I get a lot of emails asking for my opinion and advice on opening a shop. I suppose it makes sense, given that the ‘corner shop’ is the small business idea that most of us are familiar with before we quit our jobs and become entrepreneurs. Britain has after all long been considered ‘a nation of shopkeepers’.
Opening a shop however is not something to be taken lightly. There’s quite a lot to consider before opening a shop such as: the market – who will be your customers; the shop premises; the location of the shop; how you will finance the shop; employing staff and the associated legal issues; the legal aspects of owning and operating a shop; dealing with suppliers; and the hard work involved in putting it all together.
I would also argue that there are some retail markets that you should avoid opening a shop it, so lets start by examining that issue.
Should you open a shop at all
Whether or not you should open a shop will depend on what the shop will sell. I’d argue strongly against opening a dvd rental shop on the basis that the technology is changing fast and there are too many substitutes. Equally, much as it pains me to say it – I’m and avid reader – I wouldn’t start a book shop as the competition from the likes of Amazon is hard to beat and ebooks are likely to cannibalise the demand. As a result high street book sales fell by a massive 7% in 2009. Starting a business in a declining industry is never a good idea, especially if it’s one that has high start-up cost and involves long leases – as opening a shop often does.
Equally think carefully about the trends in how people shop, for example with both book shops and computer shops I tend to browse the shops and then make my purchases online when I get home – it’s cheaper and saves me carrying around a heavy load of books/computer equipment. From the conversations I’ve had with others, many of whom have kindly told me where to get the same product cheaper online this seems to be a growing trend.
Assuming your market isn’t in decline and you believe that people will buy from you rather than browsing and then buying online when they get home, then in retail, as in the property business there are three key things to get right when opening a shop. They are usually explained in the often heard mantra: location, location, location! So we’ll start by looking at what that means to you as a budding shopkeeper.
The market for your shop
Before you open a shop you need to determine who your market is. For example if you’re planning on opening a coffee shop your market is most likely to be young, professional people, i.e. the sort you see sat in Starbucks. In contrast opening a barber shop or tattoo shop will mean targeting different markets. Even then a high priced barbershop will need to be attracting young professional metrosexuals, in contrast a tattoo shop might be targeting blue collar workers.
Once you’ve decided who your target market is the next step is to verify that the market exists. You need to find out if there is a demand and is that demand local to your proposed location? How you define local will depend on the type of shop. For a coffee shop you’re looking at living or working within walking distance, in contrast a mountain bike shop might be able to define local as anyone within 30 miles.
Finally check out the level of local (however you’ve defined local) competition, go and visit them and see how they are doing. If a number of them are closing down then it’s perhaps a sign that the market isn’t there or is declining. If there is no competition then perhaps there’s a good reason – i.e. no demand. What you ideally want to see if a reasonable level of competition (proof that there is demand) that is doing well (proof that the demand is strong) but where you believe you can offer something different that the market will appreciate.
The shop location
The location of your shop is a critical success factor for your business. A critical success factor is something that must be right in order to ensure the success of your shop. Furthermore a good location will help you succeed even if other areas of the business are weak. Equally get a critical success factor wrong and no matter how well you do everything else the business will fail.
If you’re planning to open a clothes shop, gift shop cafe, sandwich shop, etc. then you will need to be in a central business district (that is on or near the high street) in order to access passing trade. That passing trade will also need to largely consist of your target market. Don’t be put off by the presence of competitors, especially if the competitors are all clustered together, there might be good reason for that and it might work in your favour to be near them. A good example of this is for Tottenham Court Road, well known as the place to go for electronics goods.
If you’re opening a bike shop, pet shop, computer shop, bridal shop, or any other type of shop to which customers are more likely to travel then a high street location is less important and might be worth avoiding as off high street locations will have cheaper rents, cheaper rates (which helps reduce your overheads) and may provide parking, which might be crucial for your business.
Before you commit to any location test it. Go there and stand nearby and count the number of people that pass (this is known as the footfall), count how many go into the neighbouring shops, if there’s a competitor nearby count how many go into their shop. Count how many leave having brought something. All this information will help you determine if it’s a good location and what level of sales you can expect to make from that location. All useful for developing the cash flow forecast and working capital requirements you’ll need to include in your business plan.
Look carefully at the local competition and think long and hard about how you will be different. You need a point of difference (aka a differentiator) in order to ensure that your business is sustainable. Ask members of your target market if your differentiator matters to them.
The shop premises
As well as the actual location of the shop you also need to consider the building itself. Look at the competition and use them to estimate what size property you need. Take your time here as getting it wrong will be costly, too small and you may find you quickly outgrow it, too large and you’ll suffer the extra overheads eating into your profit.
When it comes to signing a lease do your absolute best to avoid anything longer than 12 months or seek a break clause that allows you to leave earlier. If you get tied into a 25 year lease and the business fails after just a few years you need to be able to walk away. If you absolutely cannot avoid a long leases then it’s even more important that your target market is not in decline and is not likely to be so during the term of the lease.
Don’t forget to look very carefully at the outside of the shop, how well can it be seen, does it present good opportunities to market itself (places for signage) and is the shop window going to allow you to reach out to your target market?
If you have no retail experience then I’d strongly urge you to read Paco Underhill’s excellent book Why We Buy: The Science of Shopping. It’ll help you design your shop in such a way as to maximise the sales you’ll achieve.
Develop a business plan for your shop
As Alan Lakein wisely noted “failing to plan is planning to fail” If you’ve never written a business plan before I suggest you start off by following the advice in my post How To Write A Simple Business Plan. Whilst a simple business plan like that won’t be enough for those of you that need to secure external funding for your shop, the exercise of developing the simple plan will help you identify weakness in your idea and you’ll have gathered some of the ideas and information that you’ll need for a formal business plan.
A good book to read for advice on writing formal business plan is The Definitive Business Plan: The Fast Track to Intelligent Business Planning for Executives and Entrepreneurs or if you want something slightly more accessible The Best-Laid Business Plans: How to Write Them, How to Pitch Them. I’d also strongly suggest reading through The New Business Road Test: What Entrepreneurs and Executives Should Do Before Writing a Business Plan before writing your business plan and committing any cash to your new shop.
Whilst you’re developing your shop’s business plan be mindful of your focus – aim to be one specific type of shop, not a smattering of several disparate shops. In other words it’s better to be the best mountain bike shop within the area that a shop that sells some bikes, some toys and some outdoor gear with no clear focus.
One of the crucial aspects of a business plan is your marketing plan. You’ll need a plan to attract and retain customers, in particular it’s well worth thinking about how to build customer loyalty and ensure repeat business. The point being it’s much easier to sell to someone who has already brought from you than it is to find a new customer. You’ll find some useful marketing ideas in the post 171 FREE Marketing Ideas.
Another major part of your shop’s business plan you’ll need to focus on is how you’ll finance the business so lets look at the issues you’ll need to consider regarding financing your new shop.
Financing your shop
In order to open your shop you’ll need to get together the finance, be that from friends, family, banks, or professional investors. All of whom should ask you how much it is going to cost to open the shop. Some of whom are going to ask how much capital you need in order to trade for the first 6 to 12 months and what your profit and loss and balance sheet will look like during that time.
In order to answer the first question: how much does it cost to open a shop, I suggest you read the post How Much Does It Cost To Start A Business and include all the costs listed there. After than start adding in the costs specific to your shop. Don’t forget to include all the likely costs in your financial plans: rent, rates, repairs, insurance, utilities (gas, water, electricity), security, staff, stock, financing costs (arrangement fees and interest), marketing, cost of taking credit cards (both setup and transaction costs), banking costs, delivery costs, allowances for shrinkage and so on.
As for profit and loss statements and predicting a balance sheet, well that’s beyond this article, but you’ll find some advice in the books on business planning I’ve suggested and your accountant will be able to help you with the rest. Most banks will also provide some free software to help you prepare their preferred format of each.
Most people use their personal funds to open their first business. Which is all well and good, but if a shop if going to be your first business please, please don’t remortgage your home or secure any debt against your home. If you’ve never run a business before please consider getting some experience running another (cheaper to start) business first (for example opening an Ebay shop selling the same product), make your mistakes (and believe me we ALL make mistakes) on that business before committing a large amount of capital to opening a shop.
Buying a shop
As I’ve previously stressed the key to starting and running a successful shop is the location. One way to get a good, tested and proven location is to buy an established shop. As a bonus an established business will already have customers, supplier relationships (check they are good ones) and so on. You’re going to pay for this however, so make sure you understand the value of what you’re getting and set your price accordingly. If you’re not sure how to value a small business them please read the post How To Value A Small Business.
Employing staff
Whether you open a book shop, computer shop or fish and chip shop you’re going to need to employ staff. Those staff will be the, or at very least part of the public face of your business. How they treat your customers – customer service in other words – will directly impact your profit.
So don’t just hire anyone, take care to hire good staff and train them well. Train them to solve the customer’s problems and train them to sell. Of course, by sell I don’t mean make them into pushy salespeople, but instead make them aware that the aim is to sell the customer something and that something should be a solution to their problem or satisfaction for their need.
Your shop and the law
You need to be aware of the laws that affect you, in particular as a shopkeeper you’ll need to be aware of the Trade Descriptions Act, Sale of Goods Act and employment law. You’ll also need to ensure that you comply with health and safety requirements relating to both your staff and your customers. You’ll also need to be aware of income tax and VAT issues, but HMRC do good, free courses so contact your local tax office and get yourself on one.
Dealing with suppliers
A good relationship with your suppliers is crucial. If you haven’t got stock, or you’re unable to get reasonably priced stock you’re not going to be in the retail business for very long.
Finding suppliers takes time, how you find them will depend on your industry. For some industries trade shows and conferences are the best place. For others time spent on Google will pay dividends. For some scouring magazines like Trader will be the best approach. If you want to stock a specific product it’s often best to contact the manufacturer and ask them to refer you to their local distributor.
Don’t always look for the cheapest supplier, sometimes you’ll be better off with one that will fulfil small orders, or that offers a quick turnaround. Managing stock is a key part of successful retail. Equally important is learning to buy what will sell. Don’t be pushed into buying stock because it’s cheap / on offer etc.
Finally don’t display stock that you’re consistently unable to supply, it’s annoying and you should work hard not to annoy your customers.
Further reading
The following books might be useful:
- Smart Retail: Turn Your Store into a Sales Phenomenon
- Start and Run Your Own Shop: How to Open a Successful Retail Business
As always comments, feedback and your personal experiences are welcome below.
Share and Enjoy:
Similar Posts:
- Running A Shop? Then Where’s The Stock?
- Start A Car Wash Business
- How to Open and Run a Bookstore
- Second Bangkok Bistro to open July 4 in Colonie
- Starting A Catering Business
