Small Business

How to Start a Retail Business

Starting a Retail Store

Starting a retail store is not as simple as stocking some merchandise in the first available building and sitting there waiting for cutomers. Location, location, location is the first success key for retail business. If you locate your retail store in a busy shopping district or mall, many shoppers would automatically become aware of you.

If your shop has an inviting front, many might enter. If the merchandise is displayed conveniently and tastefully, they might browse around. If the merchandise consists of goods that they are looking for, they might consider buying. And if the prices are competitive, they might even buy.

Franchise Retail Business

If you are a beginner, starting a franchise retail business might be the best alternative. You would receive competent guidance in all aspects of retailing and business promotion from your franchisor. These could include location selection, creating kerb appeal (inviting front), display of merchandise, acceptable pricing and promotional tactics.

Select a reputed franchisor, check whether you can get a franchise in your locality on profitable terms and review the franchise agreement in consultation with your lawyer. Examine what merchandise you would be asked to sell and what the competition is.

Retail Store Planning

As in any other business, you need to assess yourself, the market, profitability requirements, funding needs & availability and check government regulations.

Would Retail Business Suit You?

A good deal of research and planning is needed before starting a retail store. To ensure success, you would have to:

  • Go around different locations looking at local demand and competition.
  • Identify the prosperous retail stores in each locality and the reasons for their success.
  • Estimate likely sales volumes, and the costs and margins, to assess profitability.
  • Organize everything – premises, fittings, merchandise, personnel, publicity and operations control & security systems to get your retail business going.
  • Work long hours and during weekends at least until the business is established and you could hire competent managers.
  • Deal with nasty customers with unreasonable demands.

Would you be upto all the above demands? And would you enjoy sitting at the retail store and dealing with customers all day long? And looking out for pilferers?

Is There A Market at the Selected Location?

In retail business, location is all important. Most of your business would come from the neighbourhood of the store or people passing by. Stores in the Central Business District, in the suburbs, in a residential area or in a highway would stock different kinds of merchandise.

Go to different locations and check for each:

  • What type of prospects would come by your store?
  • Would there be a heavy enough traffic of these prospects at the location?
  • How many competing stores in that location carry the same merchandise you plan upon?
  • How do they get their business?
  • Could you develop a strategy to compete successfully with them?

Once you have narrowed down to a location, find a suitable building in that location. This would be one that:

  • Would have a good number of prospects passing by during business hours
  • Has kerb appeal i.e. those prospects would be attracted by what they see from outside, and would tend to enter.
  • Looks prosperous, and not run down or deteriorating
  • Is conveniently accessible through nearby highways, bus stops, train stations or otherwise
  • Has adequate parking space that you can provide to your customers
  • Has an occupancy history that does not indicate some serious problem with the premises

Make an estimate of the sales you could achieve at this location and building. Observe competing stores and listen to persons familiar with the location.

Promoting Your Store

You must have an idea of how you are going to promote your store. First, observe how competitors are doing it. The elements that go into a promotional strategy for retail stores are mainly: Image, Pricing, Customer Service, Advertising and In-store promotion.


Image is created by such things as the shop exterior, interior layout and deco, lighting, selection and display of the merchandise and behavior of store personnel. For example, if customers can always find what they want in your store and receive courteous attention, a good image would follow.


Pricing is determined by factors such as competitors’ prices, the type of merchandise you carry (premium or bargain), your credit policies (if you give credit, you have to recover the costs in some way) and the customer services (like free parking) that you provide.

Customer service

Customer service is one element that small stores could use to compete against the big stores. You start by looking at the services provided by competitors and try to find some new (and needed) service that you could provide. You have to recover the costs without pricing yourself out of the market, however.


Advertising comes next. With clear ideas about the image you want to create, and the prices and customer service that you would be offering, you could now tell the customers how they would benefit from shopping at your store. Get professional help in writing sales copy and selecting the most effective media (local newspapers, direct mail, radio or other). Ad spend must be carefully controlled. In addition to effectiveness, you have to stay within standard levels in the trade (as otherwise you might not be able to recover the costs in a competitive business).

In-store promotion

In-store promotion includes the credit you extend to customers (such as allowing them to pay by credit card), marking prices on merchandise, attractive display and store layout and courteous service.

If your store is not self-service, sales persons can be trained to greet customers, inquire after their requirements, display what they are looking for, make the sale, suggest appropriate additions and commend them on their selections.

Government Regulations

You might be affected by the following kinds of regulations:

  • Zoning regulations of the local council
  • Business registration and tax regulations of the local council
  • Special licenses for dealing in certain types of goods, such as alcohol
  • Sales tax regulations of State and Federal governments
  • Income tax regulations requiring you to pay taxes on your income

The best sources for regulatory information would be:

  • Your local council
  • Local camber of commerce
  • Government Web sites dealing with business laws

Developing a Detailed Plan

Now that you have selected a location & building, looked at the market & competition and developed a marketing strategy, it is time to write a detailed plan. A detailed plan helps you to:

  • Get investors and lenders interested in your business proposal; and
  • Set a benchmark against which to compare your actual peformance.

Physical Facilities

Starting a retail store involves equipping the premises with display counters, racks, special equipment for frozen food and for cutting cloth (for example), price marking machine, cash registers and any other incidentals. Make a complete list of all such fixtures and equipments, with specifications, quantities and prices.

Advance Payments

Next, list the deposits and other advance payments you would have to make: License fees, Deposits with utilities, Initial advertisement campaigns, and all the other payments associated with getting ready to start your retail store.

Capital Costs

Most of the above would be classified as capital expenditure incurred before or at startup. Capital expenditure are those expenses incurred infrequently, unlike recurring expenses such as merchandise costs, rent and salaries that are incurred repeatedly.

Income & Expenses

You will now prepare an Operating Statement showing your estimates of sales and operating costs. This statement would show the sales, cost of merchandise sold, operating expenses such as price tags, shipping, travel, taxes, salaries, utilities, office supplies and postage, subscriptions, interest payments, depreciation and such. The difference between sales and the recurring costs would be your profit or loss.

Working Capital

Finally, you have to estimate your working capital needs. For example, stocks of merchandise to be kept in the store, cash reserve, operating losses during the initial months of operations, credit granted to customers, all would have to be estimated.

Cash Flows

You will now consolidate the estimates into a cash flow statement, showing estimated cash receipts and payments each month for the next quarter and then quarterly estimates for the following three quarters. Cash receipts would include not only receipts from cash sales and accounts receivable but also from owners’ capital contributions and loan moneys. Similarly, cash payments would include not only operating expenses but also capital payments for fixtures & equipment, deposits and loan repayments.

Financing Needs

The cash flow statement would indicate when you would face cash shortages. You could then make necessary arrangements in advance to meet these. For example, you could arrange a line of credit from your bankers. The statement would also indicate when there would be surpluses enabling you to repay the loans.

You would now begin to realize the importance of making estimates as desribed above, ending with the cash flow statement. Without such estimates, you might find yourself unprepared when a cash shortfall occurs, and your business could go under even if it has excellent profit potential. Read about small business planning.

Initially, it might be difficult to make accurate and realistic estimates. However, as you continue with the exercise, accuracy will improve over a period of time. More importantly, you would become clearly aware of the factors that affect the profitability and cash flow of your business.

Implementing Plans

All your elaborate planning would remain a day dream unless you implement these. Implementing plans involve:

  • Deciding what needs to be done first, next and so on. You should prioritize all the things you have to do under your plan, such as finding premises, evaluating premises, writing a business plan, finding suppliers of merchandise, buying fixtures and equipment, ordering merchandise, arranging shelf displays, negotiating advertisements with different media, training salespersons, and all the numerous sub-projects.
  • Next, break down each of the subprojects into detailed activities. What needs to be done to implement each subproject? List them down and set a target date against each. Also, indicate associated costs. You would now have a valuable checklist that would help you not only to monitor your progress but also be prepared with required funds.
  • Go about attending to the activities. For example, buying merchandise would involve finding out first:
    • Is it the manufacturer, or distributor, or wholesaler, who supplies this line of merchandise?
    • How do they deliver the merchandise? What arrangements would I have to make?
    • Would the supplier offer credit?
  • Take particular attention to make proper arrangements for:
    • Backroom work such as receiving merchandise, price-tagging, arranging display and keeping the store clean every day. Also involved would be maintaining the equipment in good condition and disposing of damaged stocks.
    • Installing control systems. You must record not only financial and statistical information but also implement physical control systems that would help you monitor performance as below.
  • How many times does the stock turn over in the course of a year?
  • Are sales at a satisfactory level?
  • Which items are moving fast?
  • Would any item go out of stock soon?
  • salespersons merchandise remaining unsold for long?
  • Are costs within allowed limits?
  • Are credit customers paying you in time?
  • Is your cash position adequate to meet payments due soon?
  • Getting professional help for setting up a control system that answers all important questions.

See the article CPM Network Chart Construction for a systematic approach to project implementation.

Remain in Control

Be alert to what is happening in your industry. Are fashions changing? Are new products in your line of trade coming into the market? Would there be an economic upswing or downturn in the near future? Could you get your supplies cheaper? Any new practices emerging to promote retail stores?

Keep in control by allotting time to read trade publications and business magazines. You could be the first with something new, and more competitive.

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