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Peer-to-Peer: Where can I find information on retail startups?

Written by PROFIT-Xtra

Question

“I am starting to revise my business plan to include our first retail outlet. I am finding it difficult to locate any information on retail startups. Can anyone point me to a great resource for a check list of items to remember?”

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Reader responses

Charlotte McCall:

In response to the gentleman’s questions on retail startup, he might wish to access the Government of Canada’s Strategis website for a great deal of business information and resources. The Winning Retail website at http://strategis.ic.gc.ca/SSG/sz00128e.html is particularly useful for a complete overview of a retail operation.

Liisa Ikavalko:

I would highly recommend Industry Canada’s comprehensive business reference site, Strategis. In particular, under ‘R’ for Retail, Andrew can find a document with 13 sections covering everything on retailing including strategies, risk management, store layout and staff development (http://www.strategis.gc.ca/SSG/dm01279e.html). Specifically, in the chapter entitled Action Plan there is a checklist based on the preceding 12 steps.

Another source of retail information are the Self-help offices located around Ontario.

Hopefully Andrew will take the time to browse Strategis for other business issues and bookmark it for future reference. It is truly full of useful reference material, albeit, it takes time to navigate.

David Petrie:

Some good external sources of information for Andrew are the Self-Counsel Press series, which features a number of books on retail (including at least one generic one), the Royal Bank of Canada, which has (or had) a series of booklets on starting a business (some of which refers to retail) and the Retail Council of Canada.

Andrew needs to consider a few issues.

First and foremost, will the store be expected to survive on its own, or will it be an adjunct to his existing business, where its profitability is less important? Either decision is strategically valid, although, long term, I believe he should aim for each individual area of the business to be profitable.

Retail business can be generated through walk-in trade or as the result of a co-ordinated marketing campaign, including print / broadcast advertising and various forms of direct marketing. The more he plans to rely on walk-in, the more important location will be. This is an area where he wants to be especially particular. He needs to identify business types that would attract the same type of clientele he targets, and look for an area featuring those businesses. He should spend some time researching traffic flows (both vehicular and foot) in the area, and observing how many of these potential customers actually enter any of the retail premises. He should also look at the type of people who patronize the neighbouring stores — do they actually appear to fit his “profile” of the ideal client? Browse the stores themselves, and notice the kinds of purchases made — do they reflect the types of amounts he would expect people to spend in his store?

If Andrew is not personally well known in his field, he should indulge in some “mystery shopper” activity — visit other security businesses with retail locations, note how the locations compare with where he thinks he would like to be, and get into conversation with the owners or store staff to find out how business actually is.

He needs to get a feel for the amount of an average purchase in his store, and, based on his projected traffic flows and conversion rates (the amount of people who actually enter the store, and then the percentage of those who make purchases), determine whether the store would be financially feasible. I would suggest he do a break-even analysis based on the estimated average purchase and cost for each product/service, and his projected sales mix.

As a verification of his break-even, he should also do detailed monthly cash flows — there are several good formats for this available publicly; the Royal Bank of Canada has an excellent one as part of the above-mentioned series of books. The Bank of Nova Scotia also has a very good spreadsheet-based one as part of its small business planning kit (available at http://www.scotiabank.com/cda/content/0,1608,CID400_LIDen,00.html). Does the business generate positive cash flow? When?

Without giving legal advice, I recommend he look very carefully at the terms of any lease he is asked to sign. Leases for mall premises often require that retailers pay a portion of sales (perhaps 5%) in addition to rent. Will he be responsible for property taxes? Utilities? Common expenses (maintenance of a parking lot, etc.)? Is there an escalator built in to the lease (probably)? What will the rent be at the end of it? Will the owner of the premises contribute anything to leasehold improvements? Is the lease long enough that Andrew will be able to write off any leaseholds he does himself (leaseholds are written off on a straight-line basis over five years)? If everything goes south, will he be able to sublet the premises (this applies to storefronts as well)? Does he want to do that (in a sublet, he becomes the landlord as far as the subtenant is concerned, and remains responsible for the rents to the owner of the building)?

If he leases a storefront, is there a demolition clause in the lease? Are there any plans for demolition of that or any surrounding building(s)? Any major renovations that could block access to his store (road or highway repairs, sidewalk reconstruction or “facelifts” to surrounding buildings)?

Would he be combining the two parts of his business in the one location? If he relies on high-speed Internet access currently, will it be available in that location? He should remember that high-speed access in commercial premises is considered to be business access, and is more expensive than personal access (perhaps as much as double).

As a retailer, he will also need to hire extra staff, and he should prepare himself for that. He needs to determine how the retail location will impact the time he spends in the rest of his business, and how much time and energy he will have available for both. If he decides to hire, what will he have to pay? How will that affect his break-even analysis and cash-flow projections? What will he be looking for in a potential employee?

Hopefully, this will be enough to get Andrew started.

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Originally appeared on PROFITguide.com
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