The retail industry employs 42 million workers across the U.S., with 98% of retail stores identifying as small businesses, providing excellent business potential.
How to Open a Retail Store:
A step-by-step outline of the steps you need to follow to go from an idea for a retail store to a grand opening.
Decide what type of retail store you would like to open.
Think about which products you would like to sell in your store.
Look at your market research to figure out which items your target market likes most and decide on which of these items you would like to sell.
Research the types of retail stores you could open.
Retail stores are sorted into categories based on the channels they use to sell to their customers. There are four distinct categories of retail:
Store retailers include department stores, convenience stores, national and regional chains, and conventional supermarkets, etc. Think Walmart or Target. These types of stores use prominent merchandise displays and signage to advertise their most popular products. They sell both household and business items.
Specialty retailers target niche markets and focus on specific product categories. Specialty retailers are considered product experts and sell a breadth of items within their product specialty, be it clothing, office supplies, medical supplies, home decor, etc. Because they stock niche products, specialty retailers' inventory management is typically less cumbersome than most retailers.
Mail order retailers reach customers who are either unable to go shopping, live too far from a shop, or simply don't like the shopping experience. They send out informative catalogs and brochures advertising a broad range of products.
Online retailers cater to customers who want convenience in their shopping experience. Selling online means creating a shopping experience that is intuitive, reliable, and visually driven with detailed product descriptions and reviews. It should also have an easy ordering process and clear policies on warranties, returns, and refunds. Think of companies like Amazon.
Create a business plan.
Write an executive summary.
Introduce your business to investors by describing what your business does, providing your mission statement, and explaining how your business stands out from other retail stores.
Define your company structure.
State which type of business you will register.
Offer an extensive market analysis.
Describe your target market and discuss how you will promote your business. For example, you might use social media, newspaper advertisements, or signs outside your store to attract customers.
Detail your business offerings.
Describe the products you will sell in your retail store.
Describe your management plan and ownership structure.
Explain which roles you will fill, and who you may need to hire to perform core duties. For example, a store manager will be needed.
Outline your financial projections.
Calculate your revenue projections as well as your break-even point.
Download our free retail store business plan template for more information on which financial information to include.
Form your retail store company.
Trademark your business name.
Once you've chosen a suitable store name, run that name against the United States Patent and Trademark Office's (USPTO) trademark database to see if it's already in use.
Register as a legal entity.
You will have to choose between being a sole proprietor, a corporation, or a Limited Liability Company (LLC). An LLC is the most common type of legal structure for retail stores. LLC taxes are reasonable and they protect personal assets in the event that you default on a loan or are sued. Hire a lawyer or business consultant to help with the process.
Purchase a domain name.
Purchase a domain name that matches your business name as closely as possible. You can purchase a domain through companies like Namecheap and GoDaddy.
Know all the licenses and permits that you need.
Business registration laws will differ from state to state. Retail store owners will need to check their local government websites to find out more about state laws and procedures they need to follow, and if the type of retail business they open requires any additional licenses. Find out more about obtaining a business license on sba.gov.
Apply for an Employer Identification Number (EIN).
LLCs, partnerships, C Corporations, and S Corporations are all required to obtain an EIN Number. You can apply for your EIN on the IRS website.
Trademark your intellectual property.
It's very important that you protect your intellectual property and not infringe upon others. We recommend consulting with a trademark attorney to oversee the process.
Obtain a Seller's Permit.
You may need a Seller's Permit when purchasing wholesale merchandise for resale.
Apply for a Resale Certificate.
A Resale Certificate allows you to buy items from distributors and resell them to your customers. Depending on the state you're operating from, you may need this certificate to avoid paying tax to the seller.
Open a business bank account.
This will make it easier to keep personal and business finances separate and makes your finances more legitimate.
Research funding options.
There are a few potential sources of funding:
Small business loan: You can approach banks and apply for a business loan.
Crowdfunding: Ask loved ones to contribute financially through a crowdfunding website or paid directly into your business bank account.
Business credit card: You can apply for a business credit card to cover day-to-day expenses.
Working Capital Loan: These loans are cash injections designed to help businesses experiencing short-term cash flow problems. These types of loans support a business's operational expenses during difficult periods.
Purchase equipment and software.
To choose vendors you'll need to research their marketing support, return policy, credit terms, defective items, and payment terms before entering an agreement. Additional factors that determine a good vendor relationship is product quality and reliable delivery.
There are four types of vendors:
Manufacturers sell their products to retailers at wholesale and in large quantities. Contact them to find out if they sell directly to retailers or through distributors.
Importers bring in products from a different country to your country of operation. Retailers can buy directly from importers. Be sure to understand all the costs involved, paperwork, shipping times, and product life cycles.
Distributors act as a link between vendors and retailers in cases where reaching a vendor directly is too expensive.
Wholesalers and liquidators sell products that include closeouts, truckloads, and damaged goods.
Purchase essential equipment.
You will need to create a list of all the essential equipment to operate a retail store. The aim here is to find the right balance of quality and affordability.
Most retail stores will need:
- Cash register - $2000.00.
- Shelving and decor - $50.00–$100.00 per hour (for a contractor).
- POS system - $0–$79.00 /mo.
- Shopping bags - $0.05–$0.23 each.
- Shopping carts - $75.00–$150.00 each.
- Shopping baskets - $29.00–$57.00 each.
- Pricing and tagging gun - $19.00–$51.00 each.
- Labeler - $6.00–$343.00 each.
- "Wet floor" sign - $7.00–$57.00 each.
- "Open" and "closed" signs - $15.00–$48.00 each.
Purchase essential software.
Software that your business may need includes:
- An eCommerce site.
- Accounting software.
- Email marketing tools.
- An inventory management system.
- Payroll software.
Choose the right location.
Calculate gross to rent.
Ultimately your budget will have the most say over the location of your store. Determine how much you are able to spend on monthly rent and choose a location that offers potential. To figure out what percentage of your sales should go towards paying your rent, use the following formula.
Annual cost of rent divided by gross annual income.
The standard gross-to-rent percentage falls between 1% and 13%. Anything below 10% is a healthy figure.
Focus on demographics.
Based on your customer research, you should have a good idea about who your target customers are and where they live, work or visit. It follows that you would select a location frequented by your target market.
Factor in your competition.
Find out how many similar stores operate in your area. Too much competition may mean you can't get enough customers, but competition can also be a good thing. A neighborhood with a strong retail presence creates a pedestrian culture. You can also benefit from your competitors' efforts to attract customers to the neighborhood.
Think about the visibility of a location.
Some retail stores struggle with inactivity because their store is not ideally located, while others prosper in the most unwelcoming areas because they offer a great product. While your location and level of service can greatly impact your store, the general rule is to offer both.
Bear in mind that visibility is positively correlated with rent, so areas that are easily accessible with a steady flow of pedestrians are likely to cost more.
Think about foot traffic.
Opening up in an area with a strong pedestrian culture can do wonders for your store. An area frequented by people on foot will make a chance visit to your store more likely.
Look out for parking availability.
Uber may have made getting around an easier task, but for patrons who prefer their own transport, parking is essential. If they have to walk far from a parking spot to your store, they may just consider someplace else.
Look up crime statistics.
If your neighborhood has a reputation for criminal activity, it may deter customers from coming to your store. Check local crime statistics before setting up shop.
Set up your retail store.
Design a layout.
Your store experience is part of your attraction to potential customers. But beyond branding and signage, the layout and design of your store are influential in determining a purchasing decision.
Ensure that all products are visible.
Use signs, staircases, and strategic product positioning to organize your store and guide customers into different store locations or sections.
Place profitable products in populated areas.
Ensure that the most profitable products or departments are placed in the most populated sections of the store.
Protect your products from theft.
Install cameras, keep expensive items under lock, and use mirrors to eliminate blind spots.
Buy store furniture that is mobile.
This makes it easier to change the store design without too much hassle. Avoid fixed furniture.
Place similar products near each other.
Place similar products and departments next to or close by each other. Cosmetics and clothing attract similar customers.
Determine which staff members are needed.
Think about who needs to be employed. Most retail stores will need:
- A cashier.
- A manager.
- Store assistants.
- Cleaning staff.
Write job descriptions.
Once you know which staff members need to be hired, you can write a job description for each role. You should outline the day-to-day responsibilities and what experience is needed.
Post your job vacancies.
You can post your job description on an online job board or advertise in a newspaper. It may also be a good idea to post in social media groups that are relevant to job-seekers in your industry.
Interview candidates that meet your requirements. Do some research ahead of time to find relevant interview questions that test the candidate's suitability.
Hire suitable candidates.
Based on your interviews, hire applicants who are suitable for each role. Have a lawyer draw up employment contracts to protect all parties.
Ensure that you provide employee benefits.
Benefits that are standard for employees include:
- Social Security taxes.
- Workers’ Compensation.
- Disability insurance.
- Leave benefits.
- Unemployment insurance.
Promote your retail store.
Use social media.
Where you buy media will depend on where your customers are. If they use Facebook and other social media platforms, it could benefit you to run targeted campaigns to reach them.
Create Facebook, Instagram, and Twitter pages. Make the design aesthetic match that of your store. Be sure to include high-quality pictures on your page, especially on the visually-driven Instagram. Clothing retailers could benefit the most from modeling their apparel on Instagram. Use these platforms to advertise specials, run promotions, and get customer reviews and feedback for your store.
Create your own hashtag and encourage customers to use it when posting. This is a great way for potential customers to find out about sales and promotions.
Use influencer marketing. Influencer marketing tends to hold more weight than traditional advertising since people assign a level of trust and familiarity with influencers, making it easier to recommend a product or service.
Use referral campaigns to incentivize your customers to spread the word to their friends. Whenever a sale is made by clicking on a shared link, the customer who shared the link gets a discount on their next purchase as a reward.
Use search engine marketing (SEM).
When customers in your area search Google for a hardware store, for instance, they are likely to use search terms such as "hardware store near me." If you want customers to find you, you need to be at or near the top of search results. Search Engine Marketing (SEM) helps you rank in Google search results, making you visible to more potential customers.
SEM is a highly technical field, so you may want to partner with a marketing agency.
Host a grand opening.
When you open your store, you can offer promotions such as discounts to attract customers.
Prices for Essential Retail Store Items:
Shelving and decor
$50.00–$100.00 per hour (for contractor)
Pricing and tagging gun
"Wet floor" sign
"Open" and "closed" signs
Understanding Inventory: Key Formulas and Metrics
There are a number of key inventory metrics that can help increase the profitability of your retail store. Inventory, when not carefully managed, can lead to a loss of profits. The following formulas and calculations will help you optimize your inventory management to prevent that from happening.
Average Inventory at Cost is the cost value of the inventory that you keep for a given period (typically a year). If your average inventory is higher than your sales, you will incur excessive inventory costs and be forced to sell at markdown prices.
Average Inventory at Cost: The sum of end-of-month inventory for 12 consecutive months, divided by 12.
Turnover Rate is the number of times in a year your total inventory is sold or the average number of months it takes for your inventory to be sold. A high turnover rate means you need to spend less to generate the same sales.
Turnover Rate: Cost of goods sold for the year, divided by average inventory at cost.
Gross Margin Return on Investment tells you how much of gross profit dollars you receive for every dollar invested in inventory. If your value is 1.5, it means that for every dollar you invest in inventory, you get $1.50 in gross profits back. Anything below 2 is excellent, while a value below 1 is considered poor.
Gross Margin Return on Investment: Annual gross profit dollars divided by average inventory at cost.
The Open-to-buy formula tells you how much inventory you can buy each month so that you can sell and not be overstocked, according to a specific turnover rate. It comes in two parts:
Open-to-buy (planning) formula: Planned sales in cost dollars, plus desired ending inventory, minus beginning inventory, minus open orders.
Open-to-buy (monitoring) formula: Beginning-of-month inventory at cost, plus month-to-date inventory receipts at cost, plus balance on order for the month at cost, minus month-to-date sales at cost, minus balance of month’s sales plan at cost.
The Weeks of Supply calculation tells you how many weeks it will take to completely sell all your stock of certain merchandise. The formula relies on current on-hand inventory and projected sales per week.
Weeks of Supply: Current on-hand, divided by projected weekly sales.
Typical Costs for a Retail Store:
Business entity formation
Location improvement costs
Licensing and permits
Annual insurance coverage
Working with an attorney
$400.00 per hour
Printing, promotion, and online marketing
$15.59 per square meter (Albuquerque, NM) – $3,400.00 per square foot (New York City, NY)
Average electricity per square foot
Annual workers’ compensation
How much does it cost to open a retail store?
Because of the diverse nature of the retail industry, startup costs for retail stores can range from $2,000.00 to $100,000.00. Rent and operating expenses can reach $5,000.00 a month. Store size, market, and location will influence costs.
How can I open a retail store with no money?
- Use services to generate cash flow and fund a product-based business.
- Use your current resources in different ways to generate income.
- Get a loan or a line of credit to help with the early stages of your business.
- Locate an accelerator if you can hit the market swiftly.
- Crowdfund and allow the public to invest a small percentage of money in return for future buy-in.
How do I write a retail store business plan?
- Summarize your business proposition.
- Define your company structure.
- Offer an extensive market analysis.
- Detail your business offerings.
- Describe your management plan and ownership structure.
- Explain your marketing and advertising strategy.
- Outline your financial projections.
How much do retail stores make?
On average, retail store owners can make between $49,000.00 and $65,000.00 per year. Profits largely depend on what type of store you own, the kinds of products you sell, and your store size, market, and location.
How much does it cost to rent a store in the mall?
A permanent retail location in a mall can cost up to $100,000.00, but there are cheaper outlets too. A kiosk or a cart can cost between $2,000.00 and $10,000.00.
What are examples of start up costs when opening a retail store?
Start-up costs for your retail store include equipment, licensing, stock, rental, and marketing expenses, amongst others.
What is a good retail business to start?
- eCommerce Retailer.
- Handmade Business.
- Collectibles Seller.
- Mobile Retail Boutique.
- Used Bookstore.
- Record Shop.
- Thrift Store.
- Consignment Shop.
- Antique Seller.
- Antique Mall.
- Local Gift Shop.
- Accessories Boutique.
- Craft Supply Store.
- Gadget Accessory Store.
- Auto Parts Store.
What insurance do you need for a retail store?
- General liability insurance.
- Loss of income insurance.
- Employee dishonesty insurance.
- Utility interruption of business insurance.
- Workers' compensation insurance.
- Umbrella liability insurance.
- Cyber liability insurance.
- Employment practices liability insurance.
- Commercial property insurance.
Why is store location important for retailers?
- Your store's location will determine its rent.
- A retail store in proximity to its competitors can benefit from their presence.
- A retail store that is not clearly visible may not get noticed by customers.
- A retail store can benefit from an established customer presence.
- A store without adequate parking space may deter customers.
- A store in an unsafe area may deter customers.
What are local SEM essentials for retail stores?
- Register for Google My Business.
- Start a Yelp! profile.
- Create a Facebook account.
- Take photos of your store.
- Upload images and descriptions to all your accounts.
- Encourage customers to rate you.
- Research pay-per-click advertising.
How can I find distributors for my store?
- Determine the quality of the distributor's products.
- Ensure that they have reliable delivery.
- Negotiate payment terms.
- Find out about their credit policy.
- Ask about their policy regarding defective products.
- Inquire about marketing support.
What are five principles of retail store design?
How much does it cost to open a brick and mortar store?
Opening a physical location for your store can cost up to $50,000.00 and operating expenses can total $5,000.00 per month.
How much does it cost to start a clothing store?
Depending on your state, the market you're operating in, and the type of clothing you sell, a clothing store can cost anywhere between $50,000.00 and $150,000.00 to run.
How can I be a successful retailer?
- Do your research.
- Make sure that your business plan is air-tight.
- Be smart with your advertising.
- Always look for repeat business.
- Ensure that you hire strong employees in every position.
How do I drive traffic to my retail store?
- Create visually appealing signage and window displays.
- Place your best products at the front of the store.
- Decorate the outside of your store.
- Use NFC and QR codes on your window displays to give customers more information about those products after store hours.
What are the best books to read before starting a retail store?
- "The Retail Revival" by Dough Stephens.
- "The Paradox of Choice: Why More is Less" by Barry Schwartz.
- "BUYOLOGY" by Martin Lindstrom.
- "Delivering Happiness" by Tony Hsien.
- "Why We Buy" by Paco Underhill.
- "Reality Check" by Guy Kawasaki.
- "The New Rules of Retail: Competing in the World's Toughest Marketplace" by Robin Lewis and Michael Dart.
Where can I find a "how to open a retail store" checklist?
You can use our step-by-step guide, which includes a free downloadable checklist and a free downloadable business plan template, when opening your retail store.
What are the steps to opening a retail store?
How do you open your own retail store?
You will need to perform extensive research on the type of retail store you would like to open, the proposed location, what start-up financing you'll need, what vendors you'll use, and how you'll attract customers. If you have an idea and a great location in mind, make sure you have an air-tight business plan that you can use to attract investors, apply for funding, and guide you to increasing your profits year by year.