. Send a press release to local media outlets. Make an event on Facebook. Place an advertisement in your local newspaper. Go all-out.
Partner with other businesses
It’s a great way for you to reach out to existing customers by collaborating with non-competitive businesses like spas, gyms, and other retailers. Involving other businesses will help spread the word about your store to their customers. Reach out to your local chambers of commerce, schools, networking groups, and youth sports associations. Invite members of these groups to your grand opening celebrations.
13. Make sure you’re compliant
The last and most important tip when starting a retail store is to make sure you are legal and compliant. When opening a retail shop, make sure you comply with all local laws. These include but aren’t limited to:
- Federal tax ID, or EIN: This number is used to identify businesses for tax-paying purposes. It’s a nine-digit number that the IRS issues to all employers.
- Sales permit: This is issued by the state and allows businesses to sell products and collect sales taxes.
- A certificate confirming occupancy: The certificate is issued by the local government certifying that the building your company is in is code compliant.
- Sign permits: Some local governments require permits to allow certain types of signage such as the one you want to place on your storefront.
- Safety bulletins: Some signage may be required regarding employee rights and safety information. These are usually provided by the local government, but it’s a good idea to verify with them.
- Local COVID-19 requirements: It may be necessary to have a fully vaccinated staff and conduct regular testing for those who are not vaccinated. Many retailers might have to require customers and workers alike to wear masks.
You can get help from your local chamber or municipality if you are unsure of where to start.
It takes many years to open a retail business. But taking the time to plan and execute and according will help you get on the right track to success once your company is up and running.