Retail business is a wide-ranging industry that includes everything from your local corner store to online giants like Amazon to national department stores like Walmart. This diversity in business type and size makes retail a fascinating industry with seemingly endless potential for business owners and soon-to-be business owners.
From your store’s location to the employees you hire, there are numerous factors that can affect your retail business’s long-term success. While this may seem daunting, especially if you are just getting into the retail space, understanding what matters to customers and your bottom line can help you grow your business for years to come. Whether you are looking to start or grow your own retail business, here’s what you need to know.
How to Start a Retail Business
Many small business owners decide to go into business because they are passionate about providing certain goods to their local community, or beyond with online platforms. So, by chance, many business owners find themselves in the retail industry without ever intentionally deciding to open a “retail business.” For most people, starting a retail business and starting a small business look pretty similar. Here’s why:
What is Retail Business?
The defining characteristic of a retail business is the sale of products directly to consumers for their own use. Whether you sell products in a brick-and-mortar store, online, through social media or a catalog, you own a retail business.
While the types of products that retail businesses sell can run the gamut, owners of both big and small retail businesses face many of the same challenges. They must attract customers, effectively manage inventory, establish competitive pricing and beat competitors who sell similar products.
How Do Retail Businesses Work?
Retail businesses make it easier for everyday consumers to get the goods they need without having to visit twenty different factories and farms. A consumer can run to their local department store to get a board game, book, clothing and sporting equipment all in one trip. If consumers had to source all of these goods themselves, they would never have time for anything else. That is the value proposition of retail establishments: they bring products to a convenient and organized location for sale to consumers.
Retail businesses provide this service by building relationships within the full retail supply chain. This includes:
Manufacturers, who produce the product
Wholesalers, who purchase the goods from the manufacturer and sell in bulk
Retailers (this is you), who purchase from the wholesaler to sell to the consumer
Consumers (the end-user), who buy goods from the retailer
While this model is very convenient for consumers, each step tacks on an additional cost. Effective retailers work hard to build relationships with wholesalers and even manufacturers who create quality products without charging an exorbitant amount of money.
Some big retailers are able to skip wholesalers and develop relationships solely with manufacturers, thus lowering the end cost of a product. Also, with the advent of online retail sales, many “direct-to-consumer” businesses have popped up. By cutting out the middlemen of a wholesaler and retail store, some businesses can offer products like mattresses, jewelry and hygiene products at a much lower cost. However, even with the cost difference, many consumers are still drawn to true online retailers like Etsy and Amazon, who compile products from a variety of companies for convenient distribution and sale.
Types of Retailers
There are a variety of retailers that provide goods to consumers, from small convenience stores to huge national chains. Here are some types of retailers:
Department Stores: Department stores like Walmart or Target provide a wide variety of goods all under the same roof. Merchandise is arranged by category, with different sections in the store for home goods, clothing, food, beauty products and more.
Grocery Stores: Grocery stores simply sell food and beverages, though many grocery stores do have aisles for other goods like housewares or toys.
Convenience Stores: Convenience stores sell a limited supply of quick foods, beverages and care products, aimed at consumers who need to grab and go.
E-Commerce Businesses: Unlike physical stores, online stores like Amazon or Etsy allow consumers to find what they need from home. E-commerce businesses can sell any number of products, and many retailers with physical stores also have an online component to their business.
Specialty Stores: Specialty stores sell a specific type of product, such as a brand of clothing or furniture. Many specialty stores have their own product lines.
Depending on the type of retail store you want to start, you may need to employ different tactics to attract and retain customers. For example, grocery store owners need to cultivate trust in their food safety and find a convenient location, but will likely not have to spend big bucks marketing their exact products. On the other hand, specialty store owners may need to spend more time and money on marketing the value of their products, but location might not be as important. Knowing the needs of your business within the larger retail sphere can help you make good decisions, even during your startup phase.
If you have owned a successful retail business for a few years (or decades), you are probably no stranger to the nonstop to-do list to keep your retail business alive and relevant. Possibly more so, however, you can relate to having a “wish-list” of things to do for your business that entail some extra dollars being spent.
Whether it’s relocating your business from one location to another, hanging a new awning above your entrance, introducing a different point of sale system, or investing in an overdue training experience for your employees, there is likely something — if not many things — on your own wish-list that will cost you money.
As a retail business owner, maintaining a wish-list of things to invest in for your business is actually a good thing. After all, without making improvements or updates to your business, how can you expect to stay relevant in a very competitive marketplace?
To help determine what should become reality first, you will need to prioritize your goals. Here are a few ways you can improve your business and aim for long-term success.
1. Focus on Financial Goals
If your business is struggling to meet cash flow, profit or other financial needs or goals, your first step may simply be finding ways to lower your overhead costs or evaluate your pricing. Having your balance sheet in working order is the foundation that all other business goals rest on, so this should always be your first priority. If you are comfortable with your margins, you can confidently branch out to improve your business without risking your profitability.
2. Check Your Customer Retention
The best way to lower your customer acquisition costs is to retain your customers for longer. If you are not formally collecting data on your customer retention, that can be a quick way to level up your business. Learn which types of customers return, how you can attract more of those types of customers and ways that you can appeal to other types of customers that may not be as easy to retain. This can also help you identify a target market for other business initiatives.
3. Take a Look at Your Storefront Location and Design
For some businesses, your retail location and the appeal of your store makes a huge difference. If you are a beauty salon, but your store’s design is lacking, you may be sending an unintentional message to consumers that damages trust. If your primary business value is convenience, location probably matters a great deal. If you want to drive additional foot traffic, a location in a main shopping area could help. Take a step back and evaluate what changes to location or design could truly drive great business results, and then invest in those changes.
4. Learn About Your Competitors
Most retailers have a lot of competitors. Someone is always trying to do what you do differently or better. While it may be tempting to block out these competitors and just focus on executing your business, try to view your business and your competitor’s business objectively as a consumer. This can help you develop the best possible business or marketing strategy to ensure you don’t get accidentally outpaced by a competitor who was closely watching your every move.
5. Improve Your Company Equipment
If your company’s equipment is out of date, you may be missing out on valuable information, or worse, you may be losing customers. If your espresso machine takes ten minutes to make a cup of coffee because it is decades-old, customers may be drawn to the hip new coffee shop that makes their favorite drink in a fraction of time (even if the quality isn’t as good as yours). If your POS system doesn’t collect any customer information, it may be hard to identify your customer retention, especially as your business grows and you get both more regular and new customers. Updating truly outdated equipment can give your business a boost towards growth.
6. Increase Employee Training
Many of your employees probably interface very closely with customers, which means that your employees are critical to your customer experience and business. If your employees have varied levels of training, or if a few employees are not up to your standards, it can ruin a customer’s experience and damage your business long term. If you have employees that you cannot always watch, it is especially important to train employees well and make sure that you have managers keeping tabs on employee performance.
7. Invest in Professional Growth Opportunities
As a business owner, it is important that you invest in local or national business opportunities that help you become a leader in your local community or online community. This may include professional organizations or business development conferences, such as the National Retail Federation. Or, it may be co-marketing with other local businesses to grow your customer base. Continuing your learning as a business owner is important to your overall business success.
Ultimately, you should use your interrogation of the above growth options to help identify what opportunities your business has for improvement. And as a result? You now have a better idea of where you should consider investing dollars to help your retail business reach new levels of success.
Whether you are looking to start or grow your retail business, funding a retail business can sometimes require a little extra capital to meet your business needs or goals. Equipment financing can help you purchase that new point of sale system. Working capital loans can help you hire and train employees BEFORE your busy season starts. Talk to a Credibly business specialist to see how a business loan can help your business grow or thrive this year.
Director, Marketing & Strategic Partnerships at Credibly