18 Feb Everything You Need to Know to Start a Retail Business
I worked in three different retail stores while growing up. The most memorable experience I had was working at a clothing store on Cape Cod when I was 18. The store had been recently renovated and looked beautiful — the desk with the cash register was designed to look like it was built from parts of a large fishing boat and the nautical theme continued to the inventory, floors, and gift boxes.
The store manager was also incredible — she was meticulous, caring, a natural problem solver, highly organized, and knew our products inside and out. She trained all employees to ensure we were prepared to assist any customer who entered the store in a way that was helpful and on-brand. My experience working at this store was a prime example of everything a retail business should be.
From your store’s appearance to inventory to the manager you hire, there are a multitude of factors that impact the creation of a prosperous retail business Follow along and we’ll cover the steps you should take to start your retail business, the resources and tools you’ll need to manage your store, and how to find the right employees to work in your store.
But first, a critical question.
Now that you understand what type of store falls under the definition of a retail business, you might be wondering how to actually go about starting one. Let’s review 11 steps that are critical when beginning your retail business.
Each of these 11 steps should be thoughtfully considered and completed when building your retail business as some are actually federal and state legal obligations. Also, these steps aren’t listed in any specific order so feel free to jump around and work through them in any way that makes sense to you.
1. Create a Business Plan
One of the first things anyone looking to start a business should do is create a business plan. This is the document that details all aspects of your company including what you’ll sell, how your business will be structured, who your target audience is, and your financial information.
Creating a business plan is crucial because it provides you (and your partners) with a comprehensive overview of your business at once making it easy for you to determine what will or will not work and what needs to be modified. Your business plan should be concise, yet informative and detailed. It’s also important to remember this is a living document, meaning you can always make changes as you start to implement different aspects of your plan.
Discover how to create a business plan to help you kickstart your company.
2. Choose Your Legal Structure
Disclaimer: This post is not legal advice for your company to use when choosing your legal structure or building your retail business. Instead, it provides background information to help you better understand these processes. This legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so we insist that you consult an attorney if you’d like advice on your interpretation of this information or its accuracy. In a nutshell, you may not rely on any of this piece as legal advice, or as a recommendation of any particular legal understanding.
When starting a retail business, you’ll have to choose a legal structure. Legal structures are recognized by the Internal Revenue Service (IRS) and determine which income tax forms you have to complete and submit for your business. Here are five common business legal structures for your consideration:
- Sole Proprietorship
- Corporation (C Corp)
- S Corporation (S Corp)
- Partnership (LP and LLP)
- Limited Liability Corporation (LLC)
Learn how to choose the right legal structure for your new business.
3. Name Your Business
Your business’ name should be catchy, easy to say and repeat, unique, and convey meaning. This way you know it’ll resonate with your customers and be memorable.
You should also search the web to ensure it hasn’t been used. To double check your name hasn’t already been taken, you can search for a trademark through the United States Patent and Trademark Office (USPTO) database. If you are beginning a C Corp or an LLC, you’ll need to visit your Secretary of State’s website to ensure your business entity’s name hasn’t already been used. (Here’s what the Massachusetts Secretary of State website looks like for reference.)
4. File for an Employer Identification Number
You’re most likely going to need to file for something called an Employer Identification Number (EIN), also known as a Federal Tax Identification Number, when you start your business. This is an identifier almost every business in the US and US territories — provided by the IRS — must obtain. Your EIN is what your business will use to report income tax activity.
You can check with your state to make sure you need an EIN as well as review the IRS EIN checklist to make sure you qualify. Once you’ve done that, you’re ready to apply for your employer identification number.
5. Understand Other Retail Business Laws
One final legal step for you to complete to set up your business — understand all other retail business laws at both the state and federal levels. We’ve covered a lot of the tax information you’ll need to be aware of, how to legally name and trademark your business, and how to file for an EIN. But you’ll also want to make sure you have all other legal matters taken care of before opening up your retail business.
Every state’s government website should have a section that reads something like “starting a business”, similar to this one from the Massachusetts government site. Here, you’ll be able to work through a checklist of items to make sure everything you’re doing is legal. You’ll also be able to acquire any other necessary retail business papers and permits. In terms of government laws related to your business you should have a general understanding of tax, employment, and labor, antitrust, advertising, environmental, and licensing laws among other retail laws.
Our recommendation to you is hire a lawyer or consultant to help you throughout this process — or at least get you started. The last thing you want to do is go through the effort or starting your retail business and then find yourself in legal trouble. A lawyer or consultant can ensure you consider and understand all retail business laws and requirements.
Now, it’s time to get out of the legal mindset and move onto some more creative aspects of your retail business.
6. Pick a Location and Make Your Store Attractive
Your store’s location and appearance matter. This is how you’re going to make sure you have the foot traffic and visibility you need to kickstart and maintain a high volume of customers. It’s also how you’ll attract customers and make them want to enter your store.
Retail Store Location
If you decide to go with commercial space for your retail business — which is a building intended for stores or companies to conduct business and make a profit — make sure your location is a good one by chatting with other businesses next door and nearby. You can even conduct an informal foot traffic study by hanging out in the area to observe the number of people who shop there as well as the type of clientele to determine whether or not it resembles that of your buyer personas.
When looking at commercial spaces, you should also think about whether or not you want to rent/ lease the space and work with a landlord or buy the space so you have full control.
You might decide to conduct your retail business out your of your home rather than a commercial space. While this will save you a lot of money because you won’t be putting any towards a separate building or retail space, it might feel slightly less professional to your customers. It may also be harder to bring in foot traffic depending on the location of your home.
No matter what type of retail location you choose, be sure to look into your city’s zoning and planning details. These are typically provided by every town’s zoning commission and tell you whether or not changes to the area, such as construction or traffic, will create any problems or limitations for your store.
Retail Store Appearance
From the way your inventory is presented to your choice in cashier counter to your window displays, everything your customers see and experience should feel and look professional, clean, and beautiful. This way customers want to enter your store and feel excited to do business with you.
You can make your store look great and feel inviting by using visual merchandising techniques to help you design it in a way that’s well-organized, well-lit, and on-brand. You can also hire a consultant to come in and help you lay out your store in a way that’s visually appealing.
7. Find Your Inventory
Finding the right inventory to sell is crucial. You need to give your customers a reason to come to your store by providing them with unique items they’d have a hard time finding anywhere else — especially since online shopping is so common today due to its convenience. To help get you started, you can search for one of a kind items and unique pieces at fairs, trade shows, and festivals.
Here are a couple more things to think about when trying to determine how you’ll source your business’ inventory:
Keep up with current trends within your retail niche (clothing, jewelry, accessories, etc.) to determine the type of inventory you should sell. With the help of social media, retail blogs, and magazines, and by simply learning about what’s doing well in other retail stores similar to yours, you’ll be able to determine the ideal inventory for your brand and buyer personas. These resources will ensure there’s a base of customers looking for the type of inventory you’re going to be selling.
Consider the type of supplier you want to get your inventory from — this might be through a manufacturer, individual maker, or wholesale.
- Individual Maker
Working with a manufacturer gives you a lot of flexibility because they help you create products that don’t already exist. Although you can determine the design, quality, and look of the product you crate, this also means working with a manufacturer can become expensive and time-consuming.
Individual makers are people who create unique pieces of inventory themselves. An example of this would be someone in town who makes knit scarves and hats and sells them to you to then sell in your store. This is a great way to ensure your store has one of a kind pieces. It also means you’ll have to take the time to find talented makers who create quality items that are on-brand and would appeal to your buyer personas.
Using wholesalers is a great option if you want to sell products in your store that are already being sold by other stores and online retailers. You’ll receive wholesale items directly from the company that makes them for a lower price but you’ll have less say when it comes to your selling margins, as the wholesaler will have control over them.
8. Create Store Policies and Procedures
Creating store policies and procedures for your customers and employees is critical if you want to maintain a sense of order within your retail business. Policies and procedures between your business and customers may include things like your return and exchange policies or whether not you want to allow pets in your store. Policies and procedures between your business and employees may include things like dress code and scheduling expectations.
By creating these store policies and procedures you avoid making customers and employees feel confused about the way something works within your business or at your store. This also helps you set standards for the way you want people to interact with your business on a regular basis.
9. Develop a Customer Service Plan
When starting your retail business, you’ll want to think about how you’re going to develop a customer service plan. Customer service is how you help your customers solve problems, teach them how to use your products, and answer their questions. Your customer service plan details the ways you’re going to do this. Customer service work is proactive. Meaning the point of developing a customer service plan and related policies is to solve for your customer’s problem prior to them even realizing they have an issue.
Let’s cover a few ways you can implement a customer service plan for your retail business through customer-friendly policies, employee training, and customer-loyalty programs.
By creating customer-friendly policies, you’ll make shopping at your retail store simple and stress-free for your customers. For example, you can can create return policies that allow your customers to bring an item back for a full refund with or without a receipt.
You should train your employees about how to handle different situations with your customers such as exchanges, complaints, and refunds. Training will provide your employees with the exact steps they should take to ensure a professional interaction with your customers that resolves the issue at hand.
Your customer service training should also cover how you expect your employees to deal with larger customer issues and disputes. Provide them with a way to escalate an issue to you — or your store manager — when they’re unable to reach a resolution that satisfies your customer on their own.
Customer Loyalty Program
By proactively providing an incentive for people to return to your store with a customer loyalty program, you’ll likely increase your sales and number of promoters (the people who tell their network about your business). You also enhance their experience doing business with your business as well because you’ll be providing them with discount codes, details about sales, information about your latest products, and any other exciting event or piece of news you have to share.
10. Recruit a Team of Employees
It’d be difficult to grow your retail business without bringing on some team members. You may start as your sole employee, but as your business flourishes you’ll likely need some assistance. You can determine the most important qualities you’re going to look for in candidates, whether they’re related to personality, prior retail experience, or culture-fit. Then you can select and tailor specific retail interview questions to help you narrow down your pool of candidates. (We’ll cover more details about which skills you should look for in your candidates shortly.)
11. Host a Grand Opening
You might choose to have a grand opening for your retail store. This marks the date in which you are officially open for business. Grand openings may include celebratory beverages, food, and sale items to excite your new customers.
Prior to your grand opening, you might also have a soft launch, or soft opening, for your business. Soft launches are when you, the business owner, invite a group of guests to your store to essentially test everything out. These events are a great way to make sure everything works perfectly before your grand opening — meaning this is your last chance to ensure your customers love your inventory, your store is appealing to your guests, and your everything in your store, such as your POS system, functions perfectly.
You’ve officially worked through all 11 steps required to build your own retail business — congrats! Now, you’ll need to create your retail marketing strategy.
Every retail business should have a retail marketing strategy — this will serve as the marketing plan you’ll use to promote your business. It’ll be the way you get the word out about your business and help you build your base of customers and promoters. Here are six steps to work through when creating your retail marketing strategy.
1. Define your positioning.
Defining your positioning is a critical part of your marketing strategy. That’s because your positioning is what makes your retail business stand out and differ from your competitors. Think about what it is that makes your business unique and use those details to define your positioning. This might be where or how you source your inventory, how you display all of the items in your store, or your impeccable end to end customer service experience.
2. Define your audience.
Once you define your positioning, you should be able to get a better idea of the audience you’re going after. Think about what type of consumer would appreciate your positioning, the products you sell, and how you sell them. By clearly defining your audience, you’ll be able to create buyer personas to help you develop a steady customer base and understand their wants and needs.
3. Create your mission statement.
Your mission statement is another critical part of both your retail marketing strategy and your business as a whole. It’s a formally written statement explaining your business’ goals and values — it essentially explains the reason why your business exists, the purpose it serves its audience, and how it differs from competitors. Your mission statement is what you and your employees can turn to when you need guidance or inspiration, and it’s what your customers can turn to when they want to learn about who you really are as a business and brand. And if you need some help envisioning what yours should say, you can always review mission statement examples from other companies.
Naturally, as your company evolves and grows, the details of your mission statement may also shift. That’s alright because your mission statement is a living document, meaning it can (and should) be updated over time as you see fit.
4. Decide on your branding.
Your retail business’ branding should feel like a combination of your audience and mission statement. Meaning you should think about what type of branding your chosen audience will respond well to and how it’ll help you represent and depict your company’s goals and values.
You should study the branding of your competitors to ensure yours stands out and looks unique to your customers. Lastly, make sure your branding is memorable — you want someone to look at any piece of your marketing and know it’s yours.
5. Think about your content marketing strategy.
A great retail marketing strategy includes a content marketing plan. This consists of media you create for your retail business such as written and visual content. A comprehensive content marketing strategy will help you establish a strong online presence and promote your business.
For example, a common way to establish an online presence through content marketing is via social media. Social media marketing allows you to promote your business through various platforms such as Instagram and Facebook. Once you determine the different aspects of your content marketing strategy, you’ll want to ensure you plan and schedule all of that great content you’ve just created.
Content marketing schedule
Once you have developed your content marketing strategy, you’ll need to make sure the actual content you’ve created is posted, distributed, and shared when you want it to be. Create a content marketing schedule that you and your team can work from to ensure all content is shared as planned.
There are a number of different content marketing scheduling software options, such as CoSchedule, to help you do this. Depending on your business’ needs, you may also choose to use a much broader marketing automation software such as HubSpot, or a more specific social media automation software such as Hootsuite. These software options speed up the scheduling process, ensure your content is shared on time and as planned, and allow you to dedicate employees to certain content.
6. Decide on your budget.
You’ll need to set a marketing strategy budget to work within when developing all of these different pieces to your plan. Think about how much money you want to put towards each of these steps so everyone on your team is aware of the parameters they’ll need to work within.
When determining your budget, you might find that you’re a bit limited to the amount you can put towards each of these retail marketing strategy steps simply because you’re a new business with fewer resources. That’s alright and totally expected — just remember to expand your budget when necessary as your business grows.
To help get you started, you can consider the following recommendation regarding marketing strategy budgets by the US Small Business Administration: If you’re doing less than $5 million a year in sales and your net profit range is 10-12%, spend 7-8% of your gross revenue for marketing and advertising.
Now that you’ve worked through the steps to building your retail business from the ground up and have a better understanding about how you can approach the creation of your retail marketing plan, let’s discuss some of the resources and software you’ll need to run your retail business.
Resources and Software Every Retail Business Needs
The following six resources and software are tools often used by retail businesses. As you start planning your business, you may think of more tools you’ll need depending on the retail business you’re opening. The following list will get you started most likely need to be modified for your store needs.
1. POS System
One of the most important tools you’ll need to run your retail business is a point of sales system or POS.
A point of sales system is a software that allows you to conduct customer checkouts and accept multiple forms of payment such as cash, credit cards, and mobile payments. The software also prints receipts, scans inventory barcodes, and stores cash. There are a number of retail-focused point of sales systems to choose from to help you manage all of your customer transactions which we’ll discuss shortly. Without a POS system, it would be exceptionally time-consuming and difficult to keep track of all of your sales and payments.
Here are some POS systems for retail businesses to help kickstart your search for the perfect one for your business:
You may also want an inventory management software for your retail business. This will keep track of all information about your inventory to understand which items you need to replenish and how often you need to do so. These days, many POS systems, including the five we just listed, have inventory management systems built into them so you may not need to worry about finding another software.
2. Stock Keeping Units
Typically, retail businesses will have some type of stock keeping unit, or SKU, system to keep track of every single piece of inventory they have. A SKU — which is typically located alongside an item’s barcode — is a combination of numbers and letters used to identify and organize each piece of your inventory by characteristics such as size, color, and brand.
Instead of having to come up with your own SKU, POS systems with included inventory management capabilities also have SKU creation features.
4. Retail Blogs
Every business owner needs inspiration every now and then. Retail blogs are a great way for you to keep up with the latest retail trends and learn about what is and isn’t working well for other similar businesses. Retail blogs, such as The Retail Doctor and Medallion Retail, are focused on topics including growth, industry trends, new software, and in-store business vs. online business.
6. Employee Scheduling Software
As your retail business grows, you’ll most likely find yourself adding members to your team. Managing any number employees — and their schedules — is simple with an employee scheduling software, such as Ximble or TSheets, which allows you to organize and update your business schedule so your employees know exactly when to show up for work.
Now that you have a better understanding about the resources and tools you’ll need to start your retail business, let’s talk about how you’re going to find the right employees to work in your store.
What to Look For In a Retail Employee Candidate
Who are the people that are going to help you grow your business? What traits should your employees possess to ensure they’ll be impactful additions to your store? Let’s cover some of these important characteristics to help you identify candidates who will be quality employees.
Retail employees need to be great communicators — they’re interacting with your customers every day. They must be able to communicate details about your inventory to help them find the items they’re looking for. If someone calls your business with a question or issue, they’ll need to communicate their answer or provide a solution. Lastly, your employees need to be able to communicate with you about things such as their schedule and how their experiences with your customers are going.
Whether your employees are chatting with your customers in person or online, about a topic that’s good or bad, your employees need to maintain a positive attitude. They act as the face of your brand and you want them to represent your business well. So, hiring people with a positive, can-do attitude that’s ready to tackle any situation that may arise — even if it’s a complex and involves an unhappy customer — is important.
You’re bound to have an unsatisfied customer at one point in time. Your employees must be patient as they listen to the issue in which the customer describes. They also need to be patient while working with that customer to find a solution. Otherwise, it’d be difficult for your employees to turn your customer’s negative experience around.
Empathy is feeling and understanding another’s emotions. Whether a customer is in a rush, has to purchase a sympathy gift, or is unhappy with an item of yours, your employees must be empathetic. This is how they’ll find a solution that fits the needs of the given customer. Empathy is what will help turn a customer’s negative experience into a positive one so they’ll continue doing business with you in the future.
Whether you have one employee or 10, they need to be dependable. You depend on your employees to represent your business, work hard to delight your customers, be professional and kind, and simply show up to work (on time, of course) when scheduled.
Prior Retail Experience
Requiring your employees to have prior retail experience is up to your discretion. You may choose to focus on personality traits and culture fit instead of work history. However, if you do want employees with prior experience, you could look for candidates who have worked in other stores before or even have an education in fashion, design, or communications.
Starting a retail business is hard work. But, by following the steps we discussed, you can make it happen. Remember there are a lot of moving parts that come with starting a retail business that may change, such as your business plan and mission statement, as you begin putting your ideas into action. Start by obtaining the right resources and tools and hiring the right people to help you start growing your retail business.