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Specialty Shop RetailingHow to Run Your Own Store
By Carol L. Schroeder
John Wiley & SonsISBN: 0-471-21264-4
Chapter OneGETTING STARTED
I firmly believe retailing is the most exciting and creative field of small business today. Nevertheless, when budding entrepreneurs approach me for advice about starting a store, the first thing I do is try to talk them out of it. There are, of course, many good reasons not to open a store: the risk of losing everything you own, the fact that discounters are beginning to dominate the marketplace, competition from the Internet, the high percentage of new store failures. If no amount of arguing can deter a potential new retailer, I know that he or she has the determination and enthusiasm necessary to beat the odds and run a successful business.
We all start with a dream. Yours may be that you want to share merchandise you love with customers or that you've always wanted to be your own boss. Perhaps you've talked to friends about building a business together, or you've seen a wonderful storefront that inspires your creativity. Turning your dream into reality starts with a marketing study and business plan to find out if your idea is economically feasible. Once you've opened the doors to your store, the challenge is to keep your vision alive while coping with the day-to-day duties of running a business. The better your preparation is before opening, the less likely you are to let your dream beoverwhelmed by the challenges you face once your store is launched.
Retail chains spend thousands of research dollars before deciding on a new store location, but many novice retailers determine the location and merchandise mix of their first store without paying much attention to whether there is an adequate demand for what they will be offering in the area the store will be serving. "Market research" may sound complicated and expensive, but it is something you can do on your own simply by asking as many people as possible whether they think there is a ready market for your type of merchandise, at the prices you would need to charge. If the answer is yes, the next question to ask potential customers is where they think they would go to shop for this merchandise. Their answers will help you determine your best location.
Start informally, with family and friends. Tell everyone you know about your idea, and solicit their suggestions. Listen to what they say, and use this information to refine your concept before expanding the research to include your target customers.
Two women once came to see me about an idea they'd had for an innovative way of marketing jewelry to rural Wisconsin women. When I asked if they had actually spoken to any rural Wisconsin women to see if they were interested in a new source for jewelry, one of the potential entrepreneurs exclaimed, "Wow, this is reality!" Reality is a good place to begin when you are considering investing your time and money in a new retail venture.
Talking to a Focus Group
Focus groups can be very helpful in determining the direction your business should take. Invite a group of ten or twelve people with a potential interest in what you'll be selling to come together in a quiet setting and respond to a few simple questions. For example, for a quilting supply store, you might ask:
Where do you currently buy fabric?
Are there any types of fabric you can't find in this area?
What price range do you look for in fabric?
Where would you like to go to shop for quilting supplies?
What special services would you want a quilting store to offer?
Do you think quilting is increasing or decreasing in popularity in this area?
You might want to tape-record the discussion so that you can review every detail later. Be sure to reward those who participate in your focus groups with a small gift. If you decide to go ahead with your business plan, send focus group members a special grand opening invitation and a gift certificate.
After your store has been open for some time, a focus group of customers can help you determine how well you are meeting your shoppers' needs. We occasionally use a voluntary "customer council," made up of a dozen or so of our best customers, to help us refine our customer services and merchandise selection.
Checking Out the Competition
Competition isn't always a reason to avoid going into business in a certain area; after all, McDonald's and Burger King frequently build restaurants very near each other, though only after determining that there is enough business there for them both. Customers like having choices, and certainly having several antique stores in one block will draw more customers than one antique store will, providing there is a large enough market in antiques to support them all.
How do you determine market size? Demographics, which are statistics relating to the population of an area, can be very useful. The larger the population or number of visitors, the more shops the area can support. The higher the per capita income, the higher the price of merchandise the shoppers can afford. Check to find out whether the area's population is growing or declining.
Sources for demographic information include the local chamber of commerce, the Internet (where you will find the latest census data posted on the census.gov Web site), and also your potential landlord. Real estate development companies usually have information about the customer base for the areas in which their properties are located.
In addition to studying the statistics, look at the existing shops. What type of merchandise do they sell? Are they prospering? Talk to the shopkeepers. Explain that you are thinking of opening a store in the area and hopefully you'll get an honest answer when you ask, "How's business?"
Market size also determines how narrow your niche-that is, the shop's focus-can be. In a popular tourist area, such as Pier 39 in San Francisco, shops can succeed featuring nothing but magnets, or music boxes, or items with hearts on them. With thousands of potential customers walking by each day, there is a good chance that an adequate number will be interested in a certain category of merchandise. In a small town, the only viable retailer may be the general store, with as broad a mix of merchandise as you can imagine. Don't make the mistake of opening a highly specialized store in a small market. If only 5 percent of the population is likely to be interested in your merchandise, a town of 10,000 will yield a maximum of only 500 potential customers-fewer than 2 a day. Niche retailing is a viable way to compete with discount stores in prosperous areas with a large resident or tourist population, but diversity works best in more limited markets.
The Threat of Discounters
Should you open a store that will attempt to compete head-to-head with a discount giant? These stores are often referred to as big box retailers, in reference to their exciting architecture. But some of them are called category killers, and these are the ones you have to watch out for. Toys "R" Us, for example, is considered a category killer in the toy market, and several supersized bookstores are similarly threatening the viability of small bookshops. If you want to compete with these giants, look for a location that is not too near them but is still convenient for your potential customers. If your store is in an area with a large customer base, you might choose to focus your merchandising on a specific market segment not well served by the other stores, stocking, for example, exotic woods and special hand tools for the avid woodworker not available at the big building supply store down the street. Offer a wide selection of products in such categories, and make sure your employees are extremely knowledgeable about your merchandise. To offer services and merchandise that the big guys don't, you'll need to shop them constantly and be aware of what they are doing. Plan to cultivate a loyal customer base by stressing excellence in every aspect of your store's operation.
General discounters leave many gaps in their merchandise mix, of which a good specialty shop retailer can take advantage. Shoppers often prefer the careful merchandise selection and personalized service of a smaller shop, as long as the location and store hours are convenient. Try to find out what the shoppers in your area are looking for. Your chances of retail success are much greater if you provide something your customer base needs or wants and can't easily get anywhere else.
Opening a traditional retail store isn't always the best way to test the market for your store concept. Consider getting some feedback from the buying public by first leasing a pushcart (Figure 1.1) or freestanding kiosk at a large mall. These small retail ventures often receive special support and encouragement from mall management because they add color and variety to the shopping center, and sometimes they grow up to be full-size, permanent tenants.
You could also test your idea by renting a table at a weekend flea market. If you plan to sell crafts that you make, start by selling at an art fair or a Renaissance Fair. See if there is an indoor crafters' showcase or art gallery near you that provides a year-round setting for craft sales. You may find that you prefer concentrating on your art and letting others do the selling.
Some stores allow other retailers to lease space inside an existing shop, sharing expenses and staffing responsibilities. West Palm Beach, Florida, helps new retailers get a start by renting out small incubator shops in a large building. The hope is that the new stores will outgrow the temporary, small space and become established, successful members of the retail community.
In addition to discovering whether there is a market in your area for the type of merchandise you plan to sell, a small venture will allow you to decide whether you like retailing. The experience of owning your own shop is, of course, quite different from having a booth at a weekend craft fair, but both experiences do involve selling and dealing with the public.
ARE YOU READY FOR RETAILING?
Once you have determined that you have a viable idea for a shop, it's time to determine whether you have the skills and capital necessary to take the plunge. Many potential shopkeepers have never worked in a store, and have no idea how to set up a bookkeeping system or even calculate retail prices. If at all possible, work in a small established shop before you invest everything you own in your retail dream, but don't work for a competitor if you plan to open a store In the same area. Look for a part-time or seasonal job at a specialty shop while you continue to work your current job. If you can't do that, you might offer to work in a store for free for a month or two so that you can learn as much as possible. Studies show, not surprisingly, that starting a business in a field you are familiar with dramatically increases your chances of success. Experience in a big corporate setting, or other past employment, may not be applicable to the challenges you'll face running a retail store.
You don't need an M.B.A. to be a shopkeeper, but a few courses in small business management will make it easier for you to get your store off to a successful start. These are often available through technical colleges or programs such as the Small Business Development Center (SBDC). Trade associations such as the American Booksellers Association offer special seminars for potential new store owners, and trade shows often feature seminars on useful topics. You may be able to audit a college-level course, although most college retailing courses seem to focus on department stores and other corporate businesses.
Use the months before you start your store to visit similar stores in other parts of the country. Subscribe to the trade magazines that cover the type of shop you'd like to open and visit wholesale trade shows to get an idea of the types of merchandise available to you and the overall range of wholesale prices you can expect to pay. Talk to the sales representatives at the shows for information about market trends and other retailing advice. Check at your local library or a bookstore for books on the various aspects of running a small business. The Resource Guide in the back of this book lists many excellent sources of information, and new business books are published all the time.
The Personal Side
Are you ready emotionally and financially to open your own business? Take an honest look at your life circumstances, and evaluate whether now is the right time for you to risk this new venture. Chances are good you will put in long hours the first few years, and you may not have much take-home income. It's not uncommon for the owners of a new store to put in twelve-hour days, six or seven days a week, especially when the shop is young. There seems to be an endless amount of work to be done, and it takes some time to get staff well enough trained to delegate significant responsibilities. But if you are comfortable with the idea of putting in long hours, there is a special satisfaction that comes from working really hard for yourself rather than for someone else.
I recall a single mother with two preschool children who came to see me a few years ago about starting a store. She had a lucrative job with the state that she absolutely hated and she wanted to own a store similar to ours. She anticipated that she would be able to make as much from retailing as she currently earned at her state job, and was disappointed to learn that such earnings would be highly unlikely for at least four or five years. I also pointed out that since her children were quite young, it would be hard for her to put in the evening hours that a new store often requires. The dream of having her own shop was put on hold.
The support of family members is vital during the early years of a small business. There is a high degree of financial risk involved in starting your own store, and it is unfair to automatically expect that a spouse will want to share that risk. Talk over the pros and cons, and be realistic about the amount of time and money you plan to commit to the project. It will be a lot more fun to be in business if your spouse, siblings, and/or parents are supportive.
Don't risk more than you can afford to lose. This is a very important caveat. For some people, the idea of gambling their life savings or taking out a second or third mortgage on their home is not that threatening, but for others it is unbearable. We were in our early twenties when we launched our store, so we weren't afraid of having to start over again if the shop failed.
Excerpted from Specialty Shop Retailing by Carol L. Schroeder Excerpted by permission.
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