There are plenty of things I wish I’d known before opening my retail store, but if I had to pick one it would be ‘how (very strong expletive) hard it is to make money from buying and selling goods in a bricks and mortar retail store’.
Looking back at the start of my eventual 30 brick and mortar retail store experiences, in terms of mistakes, I would say that I wished I had known the following before starting out:
- There are hidden capital costs – I had no idea about these costs in my first store and I had no idea how huge they were and how they would impact my ability to deliver my plans. Here are a few that I didn’t see coming: Utility deposits (electricity, gas, water) and lease deposit or bond (up to 6 months rent in advance), rent is paid in advance, professional fees to set up an entity, write agreements and navigate statutory approvals can be huge. Shop fit-outs and critical approvals take longer than planned so you end up paying rent but don’t trade. Staff need to be trained prior to opening so more expenses out without money in. Money goes on overlooked compliance in the shop fit-out that may involve: emergency lights, smoke detectors, sprinklers, emergency exits, alarms, disabled access.
Pro tip: Business credit cards can make sure you always have emergency cash on hand. Browse your top business credit card matches for free and apply in minutes!
- You need a goods-inward space or system – Given that retail space is expensive, few owners want to incorporate any sizable non-selling storage space in their layout plans. Trouble is, if there is nowhere to place the incoming goods, they eventually stop sales anyway with cluttered selling spaces that detract significantly from the customer experience. I also failed to understand that as my business grew so did the need to deal with increased goods inward. I was lucky enough to get some upstairs space as a reserve, but future stores all had special systems with suppliers and easy drop off points to deal with this issue.
- Choose a soft opening over the grand one – A soft opening is where you open quietly without all the fanfare giving you a chance to get the store in the best possible shape with your display, stocking, staffing and systems before you invite the world to try it. There are just too many uncontrollable variables in the set up phase to plan with any degree of certainty when your store will be ready to present your offer in the best possible light. The pressure to meet some arbitrary ‘Grand Opening’ date often leads to incredible stress and very poor decision making that impacts on the long term success of your business. Opening to all your potential customers when your offer is poor harms your ability to give a good first impression and often results in losing good long term prospects. At least with a soft opening, you know that your lack of sales is not due to lost customers, but simply that your customers have not yet discovered you. You can always have a Grand Opening a few weeks after everything is up and ready, giving your store the best chance of building long term loyal customers.
- No matter how slow the turnover, you still need two staff as a minimum – I know that many stores run at times on one staff but I have come to know that the savings are often ‘false savings’. You need two staff at all opening times because staff need to go to the toilet often, hurting your goodwill and sales with a closed store. A two staff store provides far better protection from robbery or other acts of public violence, it’s easy for someone to distract a single staff member while an accomplice shoplifts valuable merchandise/cash and staff working alone get bored and demoralized leading to productivity loss and expensive high staff turnover rates.
- That the store owns you, not the other way round – 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. If you want your customer base to grow with repeat business and having them refer others to your store, then you must be there on time every day and never close prior to the time advertised no matter how slow the afternoon may be. If a customer finds your store closed 30 minutes before its advertised time, then you don’t just lose the sale … you lose the customer and their vital referral to others.
- The majority of your expenses are fixed but your weekly turnover is variable – You need to consider the entire year’s trading pattern when setting your budgets and before you get too excited about a single fantastic week’s sales. So many things have a detrimental impact on sales over a given year and they all need to be considered in your breakeven calculations. Depending on the retail business; public holidays, customer holiday periods, and special events held in areas outside your market can really hurt your turnover as do general and severe seasonal weather patterns. You need to calculate the level of trading you need in the good weeks to cover the inevitable bad ones.
- If you pick your suppliers right, they will need you more than you need them – Smaller, growing or recent supplier entrants to a market desperately need your shelf space for them to sell their products to their markets. They will rarely tell you this, but you can negotiate very good trading terms with them which can help your cash flow and fund you ability to grow your business. Pick your suppliers carefully. Don’t just automatically go with the lead players. Form a partnership with the keenest suppliers and they will support and underwrite your success because they become the direct beneficiaries of it. Furthermore, go with suppliers that are consistent, reliable and responsive over the cheapest. The cheapest supplier is rarely the best value.
- In the early days, it’s far more important to ‘make the customer’ than make the sale – If your cash flow can afford it, put profit making on the back burner. You need to build a sustainable repeating and referring customer base far more than you need to make profit in the early days. Do some sums on the Customer Lifetime Value and see how an investment in getting customer traction and a good customer experience in the early days will build your profitable business in the long term.