I received an email from someone who wanted to own a shop but she didn’t know how to start a retail business.
I thought this was a common enough problem to make it worth blogging about my advice.
The lady who asked the question already knew what type of shop she wanted. If you’re a budding retail entrepreneur but you’re not sure about what to sell, you need to decide the broad category first.
General Thoughts About Retail Businesses
Setting up a business can be a great idea but it can also be a way of losing a lot of money, especially in retail.
I feel that the first thing you both need to do is to read two or three books about retailing and what makes one shop successful whilst others struggle.
As well as learning more about how to start and manage a shop, I think several aspects are particularly important.
1) How To Choose The Best Location For A Shop
There’s a cliche that the three most important things about retailing are “location, location and location” which at least emphasises how this can be a make or break situation.
Unfortunately there will normally be a trade-off between the best locations and the cost of the locations but you need to find the sweet spot between:
- Plenty of the right kind of people are walking past with the time to pop in, browse and buy and
- The cost of the rent & rates and the length of commitment in the lease.
You need to understand the concept of the break even point, because if the shop doesn’t cover all the costs required to operate, you can be left with an expensive lease that you have to keep paying for. A look at virtually any shopping street or shopping centre shows that there are plenty of empty properties which is often evidence of bad decisions made by the previous occupants.
Strangely some retail operations do best by putting distance between themselves and their competitors (eg newsagents) whilst others do well when they group together to create specialist destinations. For example, jewellery stores are often close together as it helps to make the buying experience easier as well as turning the area into a focal point for customers.
You need to understand which category your business is likely to fall into. That partly depends on whether you are selling the same thing as your competitors, in which case low prices and convenience will dominate the buying decisions or whether you sell different or complimentary items.
Here is an introduction to break even thinking on my blog with links to other articles.
Other factors also come into the location decision like the accessibility of public car parks. If what you sell is large, heavy or cumbersome you need a car park to be close for those customers who want to collect as well as offering a delivery service.
2) How To Thrive When There Is So Much Competition From The Internet Retailers
Many retailers are struggling to deal with the pressure from Internet competitors who have lower costs and can often supply the next day or two. In the big cities, Amazon even offer a same day delivery service for popular items.
You need to have strategies that will encourage people to come in to investigate, and then actually buy.
I’ve been guilty of going into a store, looking for and deciding on what I want and then buying online because it’s been cheaper. From the buyer’s perspective, there’s a decision to be made in terms of having access to the goods immediately, the (in)convenience of a home delivery and the amount of money that can be saved by buying online.
3) Proof Of Your Retail Concept
When you’re thinking of starting a business that is different from what else is out there, you need to do consumer research to make sure that what you think will sell (and at what prices), really will work.
One way is to ask people in your target audience for their opinions.
- What do they like about the current buying experience?
- What frustrates them?
- What would they like to change?
- How would they like to buy?
- How far would they travel to get the right experience?
- What kind of prices do they pay/think are reasonable?
- and probably plenty of other questions.
That should highlight a few things that you haven’t thought about in enough detail.
However people can say one thing when asked a theoretical question and do another when faced with making a buying decision, and then repeating it. The best research involves test marketing where people have to spend their own money.
The challenge in the to try to test your ideas on a low cost basis, that is without renting a shop, paying for shop fitting etc.
Two ideas that immediately spring to mind are
- Starting with a market stall on Saturdays or
- Party promotions like the Tupperware party (or the “sexy” ones) which get a group of people together in a relaxing atmosphere at somebody’s home.
If your idea for a shop isn’t very different from what is out there already, then it can be comforting that your idea isn’t crazy (for example, in a different type of business, starting a pizza & pasta restaurant is much safer than one that specialises in Bolivian cooking) but it also begs the question of how you can survive the competition.
Retail markets are naturally geographically constrained and a town or area may support one successful store but might not be big enough to allow two to succeed. In that situation one may continue to do reasonably well whilst the other struggles or they both may be taken below the subsistence level.
Where To Start Developing Your Retail Business Ideas
I can understand if you’re getting itchy feet and you want to be more proactive than just reading.
Many, many years ago, my father was interesting in starting a small chain of greeting card shops that would have involved buying several existing shops that were up for sale along with starting a few others from scratch.
He didn’t want to move house so we were interested in opportunities with an hour’s drive with some closer than that.
The first thing we did was to investigate the population centres in the area as an indication of their potential. Obviously a town of 50,000 people is going to have more customers and demand than one with 15,000. However those larger towns could well have one or two shops that were already doing good jobs with any obvious weaknesses.
Next we visited the different areas to take a look at the existing competition. We wanted to see how big the stores were, what they stocked and what they didn’t and where they were located. We also looked at how the people congregated in certain areas but were much quieter in other areas. We watched to see how many people stopped to look at the shop, went in and then bought. We also got a feeling for the prosperity of the town as some areas are wealthier than others and that matters if you want to sell a luxury product.
We looked at what card shops were on the market from a much wider area (using a newspaper called Daltons Weekly that has now gone online at https://www.daltonsbusiness.com/ ). That allowed us to see the performance of many different stores and how the one product type may have been combined with others (e.g. cards with gifts or newsagents).
A lot can be learnt from talking to existing business owners, especially if you ask questions like “what do you know now that you wish you’d have known when you started/bought this business?”
All the time we were accumulating knowledge although my father never did go ahead because he was headhunted into another business.
If I was you, I’d do something similar. The more you learn about the trade you choose, the more likely you are to have success. At the beginning you have one huge advantage – fresh eyes. Everything is new and exciting and you’ll be able to see the strengths and weaknesses of your rivals’ stores much easier than when you’ve developed your own success formula. At that stage, you’re invested in what you’re doing and believe you’ve got it right, even if you don’t get the success you expect.
Final Thoughts About Starting A Shop
Remember it is very easy to fail at retail and to be left with onerous commitments going on for many years through the lease.
Another cliche but with a lot of truth in it is that “successful people do what unsuccessful people don’t.” There are probably ideas in here that you don’t want to do but please make sure you have legitimate reasons if you decide not to do them.
Take your time to get it right and when you know more, I think you’ll be in a much better place to take advantage of business advice around particular issues that you’re concerned with.
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