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Start Business RetailStart Business Retail
Why is starting a retail business SO hard in the age of Wal-Mart? When I was going up I worked for my dad in his local retail grocery store. One of the most memorable parts of that ten-year experience was when a large warehouse store opened up in the next town over from my dad’s store. That new warehouse store took 25% of our business away immediately. Why? I was a kid and I didn’t make sense to me. People had to drive ten miles further, the store wasn’t that nice, they had been our customers for YEARS and they knew our family? Why would they go to the other store? The simple answer is PRICING. We went to that store and found out they were selling brand name merchandise for less than our WHOLESALE price. We’d have been better off buying in that store and then selling it in our store than buying from the wholesaler we’d been dealing with for 15 years! The warehouse store (like Wal-Mart) cut out the wholesale level and because of their size bought right from the manufacturer. We were too small to buy directly from manufacturers so we slowly closed stores and went out of business.
Nothing has changed about start retail business
Now let’s fast forward thirty years. Two young women just opened a pet food store in the town I live in. It’s very cute and I think most people with pets would love to support them. My husband and I are prefect customers because we have three LARGE cats and two LARGE dogs (all VERY cute although I am a little biased). We bought our pet food there and just out of curiosity I decided to check what kind of price I could get online. With very little effort I was able to find the same merchandise for 50% of what we paid (including shipping). WHY? Because the large pet stores deal directly with the manufacturer and don’t buy through a wholesaler; their prices are 50% cheaper! I call this the Wal-Mart factor because Wal-Mart perfected this model so masterfully; but of course I never shop there in honor of my father! Because of Wal-Mart and other stores like it start business retail got VERY hard for the small business person who MUST buy from a wholesaler. The Wal-Mart factor
If you’re planning to start business retail you MUST consider the Wal-Mart factor before you start. Have you ever noticed small grocery stores fall into two categories now; convenience stores where pricing is expected to be higher or specialty stores that have expensive, unique merchandise? That’s the Wal-Mart factor in action. If you’re planning on opening a small store you need to be either very convenient or have specialty items where price is less important. Is it possible to have a small store like the new pet food store in my town? Yes, it’s possible, but the chances of success are SIGNIFICANTLY reduced, and with the difficult odds of starting your own business, I would say success is unlikely. So the Wal-Mart factor is the primary reason that start business retail is so difficult. It isn’t just Wal-Mart, it’s all of the “Big Box” stores like Home Depot etc. Other reasons start business retail is risky Other reasons starting business retail is SO difficult besides the Wal-Mart factor. a. Not enough profit margin Let’s take each of these start business retail issues one at a time.
Not enough profit-margin Have you ever noticed that the milk is always at the back of the grocery store? Have you every wondered why it’s so hard to find a bag of flour or package of sugar at a grocery store? Grocery stores make very little if any margin on any of these products to they FORCE you to walk by HIGH margin products to get to them. You need to do the same thing if you choose to open a new retail store or start business retail. The high margin products HAVE to be in the front and the low margin products in the back. But product placement probably isn’t enough to solve margin problems. That new pet food store I’ve talked about puts the dog food in the back but they still aren’t selling many of the high margin items. The term for this “problem” is retail mix. What is the retail-mix of inventory that sells in this particular store and what profit margin does it represent? When you open a new store you don’t know, but you will know after the first few months of operation, believe me! There are clues you can try to use as you pick your first location, but nothing is guaranteed until you open. Several factors will influence your new business. The name of the store, your marketing of the new business, the look of the store, etc. will all play a part in the clientele you attract and your retail-mix or profit margin. Once your store in opened it’s VERY hard to change it’s image and retail-mix in any significant way SO PLAN WELL before you open the doors or start business retail!
Not enough cash flow to replenish inventory
A similar problem is cash-flow. If the retail-mix of your store is low and you tend to sell mostly lower margin items, you will inevitably end up with a cash-flow problem. Why? Let’s use the pet food store as an example. When they purchased their initial inventory, they bought LOTS of high-margin doggy clothes and doggy books etc. They also bought a half dozen of each type of dog food they planned to sell (there are many brands to choose from). Once the store opened they sold a lot of dog food, all different sizes and brands, but because it’s very low margin and inflation is driving up the cost of dog food, they didn’t have enough cash to replenish all of the different brands and sizes of dog food. The minimum quantity required by their wholesaler is six per type per sixe; VERY EXPENSIVE. So, they cut down on the size and types they sell. Then customers notice the shelves look empty and they slowly go somewhere else. Without cash flow for inventory it will be VERY difficult to stay in business, so PLAN your cash flow before you buy ANY inventory and assume a low profit margin for at least the first year. Also assume inflation will make your purchases increase in price month over month and you’ll need the cash flow to withstand those price increases.
LONG hours Often overlooked but VERY much a problem are the LONG hours required for retail operations. It used to be stores where closed at night and on weekends. Now, probably because of the larger stores, you MUST be open seven days a week and most evenings, otherwise you’ll loose customers. Let’s go back to the new pet store. Their hours are 8-8 six days a week and 8-5 on Sundays and holidays. WOW, those are KILLER hours. They may be unavoidable, but they will eat you up! Try to be reasonable with your hours of operation and see if your customers will adjust to them. I would try 10-6 seven days a week and closed on holidays. Your customer will hopefully adjust to your schedule at least a little bit. Those four hours a day you’re not open will add a lot to your bottom line and your sanity! Why not just hire an employee? The next point will discuss this issue Everybody steals from you This is a very sad, cynical statement, but guess what…it’s true! Your customers will steal, your employees will steal, delivery people will steal… everyone will steal from you. I recommend that you’re there ANYTIME the store is open. I won’t bore you with all of the stories of stealing that happened in my ten years at my dad’s store, but suffice it to say EVERYONE stole from us and it was a very expensive problem. People will steal from you even when you ARE there so watch everyone and check every invoice believe me it will be worth it. I’m not a paranoid person. I never check receipts in my personnel life. But in retailing, theft is one of the largest problems you’ll face.
So what’s the answer? So what’s the answer? In my opinion website businesses like eBay are successful because the theft of inventory is under control. Small business people can start with no inventory, no theft, no horrible hours and you still have a “retail” business: Click here for Start eBay Business.
Click here for ideas on Start Business Retail on eBay
So if you really want to start business retail and you done all of your home work go ahead and start business retail and I'm sure your going to LOVE IT just as my father did!
Good luck!
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