Narrow down your target market before opening a retail location.
In 2019, many consumers think about online shopping when they hear the term "retail." While smaller retailers are finding success online, there's still a market for brick-and-mortar retail stores. Most of these businesses also maintain a web presence, but there's something about the in-person shopping experience that can't be replicated online.
Several studies suggest that in-store purchases aren't a thing of the past, and online and in-store retail can coexist. If you're interested in opening a retail business, it's important to plan for the event. We spoke with experts in the industry to learn more about how to open a retail store.
Generate an idea and business plan
The first step to opening a retail store is coming up with your idea and developing a business plan. You'll want to start by figuring out what type of store you want to open. You'll want to answer each of the following questions:
- What will your business sell?
- Who is your target customer?
- What type of prices will your business set?
- Who are the competitors in your industry and local area?
- Who will be on your team?
There are dozens of other questions that need to be answered, but opening a retail store is like opening any other business. It's critical that you determine what you want to sell and who makes up your target audience. It's important to create a retail store that satisfies a need of your customers.
"Know your competition," said Juli Lassow, founder and principal of JHL Solutions, a retail business management consulting firm. "No ideas today are fully original. Understand what options your customers have to you and your offering. The option might be doing nothing at all.
Once you understand your competition, build out your strategy to compete. Will it be on price? On quality? On service? On variety? Be specific on what your competitive advantage is. Know how you will communicate that to your customers through marketing and presentation."
Like Lassow mentions, it's important to understand your competitive advantage and what makes your business unique. Retail is competitive, and you need to be clear on your plan to find success. Identifying how your business helps your target market is arguably the most important aspect of opening any business.
Lassow said being lost in the crowd is a common risk associated with opening a retail location.
"You risk not standing out in a crowded marketplace," she said. "Consumers have so many options today to learn about products. They have options in where to shop. They have options for how to buy. Your retail strategy of product and marketing must reach your consumer. It must resonate with them."
Other basic factors to consider include business funding and marketing ideas. Will you need to use business loans? Will you take on investors? What types of marketing channels will you use? Does your team need people specifically for social media marketing? What online channels do your customers use?
Marketing and business funding are both important considerations that should be addressed in your business plan. For funding, it's a good idea to research business loans and how to attract investors. For marketing, you should be familiar with online marketing channels.
Consider all of your costs as well. Create a list of the fixed and variable costs that may affect your business. It's easy to brainstorm a potentially successful idea only to forget about hundreds of thousands of dollars in costs. You may find in your research that the cost of starting a brick-and-mortar store is too much for you to handle, and, instead, you should start an online business before eventually saving up and opening a small physical location.
You may also generate new ideas upon learning about the costs of inventory and other business items. Thinking through how to create your retail business in detail will help you find success when it's time to open your store. For instance, you'll need a point-of-sale system and a way to process credit card transactions. And you'll want to invest in the right accounting software for your business.
Choose a name for your retail store
In addition to the other basics that go with creating a business plan, take time to find a good business name. When contemplating how to create a good business name, you should consider a few factors.
- Meaning – There should be some meaning to the name from the customer perspective. That meaning may be developed over time, but you'll want a brand name that is recognizable to customers.
- Simplicity – Look for names that are relatively short and easy to say. Apple, Google, Facebook and Nike are all major brands that are easy to say. If your brand is a mouthful, it's probably not the best name for branding purposes.
- Uniqueness – Don't opt for a name that's close to that of your competitors. Look for something original and authentic that encapsulates your business. Try to draw your own inspirations for names without looking at other brands.
The name doesn't determine the success of your business, so it shouldn't be the focus when opening a retail store, but you do want to at least put some thought into naming your business entity.
Tip: It's also important to check that the name isn't already trademarked or taken. You can start with a quick Google search for the name before taking a deeper look at state databases of unavailable business names.
Cover your legal basics
Covering your legal basics includes choosing a business structure, following any regulations and obtaining the right licenses and permits.
"If you are opening a retail store for your business, you will need a few common business licenses and permits in order to stay in operation and remain in compliance," said Deborah Sweeney, CEO of MyCorporation." A few of the basics include:
- A basic business operation license, which allows you to operate your business in the city, county, or state you do business out of.
- An employer identification number (EIN), which is a federal tax ID that allows you to hire employees to work at your storefront and ensures your business collects payroll tax.
- A seller's license. This depends on what kinds of items your retail storefront sells. It's recommended you check in with your state's government office to determine whether or not you need it."
When it comes to selecting a legal structure, you follow the same process as most businesses. For retailers, however, becoming a sole proprietor can be risky. Taking on a business structure that doesn't place liability solely on the individual owner is a good way to mitigate your risk, should the business fail.
It's common for retailers to become limited liability corporations (LLCs) or corporations. Both of those options help limit personal liability.
Find the right location
If you're opening a brick-and-mortar retail business, you need to focus on finding the best retail space for your business.
Picking out a prime retail space for your business needs to be a focal point. While it can be tempting to try to pick a cheap location and hope your business generates a steady flow of customers through its marketing efforts, sometimes, there's no substitute for being in a busy part of town. Picking a location downtown might be pricier than an option a few miles away from town, but the pricier option might bring in thousands more customers per year.
"First-time retailers need to be wary of trying to save money on rent if they are not a true 'destination retailer,'" said Bethany Babcock, founder of Foresite Commercial Real Estate. "Poor access or awkward positioning in the center can keep clients away. The retail real estate business is very psychological, and the price [of real estate] is usually one of the last considerations for most retailers."
When determining a location, find where your customers spend their time. If your customers live primarily outside of town, opening a downtown location might be more expensive and bring in fewer customers. Try to place your retail location in an area where your target audience spends its time. While that tip may seem simple, businesses often focus on finding a location they think is fantastic, rather than trying to narrow down where their target market resides.
You may also have a location with additional space to store inventory. If you expect to have a lot of inventory, because you sell a lot of items at affordable prices, you may want additional space. Other stores may sell a few high-end items and don't need a large space to keep inventory. Keep inventory in mind when selecting a location.
Create a personalized experience
Finding success in retail often comes from adding value that competitors are not. This frequently comes in the form of personalization. Many retail stores find success by allowing customers to try the products. Whether it's free samples at a food shop or dressing rooms at a clothing store, brick-and-mortar retailers can offer personalized experiences like that, while online retailers struggle to find the same level of personalization. [Are you interested in improving your customer relationship management system? Check out our best picks and reviews of software that can help.]
With the convenience of online shopping, physical stores need to offer a reason for customers to visit. Personalization and a quality in-store experience are important ways to consistently attract customers.
Marco Castelán, co-founder of The Navio Group, a retail business consulting firm, said, "I think the biggest question an entrepreneur needs to ask himself/herself is simple: Can I provide the customer a new experience? It doesn't matter that you are selling items that can be bought elsewhere – the biggest way to differentiate yourself is through creating a unique experience for the customer because, through that, you are creating value that cannot be replicated."
Your focus when selecting a location and the size of your shop should always be your customer. Find a place where you can create a unique experience that fits the model of your business and your customers. In-store decision-making should place an emphasis on creating an experience for your customers.
Key takeaway: With the convenience of online shopping, physical stores need to offer a reason for customers to visit. Personalization and a quality in-store experience are important ways to consistently attract customers.
Build vendor relationships
Developing relationships with vendors becomes critical when opening a retail location. Small business owners face challenges, and it's important to consistently please customers despite those challenges. Building strong relationships with vendors is a good way for business owners, especially retail shop owners, to prevent potential issues.
If you're able to quickly develop relationships with vendors, it will set your business up for success. This can prove difficult if you're using overseas vendors.
"The global supply chain is changing rapidly," said Lassow. "Current trade uncertainty makes it difficult to build global relationships that will provide you with the goods and services you need. If you plan to fully or partially source your products from outside of the U.S., get support. Be sure that part of your operations planning includes partnering with experts in sourcing, logistics, customs and tax."
Explore marketing opportunities
Marketing is an important part of building a successful retail store. If you already own an online retail business and you're looking to expand to a physical store, you may want to first experiment with pop-up shops. These shops open in temporary locations for a short amount of time. For example, your clothing store may open a pop-up shop at a downtown event just for the duration of the one-day event.
Pop-up shops give your business a chance to move around or offer a physical location to attract new customers. Opening pop-up shops can be a good way to test if your online retail shop will translate to a brick-and-mortar location.
Even if you don't already own an online retailer, pop-up shops can still be a good idea. If you open your brick-and-mortar location, you may open a pop-up shop once every few months to expand your customer base to new locations.
Opening a shop every few months in a town 20 to 30 minutes from yours may pique the interest of customers in that new town. If they love your products, they may start driving 20 to 30 minutes to visit you, or they may decide to buy from you online. Creating a pop-up shop is a good way to generate buzz around your business for a few days or weeks.
Other marketing opportunities may come from social media or in-store discounts. Sales can be a good way to draw customers into your store. For example, offering 30% off select items during a holiday weekend may increase foot traffic in your store. You can get creative with the different marketing opportunities as well. You could decide to sell your products at a 10% discount from Dec. 20 to 24 in hopes of attracting more https://www.businessnewsdaily.com.
On the flipside, you could sell holiday items at a discount from Dec. 26 to early January to cash in on customers looking to purchase items well in advance of the next holiday season.
Regardless of the marketing and sales tactics you employ, it's important to be creative. Find ways to reach your customers through creative marketing ideas. Running a retail business is a year-long endeavor, and finding success requires quality marketing campaigns. [Are you interested in using direct mail to market your store? Check out our small business guide to direct mail.]
Plan for a grand opening
If you're opening a retail store, go big for the grand opening. This doesn't necessarily mean you need to spend excessively on your grand opening, but you do want to make it an event. Reach out to local media outlets and share when your store is opening, as media coverage is a good way to get the word out about your business for free. Share a pitch with journalists as to why your store matters and how it fits into the local community. Be sure to follow proper etiquette when pitching journalists.
In addition to securing media coverage, plug your business's grand opening through social media and other marketing channels weeks in advance. Don't wait until a few days before your business opens to get people excited. You want to start off strong and have a good first few days to get your business into people's minds. That requires a successful grand opening event.
It doesn't need to be over the top, but your grand opening should be an event you take seriously when trying to win over the local community. Consider timing as well. Opening a store on a Tuesday at 2 p.m. probably doesn't make much sense, but opening on a Saturday morning of a busy retail day could be a perfect plan.
The grand opening doesn't make or break your business, but you want your business opening to excite customers.
The bottom line
To open a retail store, you should first narrow down your target audience. Once you decide who you're selling to and what you're selling to them, start looking for a location and checking off legal requirements. Upon finding a location and fulfilling legal and financial obligations, look at different marketing channels that might work best for your business. Plan a grand opening, and your retail operation will be open for business.