How To Start A Retail Business
Jeff Bezos has inspired a generation of entrepreneurs, many of whom are hungry to follow in his footsteps and start their own retail business. His letters to the shareholders of Amazon make clear that it’s important to put the company first and constantly work to innovate, stay ahead and ensure that your business is better tomorrow than it is today. The success of Amazon, as well as brands such as Shopify, and the shift to digital, has convinced many people that the future belongs to Amazon and its competitors. Yet, we believe that there is still room for brick and mortar retail stores. Indeed, Amazon’s market share in terms of retail is actually quite small, despite its size. The vast majority of retail businesses in the United States are local retailers and not national juggernauts. Research has found that 98.6% of retail firms in the United States have 50 or fewer employees, and hire around 40% of all retail employees. Despite the media narrative of the death of brick-and-mortar retail stores, they are still a significant part of the American retail space. In this article, we will examine how you can start a successful retail business.
Focus on a Niche
The retail space is intensely competitive. Consumers have so much choice that an entrant has to have a clear and compelling value proposition in order to succeed. What you need is a niche. An area of expertise where you can deliver compelling value.
The best place to start is by following your passions. Your passions will lead you to your niche. Another way to do this is through more objective means. When Bezos founded, he decided to start selling books because books have more items than any other retail category by far. Music is a distant second.
In thinking about your niche, you should not neglect to think about the competitive landscape and the potential problems you will experience. One way to think about potential problems is by doing a pre-mortem, which is an exercise in which you imagine the reasons why a project will fail in order to take preventive measures before you fail. An ounce of prevention is, as they say, better than a pound of treatment. Thinking through these things will help you decide if that niche is a good fit for you.
The competitive landscape will give you an idea of the possibility of earning profits. There are sectors of the economy so competitive that no firm can earn economic profits, or profitability exists only for a few oligopolistic competitors, leaving the rest of the market unprofitable. Competition is great for consumers but can kill a firm’s chances of earning profits. Try and determine what the sector’s returns on invested capital (ROIC) are, as a way of answering this crucial question.
By this time you have already looked at the competitive landscape. Don’t just do so from a threat perspective though. You want to learn from your competitors. Look at how they handle compensation issues, marketing, distribution and other things. Not everything your competitors do is right, even if they all do it. But it is important to understand how they operate, so you can learn to think like a business owner in the industry and make more intelligent decisions. The process may even help you find creative solutions that your future competitors have not yet seen.
Write Your Business Plan
It’s not enough to have an idea, you need to have a business plan. The purpose of a business plan is to document how you plan on building your business, your capital requirements, the financial and operating performance you expect, and the threats and challenges you will likely face. Essentially, a business plan is a guide for the journey ahead, a map, if you like. This document is important, not just for you, but for any lenders or potential equity partners that you might approach.
Register Your Retail Business
The first thing is to have a company name. You want a name that’s simple, easy to remember, reflects your business and its values and that stands out. Don’t get hung up on this though. Many great businesses have changed their names during the years. The point is to have a name. Check with your state’s Secretary of State to see if the name you want hasn’t already been taken. Then check with the United States Patent and Trademark Office as well to see that the name is not in use in the country for trademark purposes. If your desired name is free to use, then register using that name and set up social media accounts, and buy a domain name and get started on your business’ marketing campaign.
Choose Your Business Structure
There are several business structures in the United States. The form of business entity you choose will determine that income tax return form you will have to file. Typically, people choose from the following business structures: sole proprietorship, partnership, corporation, S corporation and limited liability company (LLC). An LLC is a form of business entity that is permitted by state statute. It’s important to remember that the type of business structure you choose comes with its own legal and tax considerations. You might want to consult an accountant or business attorney before deciding.
Once you have decided on the business structure, you can register your business with your state’s Secretary of State. They will often have an online portal you can use to register. After that, you need to get an employer identification number (EIN) from the Internal Revenue Service (IRS). An EIN is a way of identifying a business for purposes of paying tax. It is a bit like a person’s social security number. You also need an EIN to open a bank account, obtain loans and perform other activities. You can learn more about getting an EIN here.
Get Your Business Insurance, Licences and Permits Sorted
Getting business insurance will protect you from business interruption, loss of property and other things. You may or may not need licences and permits. This depends entirely on the state you operate in and often on the local authorities. You will have to do your research, speak to counsellors and county and city clerks and speak with the state’s Secretary of State’s office.
