How to Start a Retail Business

Whether you dream about becoming the next big brand or have a passion for offering products and services to your community, here’s everything you need to know about how to start a retail business.

Table of contents

Startup Costs and Funding Your Retail Business
How to Register Your Business
Finding an Optimal Retail Location
Retail Supplier Management
Setting Up a Payments System
Building Your Brand and Marketing Your Business

Whether it’s a convenience store selling food and household goods, an online shop for your homemade crafts, launching a shop is a dream for many people.
With some smart planning, you can start a retail business that stands out among the competition and thrives. Here’s what you need to know about opening a retail business.

Retail Business Startup Costs

Your retail store can only flourish if the numbers add up. Creating a budget for your new small business is a vital first step to success. Here are nine costs to be aware of when you open a retail business:

Store set-up costs

If you are selling in person, location is extremely important when you open up a store. A good location means foot traffic and regular customers. But optimal space comes at a price. So, when you’re assessing the startup cost of your boutique or retail space, think about the cost of a deposit as well as funds you may need to remodel, improve or customise the space. If you are selling online, you’ll want to consider the costs of producing and hosting your website.

Ongoing rent/mortgage payments and/or website costs

In addition to the initial cost of your bricks-and-mortar location and any website start-up costs, you need to consider the rent or mortgage payments.

Rent is usually a monthly cost based on the square footage of the space as well as property values of the physical location. Places that see high foot traffic or are in popular areas see higher rents. Some online stores can be established without an up-front fee and only incur ongoing fees if you make sales.

Utilities

Monthly utility expenses are largely influenced by the cost of electricity and gas where your store is based and its size. Average costs for gas and electric for business in the UK are:

microbusinesses - up to around £820 on gas and £2,200 on electric
small businesses - up to around £1,450 on gas and £3,660 on gas.

Insurance

It’s crucial to invest in insurance coverage for your retail store. Common coverage includes Employer’s Liability, Public Liability and Business Insurance. Make sure you are legally compliant when it comes to the types of insurance you are required to have by law as well as fully covered for other aspects of your business e.g., insurance of glass frontages etc.

Merchandise

When you think about merchandise costs, you should include the initial cost of your merchandise as well as the holding cost (the cost of storing stock). Once you have these initial costs for stock, you can forecast monthly inventory costs that affect your ongoing budget.

Merchandising equipment

Retailers have to think about costs of the equipment that supplements their products, too. First, think about how you will display your product at your retail store. Some products require hangers and mannequins, while other products may require shelves and display cases. Next, think about labelling the price of the product. Do you need additional supplies for price tags?

Employee costs

To run a retail store effectively, you may need to hire employees to run the day-to-day operations. Aside from wages, salary and other benefits, you need to think about the cost of training and managing things like timecards (which you can do with employee management software).

Technology

To run your business effectively, you need to invest in proper technology and equipment from the beginning. When you first open a retail store, you should choose a robust retail point-of-sale system with integrated technologies for your business. (And if you can find a POS built for retail, all the better.) You might also invest in a security system to keep products safe from theft, burglary and other related crimes.

Marketing

People often overlook marketing costs when they are putting together a budget for opening a business. Some starting costs to consider include the design of a logo, business cards and website, in addition to any initial promotional campaigns you might run to build your brand. You want to create a marketing strategy that best fits with your growth model to suss out what those initial campaigns look like and how much they might cost.

Funding Your Retail Business

After computing these startup costs for your boutique or retail space, you can create a plan to finance your business. There are various new business financing methods to explore when you are determining how to fund your retail store. Here are four things to think about when considering a loan offer:

  • Total payback amount
  • Speed and convenience of application and funding
  • Ease of repayment
  • Reputation and dependability of the lender

There are different types of business loans and differing repayment costs, so shop around for a good deal. Loans don’t have to be used just for getting started. Many retailers take out a small business loan to help expand their business as well.

Business Registration and Licenses

Sadly, registering your business is little more complex than brainstorming a clever name for your retail store.

When you register your business, you first need to decide on the business structure (i.e., sole trader, limited company etc).

The precise licences you need will vary depending on what your business does, such as selling second-hand goods or food. You also may not have realised that licences are required for things such as setting a sign on the pavement outside or playing background music.
Because the legal and tax considerations of these decisions can be confusing, you should consider consulting a lawyer or tax adviser to address your specific needs so you know what your decisions mean for your finances.

Finding a Retail Location

Finding the right retail location for your store requires consideration of lots of variables. Asking yourself these questions can simplify the process:

Do you need a bricks-and-mortar location?

Bricks-and-mortar shops are absolutely necessary for some industries, but online retail has grown substantially. Retail businesses can go about this in a few different ways. You can work with established e-commerce retailers — like Etsy or Amazon — that will sell their products on their platform, opt to have your own independent website and online store or do a bit of both.

Where will your customers find you?

Think about the area where your target customers live. Do they live in a specific neighbourhood or shop in selective places? If so, narrow your search to these places.

You may want to think about other businesses your customer enjoys and narrow your search down to these locations as well. For example, if your target market is similar to that of a high-end restaurant, look at areas with swanky dining establishments.

Who is your competition in that location?

Once you’ve narrowed it down to an area, you’ll need to do some research on the competition. Are there are a lot of competitive stores close by? If so, you have to determine if you think that will help or hurt your business. Competitor analysis is a really helpful process when starting a small business.

How much space do you need?

Once you have your desired location mapped out, you have to actually select a space. The square footage has a direct impact on the overall costs of your retail business, so think about how much room you actually need. When determining space, think about:

  • Merchandise display areas
  • Dressing rooms
  • Inventory storage
  • Back office space.

Starting a Retail Business Online

You may find that starting an online retail business is an attractive prospect. The high street has long been suffering a decline, with online retailers tending to have fewer overheads that allow them to offer more competitive prices. Covid lockdowns only served to increase online shopping.

Even if you still want or need a physical retail outlet, going omnichannel can mean increasing your sales and not losing customers to competitors.

Shoppers enjoy the convenience of being able to buy online and some people only shop online. Setting up an online store is easy. You don’t even need coding skills to create a Square online store and it is free to launch.

Advantages of being an online retailer include:

People can find your products when they search for it online. You could attract new customers who are searching for specific products
You’ll also always be open and won’t miss out on customers due to closing times

Your online store can draw customers to your physical store
Click and collect and delivery options that allow you to reach a wider (even global) audience.
Being able to offer a wider range of stock without having it all on display
Reduced overheads — not paying for a physical store could save a lot of money

You can benefit from impulse buys when people are scrolling social media and the internet at home, with embedded pay links

You can gain additional customer insight by learning what they engage with on your website and social media.

Selecting and Managing Retail Suppliers

The suppliers you decide to work with affect everything from product quality to how efficiently your product actually gets to your store. This makes supplier selection and management of extreme importance to the growth of your business.

You’ll want to consider the quality of products a vendor provides as well as costs and vendor reputation. Remember, this affects how your customers perceive your brand and your bottom line.
Here’s how you can narrow down your options and select the best suppliers for your business:

Establish a supplier budget that encompasses the wholesale prices for your product as well as shipping and delivery costs.

Ask for samples from each vendor. You can compare product quality first-hand instead of trying to determine it from pictures.

Research vendors’ reputations. Product quality is only one part of the supplier equation. You need a supply partner who is reliable. So, make sure to ask lots of questions about their purchasing and delivery process.

Remember to remain flexible in your vendor selection process. While exclusive vendor relationships sound great, solely relying on one or two suppliers can put you at risk. When you draft up a contract with your selected vendor (or vendors), make sure you consult with a lawyer.

  • Once you have gone through the selection process, there are various best practices you can implement right when you start your retail business:
  • Set expectations with vendors from the beginning. Make sure your vendors understand your business and their specific role in it.
  • Communicate your stock needs. Supplier management is one way you can manage your retail inventory and drive down costs of your business.
  • Define performance metrics. Come up with a metric that is easy to measure and meet with your vendor on a consistent basis for evaluation.

If something goes wrong, address it with your supplier immediately. Letting small issues go unnoticed can build up into a bigger problem for your store.

Taking Payments at Your Store

Many think about making money when they decide to open a retail store yet forget to think about how they will actually accept payments.

Accepting payments is a core function of your business, so you need reliable technology that effortlessly manages transactions. When assessing different payment processing options, make sure your payments system can:

  • Take all forms of payment, whether it’s cash, chip + PIN, contactless or mobile payments (like Apple Pay), at a low rate with no hidden fees.
  • Quickly process payments to minimise checkout times.
  • Keep your business information safe through PCI compliance.
  • Deposit money in your account quickly.

Successful businesses integrate their payments processor with a point-of-sale system to run their day-to-day operations more efficiently. This can be extremely beneficial for your store and can actually help you grow your business. Features to look for in a retail POS include:

  • Reporting analytics that can track cost of goods sold and help with forecasting and customer insight
  • Purchase orders and vendor list tracking that can help you effectively manage your retail suppliers
  • Powerful stock/inventory management software with built-in product alerts that help you handle stock counts and cut down inventory costs
  • Multi location retail management that can give you access to information across all your stores and help you better manage multiple business locations
  • A system that integrates in store and online sales
  • Built in team management software that allows staff to clock in and lets you see who is selling most
  • Hardware options – do you want a small card payment device that integrates with a POS on your phone, a desktop-based screen display and separate customer screen or something in between?
  • Flexibility to upgrade to a POS till with all the functions you may want in the future even if you’re starting smaller.

Building Your Retail Brand

Whether you are looking to be the next big retail powerhouse or have spotted an opening for a convenience store in your local community, you need to consider the brand.

Consider these three steps to get you started:

Develop your brand positioning.

Brand positioning describes how a brand is different from its competitors and where (or how) it sits in customers’ minds. To create an effective brand position — one that makes your business stand out — you need to understand what your target audience wants. Once you’ve identified the customer’s need, then you need to pinpoint how your business meets that need and how you do it differently than your competitors. Use that research to build a brand-positioning statement that informs all your communications.

Even a small local shop needs a brand. Customers will look at the signage, the store, the products on offer, the staff. They’ll assess their experiences of your retail business to decide what your brand is. It’s best to decide what you want it to be and try to shape it. You may be going for reliable and trustworthy or trendy and ground-breaking. Whatever your vision, spend some time developing it so you can stand out from your competitors.

Build a cohesive messaging strategy.

Once you have your brand positioning, you need to communicate it through every part of your business. Your brand should inform all your business, from how you train your employees to how you talk to your customers and the language you use when you email people. Don’t forget, your brand isn’t just expressed in words, it’s also visual. That means your marketing, your website and your social channels should be designed to feel like your brand. Your brand should also be communicated through your decor and store design.

Market your brand.

Once you’ve done your positioning and built a cohesive message, you can focus on retail marketing strategies that allow you to grow awareness of, and loyalty to, your brand. Again, focusing on your customer is key. If you focus on where your customers spend time and the kind of messages and promotions that appeal to them, not only will you successfully open a retail store but also start on a path to success.

You can use traditional PR methods to build your brand via advertising or sending press releases to media. You can also use social media. Instagram is a useful platform for retailers that sell attractive or artsy products due to its visual nature.

Setting up and maintaining Facebook and Twitter pages is also a simple and great way to communicate with customers. Every small business needs to be on social media due to its benefits for reaching new customers, engaging with existing ones, answering questions and even being a place to make sales via pay buttons and links.

Next steps for setting up a retail business

Once you’ve thought through all of these factors you’ll be well on your way to having the beginnings of a business plan — a key document to help you move forward and attract investment.
Whether your retail business is going to be your main job or a side hustle a business plan will help you hone your idea and set and meet your goals.


__Further reading when you want to start a retail business++

Three steps to help you become a confident entrepreneur
Retail dictionary: 101 important terms all retailers should know
What retail customers think if important in a returns policy