Small businesses have been hit hard throughout the COVID-19 pandemic. About a third of small businesses have closed in the U.S since it began.
However, brick-and-mortar stores have now started to flip the script: Store openings are up 58% year-on-year. This renewed optimism for retail businesses could be the perfect opportunity to realize your dreams of opening up your own store!
Have you ever wanted to bring a new business to life? This guide will help you understand what it takes to open a retail store, from costs and registration offers and tips for promoting your store.
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How much does it cost to open a retail store?
One of the biggest questions you probably have is how much it’ll cost to open a store. Unfortunately, there’s no definitive answer. While the list of expenses we’ll look at is usually the same for most retailers, their costs are different depending on where you’re located.
Thalia Thoa, CEO of Good Grow Great, business consultant, and Princeton University graduate, explains that costs varies by region, “and more specifically, the type of space (whether it’s in an indoor mall, strip mall, luxury open-air center, new construction v. existing space, and other factors).”
“It also depends on the quality of interior build-out, shelving/display, inventory space, and whether you’ll need many public bathrooms, commercial kitchen space for demonstrations, water/power lines, etc. But to open an average retail space in the US, it can go anywhere from $80 – $500 per square foot, or more.”
The biggest variable is rent, which is dependent on the retail location. According to the SPEED Commercial Real Estate agency, for a space around 1,500 square feet, you could be paying anywhere from $15,000 to $42,000 per year ($1,250 to $3,500 per month) or even more in rent.
Start-up costs don’t end there. Here’s a list of other items to factor into your calculations:
- Utilities. Research from IOTA Communications shows that the average commercial utility cost is $2.10 per square foot annually, with retail sitting at about $1.50 ($2,250 for 1,500 sqft).
- Merchandise/inventory. Your initial inventory costs will vary depending on what type of products you’re selling. Our research finds that business owners allocate an average of 31.6% of their first year spend to product development and inventory.
- Employees. The amount of staff you need will depend on the size of the store you want to open. If your store is large, you may need more staff on hand than you would for a smaller one. Keep in mind these average hourly rates:
- Insurance. Data from Insureon shows that retailers pay on average $65 per month for a business owner’s policy, less than $45 per month for general liability, and between $58 and $117 per month for worker’s comp.
- Equipment. You’ll need a point-of-sale system which can cost anywhere from $29 to $299 per month, along with hardware like a cash register, point of sale terminal, barcode scanner, and credit card reader.
- Licensing fees. Some business licenses and permits are free to apply for, such as an Employer Identification Number (EIN) with the IRS, and Seller’s Permits (Sales Tax Permit). But you may need to apply for special licenses depending on your state and produce, or a Resale Certificate if you’re planning to sell non-independent products.
- Store fixtures and signage. Individual fixtures such as shelving can cost anywhere from $80 to $400 (unless you get a quote to kit out the whole unit). Data from homeadvisor.com suggests the average storefront signage and installation costs are between $168-$761.
- Professional services. You’ll want to hire an accountant or even a lawyer at some point, maybe even a professional cleaning service — all of which add up. Accountants average at $21.20 per hour, for legal services that’s $327 per hour.
As you can see, pricing up your first year of business can be tricky. The key is proper planning and overestimatingrather than underestimating how much you’ll need.
“To open an average retail space in the US, it can go anywhere from $80 – $500 per square foot, or more.”
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How to register your business
Before you start selling anything, you’ll want to register your business. To get that done, you’ll need to:
Write a business plan
The main reason you’ll want to write a business plan is to apply for business loans. However, even if you’re financing out-of-pocket, a business plan will help solidify your ideas and point out business needs you hadn’t initially thought of.
Business plans vary in depth and detail, but most include the following information:
- Business name and description
- Executive summary
- Business structure
- Products and services
- Target audience
- Market research and marketing strategy
- Cash flow forecast
- Logistics and manufacturing details
- Details of any lenders or grants secured
If it all seems overwhelming and you don’t know where to start, feel free to check out this business plan template to guide you through.
Decide on legal structure
Another decision you need to make is how to structure your business. Your business structure determines how you’re taxed, how you obtain capital, your liabilities, and other factors.
Other reasons to incorporate your business include:
- Protecting your personal assets
- Potentially lowering your taxes
- Securing funding more easily
- Creating your retirement plans
Every business structure has different benefits for taxation, ownership, liability, funding and other aspects. You have the choice of five main structures:
- Sole Proprietorship
- Partnership (either limited liability or limited partnership)
- S Corporation
- Limited Liability Company (LLC)
The Small Business Administration (SBA) offers tons of advice for small businesses on choosing the right structure. Make sure to research your options carefully, because changing your structure later, while possible, can be a hassle. Once you decide on a legal structure, look for a registered agent and register your business with state agencies, if applicable.
To learn more about different business structures and how to choose one, read Types of Businesses: Which Legal Structure is Right For You?
Obtain necessary licenses and permits
The final piece of the legal puzzle is getting the right licenses and permits.
For virtually any store, you’ll need a seller’s permit from your county, city, or state, a general business license, and a DBA (Doing Business As) if your business name is fictitious.
You’ll also need special licenses to sell restricted items such as drugs, alcohol, live animals, firearms, and adult materials.
Depending on your location, you might also need to apply for certain other licenses for a physical retail store:
- Zoning permit. Some areas might regulate what types of businesses can operate in specific areas.
- Health permits. If you plan to handle any food, you might require health permits.
- Environmental permits. If your business could contaminate air or water, you might need a special pollution control permit.
- Sign permit. Some authorities require local businesses to get a permit before they can put up a sign in public.
Researching the need for any of these special permits and licenses should be part of developing your business plan.
Find a location for your retail store
Once you’ve started the process of getting the necessary permits you can begin looking for the perfect commercial space. Here are the main aspects you’ll need to consider.
Where is your target market?
Knowing your target customers’ demographics is important for finding a location. If you’re selling student supplies, for example, it wouldn’t make sense to set up shop 10+ miles away from the nearest college or university.
Once you have evaluated your costs, it is time to consider the best location for opening your business. This will largely depend on your target market, or the group to whom you market and seek to sell your goods.
Brigitte adds, “Asking yourself questions like, where is the best place to reach them, where do they already shop, and where is the market already saturated/where is there a gap will ensure that you are positioned in a spot where your business will flourish.”
Thalia Thoa suggests looking for six markers: Visibility, Parking, Accessibility, Signage, Traffic, and Activity (VPASTA) when looking for a good retail store location.
She breaks down VPASTA like this:
Look for whether the space can be seen from cars up to 100 feet away coming from all directions of traffic.
Look for parking spaces that accommodate at least a parking ratio of 5:1. For example, five square feet of parking area for every one square foot of retail sales area.
Consider ways for cars to enter the parking area via the maximum amounts of Right-Ins/Right-Outs and Left-Ins/Left Outs. If a car has to make multiple U-turns and jug-handle turns to get into the parking lot, that’s not a good sign.
Look for a space that allows signage as big, as high, and as obvious as permitted by municipalities and codes.
You can go to county or city websites and search for traffic maps. Many governing entities publicly report traffic car counts (“Traffic Volume”) on their website. As a general rule of thumb, the higher the traffic count, the better. (For a more advanced search, be mindful about whether you’re looking for “going to-work” traffic versus “going-home” traffic. This depends on your specific business needs and whether your customers are more likely to buy in the AM or PM).
This is a measure of vibrancy and foot traffic as perceived by each locality. If there are other retailers, restaurants, offices, employers, and residential areas in the area, this signals vibrant activity–and likely more foot traffic that can feed your store.
Find a place where foot traffic is high. Foot traffic is important to any retail business because it’s the simplest marketing you can do without spending too much money.
What are rent prices?
How much rent you’ll have to pay might be a deal-breaker for many store owners. However, there are two perspectives to consider:
First, cheaper units are often either small or out of the way — more difficult for customers to find. But you won’t need as many customers to cover your bills.
Second, areas with lots of foot traffic generally have higher earning potential, since you’ll attract more curious shoppers. But these units are more expensive, so you’ll need those extra customers to cover the costs.
Neither approach is wrong or better than the other. But it’s best to make sure you have enough capital to pay your rent for the first year either way.
Consider size and space for inventory
One of the main differences between an ecommerce store and a physical one is considering store size. Will you have enough room for inventory, visual merchandising, space for people to walk around, and a checkout counter?
If you rent too much space, you could pay a higher price per square foot. Plus, your store will look empty. Getting the right amount of retail space is a fine balance. Weigh up your options alongside an estimate of how much initial inventory you’re looking to bring in.
Aim for a space that looks clean and organized. “Whatever your product is, your inventory space should not look like a home garage where stuff is piled together,” says Aviad Faruz. “These spaces should look tidy and well-arranged at all times.”
Brigitte Hodge adds, “Not only will you need to look for a storefront that has adequate space for customers, staff, and your merchandise, you will also want to consider storage.”
Unless your store is super-niche, you’ll also need to think about the local competition. Your business plan should include details about your competition both online and locally. So when you’re looking for rental space, compare the locations of your competitors.
Consider whether your offering is different enough to attract customers who are already familiar with an existing store. If not, look a little further away, but remember that an existing similar store can be good news: it means the demand is there.
How does your physical store interact with your online business/website?
The last part of finding a physical location is understanding how it’ll interact with your online store or website. Maybe you’ll want to offer Buy Online, Pick-Up In Store (BOPIS) and curbside pickup options for shoppers.
If you are selling online as well, you’ll need to think about inventory management. Will you merge the inventory from your ecommerce store and retail store? How will you balance stock?
The good news is that you can manage inventory for your online store and retail locations all from Shopify’s mobile app.
Using the mobile app is an easy way to track both online and offline stock, as well as transfer items from one store to another (or to a warehouse).
Build vendor relationships
If your business were a heart, your vendors (or suppliers) would be the arteries. It’s critical to have a good relationship with them. Building your relationship starts with choosing the right vendors in the first place.
Choose the right vendors
Entering a partnership with a bad vendor can delay production and distribution, costing you time and money. So start by setting up criteria for what you want in a vendor. Price should be only one of several factors, including:
- Quality of the product
- Customer service
- Existing relationships
- The vendor’s ethics
- Expertise in your niche
If you’ve ever interviewed potential employees, onboarding a vendor can feel like a familiar experience.
The first step to finding a reputable supplier is to do your homework. Begin with checking out different wholesalers for the best prices that serve your geographic area. Get to know the manufacturers and whether the products they are selling are high-quality or not. It will help you shortlist the right wholesale supplier for your store.
Set clear expectations
Once you narrow down your list of vendors, the next step is setting clear expectations.
Your vendors should know how your business operates, and what your business goals are. When they’re aware of your goals, they can assess whether they’re capable of helping you reach them.
Communicating your expectations early and often will help to avoid misunderstandings, as well as make sure your visions are aligned with each other — after all, your business doing better is a win-win situation for them.
Establish supplier KPIs
A good supplier relationship depends on support, communication, and transparency. Developing these successfully increases efficiency for the retailer and supplier, allowing ideas to flow and products to ship seamlessly.
But how can you formalize these concepts and maintain accountability? Through tracking the following metrics:
- Defect rates. The amount of faulty or damaged products a supplier delivers. This indicates how reliable the supplier is. You can break down defect rates further by fault type (i.e., unusable or broken), and how long it takes a supplier to fix the product.
- Lead times. The period of time between when a supplier receives an order and when the order is shipped. This KPI compares quoted time with actual delivery time, and helps track late deliveries and how it impacts your business.
- Risk. Are your suppliers financially responsible and complying with government regulations and laws? This KPI shows proof that third-party vendors are stable and will protect your reputation. Run a risk assessment for suppliers before using their services.
- Return on investment (ROI). Analyze your budget against the cost savings made by using a supplier. How quickly are you getting products on shelves from a supplier? Are there innovations helping you become more profitable? The less you are dealing with supplier issues, the more staff can focus on value-add actions in your store.
- Customer service. Does your supplier respond quickly to queries? How would you rate their customer service overall? While this is a less concrete metric, it’s important to take note of as you’re working with suppliers. Think, if a customer has a product question and you need to ask a supplier, you don’t want to wait 24 hours for a response.
Measuring performance regularly this way helps to maintain or even improve your relationship with your vendor. It will also help you understand if your relationship is worth keeping or whether you should consider switching to another vendor.
Build your staff
Another big difference between ecommerce and physical retail is the need to hire staff from the start. It would be very difficult (if not impossible) to manage a retail store by yourself. So, you’ll need to build a team.
Hiring and training
When you’re hiring staff for the first time, you need to make sure you meet your state requirements as an employer. In some states, you’ll need a specific type of insurance (e.g. worker’s comp).
You’ll also need an account for payroll, a process for verifying employment eligibility, and a process for reporting new hires to the State Directory of New Hires (SDNH).
Once you’ve got those processes in place, the fun part starts: interviewing! You might have a few referrals to start with. If not, you can post your available positions on job boards.
When you’re interviewing, no matter the position, remember you’re interviewing for attitude as well as capability. It’s easier to work with someone who shares an interest in growing your business but whom you need to train on processes, than the other way around.
Tracking performance and retention
After hiring your employees, you’ll need to find a way to track their performance (and retention).
Offering a way to measure performance isn’t just for your benefit. It gives your employees a clear picture of what you expect from them and a way to structure feedback on both sides. Performance tracking tools can include clocking systems and to-do lists, as well as higher-level evaluations.
It’s also inevitable that you’ll lose and gain employees as the business grows. So keeping track of retention can let you know if your employees are happy, or if you’re having retention issues.
Choose a payments system
The last physical part of the puzzle to put in place is choosing the right payment system for your business.
There are two main elements of a payment system to consider: the point-of-sale that helps you take payments at checkout and the payment processor.
Point of sale system
Your point of sale system is the hardware and software that enables your business to accept payments from customers and make sales in-person. Your hardware setup can be as minimal as a mobile device (like a tablet or smartphone) and a card reader. However, most of the time you’ll want to be able to handle cash as well, in which case, you’ll also need a cash drawer.
Ensure your point of sale system has a quick checkout process and lets you accept a variety of payment types including credit and debit cards, contactless payments, physical and digital gift cards, and cash.
Some POS systems, like Shopify POS, come with integrated payment processing, while others require you to manage separate contracts, fees, and payments with a third-party provider.
Choosing a POS system with integrated payment processing simplifies your monthly costs, accelerates payouts, and reduces inaccuracies in your financial reporting due to human errors. Integrated payments also means you’ll spend less time reconciling charges.
Contrarily, when you partner with a third-party to handle payment processing, you’ll have to manually reconcile payments accepted from your card reader with your POS system, and it may take longer to receive payouts.
When shopping around for a POS system, make sure it includes details on payment processing — otherwise, you might find a surprise bill coming your way.
💡 PRO TIP: Shopify Payments is the fastest way to start accepting payments in-person, online, and on-the-go. It’s included in all Shopify plans, so you can skip lengthy third-party activations and go from setup to selling faster. Control your cash flow better and pay the same pre-negotiated rate for all credit cards, starting at 2.4% + $0.00.
Promote your store
At this point, you’ll have registered your business, chosen your location, vendors, staff, and payment systems. All that’s left to do is promote your store ready for your grand opening!
While you wait for your initial inventory to arrive (and get the store ready to receive customers), think about how to market your store to locals.
In terms of your online presence, two areas to think about are social media and local SEO. On social media, try to find local groups or pages in your niche that you can participate in while promoting your new store (as well as sharing your business page with your network).
Setting up local SEO is a long-term plan, but it starts with listing on Google My Business. When you list your business, offer as many (relevant) details as possible so that local Googler’s can find you.
Other ways you can promote your business include forming local partnerships, putting on promotional events, or even having an experiential “lock-in” shopping event.
Open your retail store
With some planning and marketing, having followed the steps outlined in this guide, you’ll be ready to open your retail store!
There will inevitably be bumps in the road before you officially open your doors, and so a strong network of support around you will help glue all the pieces together. Other than people, the right tools can bring your business to the next level.
Start selling in-person with Shopify POS
Shopify POS is the easiest way to unify your sales channels and sell both online and in-person. Have all the tools you need to manage your business, market to customers, and sell everywhere in one easy-to-understand back office.