How to Start a Retail Business: Moving from Clicks to Bricks
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Two words might discourage even the most seasoned and successful e-commerce business owner from expanding into a brick-and-mortar store: retail apocalypse.
In the wake of store closings and yo-yo sales, there are plenty of reasons to be concerned if you want to open a retail business in a physical location. But there are potential rewards in reaching new customers — all you need is the right strategy.
Starting online is a low-cost, low-risk way to establish your retail business, said Herbert Kleinberger, retail industry consultant and retail strategy professor at New York University. Once you figure out if you have a viable business on your hands, you could then move into a physical brick-and-mortar location and expand your operation.
“It’s a lot easier to get a concept launched and tested online,” Kleinberger said. “That would be a good way to think about getting started, given the tech options that are out there today.”
Any business selling products directly to consumers is considered a retailer, Kleinberger said. Whether you’re selling in person or online, you’re part of the retail industry. An increasing number of e-commerce brands are transitioning to physical storefronts. The top 100 online brands could open 850 brick-and-mortar locations in the next five years, according to a recent report from Jones Lang LaSalle. Major brands like Warby Parker, Casper and Bonobos have already been leading the way.
If you’ve been thinking about how to start a retail business in an efficient way, you may want to consider starting online and adding a storefront at a later time. Continue reading to better understand how to transition from clicks to bricks.
Moving from online to in-store
Christopher Moxley and his business partners Scott Wooten and Jerri Shephard, started 704 Shop in Charlotte, N.C., in 2013, selling Charlotte-branded apparel online and at pop-up events around the city. After establishing the business as a regular vendor at festivals and markets, the team opened a brick-and-mortar store in December 2017.
“Most weekends we would be somewhere. We became known for our pop-ups,” Moxley said. “When we didn’t have pop-ups, we would get lots of inquiries from existing and potential new customers as to how they could get our gear quickly. So we felt like not having a permanent location was holding us back a bit.”
The new storefront allowed customers to try on clothing and interact with the owners any day of the week, not just on weekends at various events, Moxley said. The store also presented an opportunity for the team to further develop the customer experience it had created on a small scale with its pop-ups.
“Most of our designs incorporate a modern, minimalist perspective. We wanted to keep that aesthetic in our store design as well,” Moxley said. “People pick up on that. They compliment us on the store ambiance.”
Sales have grown for 704 Shop since the physical store opened, Moxley said, and the owners have hired staff to help manage the space. 704 Shop had part-time help before it opened the brick-and-mortar location, but those employees eventually moved on and the owners hired new staff, including a full-time store and inventory manager.
If your online business was a one-person operation, staff may not be something you planned on or accounted for, so it will mean an adjustment to your routine and budget. But even if you have employees working on the online business, you may want to hire additional people for the store to bolster the contributions of your existing staff.
704 Shop had other challenges during its transition. For example, the team had to rethink their inventory tracking system to account for in-store and online sales. When the store first launched, newly released merchandise would often sell out online before the store opened for business for the day, Moxley said. People would visit the store only to be disappointed to find that new items were already gone. The owners now categorize inventory separately for the physical shop and the online store to accurately reflect which items are available where.
“There are so many learning opportunities that we didn’t anticipate,” Moxley said.
How to start a retail business with a storefront
In addition to correctly tracking inventory, here are a few things to consider when extending your online business to a brick-and-mortar location.
Make sure you can cover the expense of a storefront.
Like most small business owners, Moxley and crew initially looked for turnkey retail space but they ultimately opted for new construction. Their retail space had to be outfitted with plumbing, HVAC and wheelchair-accessible entry points, Moxley said. But because they had kept overhead expenses low by relying on the online and pop-up business models for years, they were able to build the store with little outside financing.
“It was really expensive and luckily we had reserves in place,” Moxley said. “We save a lot so that when those big opportunities come around, we can pull the trigger.”
Once you open a storefront, you must keep up with regular costs such as rent if you’re leasing and utilities, he said, expenses that you might not have had as an online business. Moxley’s advice: You should establish your business model and create a reliable revenue stream before moving forward with a physical store.
Build a consistent customer base.
But don’t neglect your online roots, Moxley advised. Although the majority of 704 Shop’s customers are in the Charlotte area, the business ships products to people across the country, Moxley said. When running an online business, you should extend your reach as far as possible using social media or other online and email marketing tools. That way, your business isn’t wholly dependent on local foot traffic when you open your store, he said.
“When you open the storefront, it only opens the door of opportunity in terms of local people,” he said. “You’re not relying on those local people to support your business because you’ve already got customers all over.”
Purchase business insurance.
To protect the inventory that your business relies on, you should buy a business insurance policy designed for retailers. Your policy could include coverage for inventory lost or stolen in transit. It also should cover product liability to protect you in case of a claim that your product is defective. Running a physical retail store creates an added risk of burglary and shoplifting. Make sure your insurance policy accounts for all scenarios.
How to boost your chances of getting a retail business loan
The owners of 704 Shop relied on savings to launch the brick-and-mortar location, but most businesses will likely need some type of additional financing when it’s time to expand. Many small businesses have a hard time securing financing, but retail business owners may face extra hurdles.
“Retail is challenging from a financing point of view because there are so many bad stories out there of retailers who aren’t doing well,” Kleinberger said.
However, there are a few best practices you can follow to help you obtain funding for your retail business when you decide to open a brick-and-mortar location.
- Prove your concept. Lenders may be more willing to finance your business once you’ve been operational for a while. If you can prove you have a successful, scalable business model, you would be more likely to be approved for funding.
- Offer collateral. If you have assets to offer as collateral, it may be easier for you to obtain a loan. The lender may feel more comfortable with collateral securing the loan, as a bank could seize those assets if the business fails to pay back the debt.
- Work on your personal credit. If you’re a relatively new business owner, your personal credit history will be a factor in your eligibility for financing in the absence of business history. Be sure to check your credit report before applying for business financing and commit to improving your score by paying bills on time and paying off or consolidating existing debt.
- Stay organized. Lenders may ask for your bank statements, tax returns, financial statements and business plan when you apply for financing. You may want to enlist a bookkeeper or accountant to help you keep everything organized. Lenders will want to see as much detail as possible, and it will help your case if your information is ready to go.
- Build a banking relationship. Before applying for bank financing, consider opening a business bank account at the local branch where you plan to apply. You can establish your financial history as well as a relationship with the bank, which could make it easier for you to apply for financing down the line.
If you don’t qualify for traditional bank funding, you could apply for a business loan from an online lender. Many of these lenders provide business financing for retailers, and they typically have fewer requirements and quicker time to funding than banks.
Keeping your retail business afloat
Certain retail segments have struggled more than others recently, including women’s apparel, Kleinberger said. Big-name chains like Sears and Payless have been casualties of the so-called “retail apocalypse” and filed for bankruptcy.
But it’s not all bad news. Many categories are doing well, such as home goods, home improvement, beauty, cosmetics, food and grocery, he said. And though e-commerce retail sales have been growing as overall retail sales fell in February, the most recent data available, they only account for 11% of total sales.
“There are definitely areas that are showing strong signs of life,” Kleinberger said.
Although many businesses in the industry are seeing success, you don’t want to risk becoming another shuttered retailer. Here are a few tips to keep your doors open.
Create a strong customer experience.
Your customer experience can set you apart from similar businesses and can keep shoppers coming back, Kleinberger said. The customer experience should draw from what your consumers want from your business. For instance, some customers want the shopping experience to be simple and quick, while others want to feel emotionally connected with the brand or product, Kleinberger said. Make sure the experience you provide not only wows consumers but meets their needs and expectations as well.
Your visual merchandise, such as in-store and outdoor signage, décor and product displays, also affect your customers’ experience. You may want to work with an interior designer to make sure your layout and design set the right tone for the business.
Carefully manage your inventory.
Inventory can easily become a problem for retailers, Kleinberger said. Be careful not to commit to large amounts of inventory, unless you’re sure you can sell it. You don’t want your money tied up in products that sit on the shelves.
“Managing inventory is critical, especially for a small company that doesn’t have a lot of liquidity,” Kleinberger said.
You should make sure your products are different than those of competitors in some way, Kleinberger said. Selling one-of-a-kind /customized items or locally-made products could give you an edge. Try to think outside the box to find ways to make your retail business stand out.
Listen to your customers.
Conducting consumer research would help you get to know your customer base and gain insight into their preferences, Kleinberger said. Small businesses often hire larger companies to gather research and provide their findings. If that’s beyond your budget, you could put together a small focus group or talk to individual consumers. You can make adjustments to your products or store based on customers’ feedback, he said, which would likely increase their loyalty.
“It may not be comprehensive, but it often gives you an indication directionally which way to head,” he said.
Business owners sometimes disregard input from customers, thinking they alone know what’s best for the company. But you should instead listen carefully to what customers have to say, Kleinberger said.
“Don’t fool yourself into thinking you’re smarter than they are,” he said.