How to start up a retail based business

There are lots of things to consider if you're planning on running a shop. Get the essentials for starting up and running your own retail-based business in our practical guide.

Research your target market

Carrying out some market research can give your business a better chance of succeeding.

Estimating demand

As part of your market research for a high street 'bricks and mortar' business, you'll want to make sure there's enough local demand for your retail business. First of all, it would be a good idea to check out the competition. You could look on Yell.com and other similar online directories, in local print directories, or simply drive around your local area making a physical count of existing retail businesses that are similar to yours. Note how many of these are independents and how many are part of a multiple chain. Check out the competition to see:

  • what range of products they offer
  • what services they offer
  • what prices they charge
  • what their opening hours are
  • what type of customer they are attracting
  • how helpful and knowledgeable their staff are
  • if the premises and fittings are modern and smart

Catchment area

Note down the different types of potential customers living and working in the area where your business will be. If you plan to attract local people, then this will help you to determine the range of products and services that you will offer. It may be that the immediate catchment area is not particularly relevant and that yours will be the sort of business that customers will travel to. In this case you should consider the area from other points of view. For example:

  • is there ample parking
  • is road access easy, with unrestricted traffic flow
  • is the provision of public transport adequate
  • are there any plans for new developments that would reduce parking, make road access difficult, demolish or develop new housing and so on
  • are there other businesses nearby which will attract people into the area but which won't be direct competitors
  • is the area considered safe to leave a vehicle

Why will customers choose your business

You need to make sure that enough customers will choose your business rather than any existing competitors. Your market research might immediately indicate a gap in the market for certain goods and services that your business could fill. Some of the reasons why customers will choose your shop over your competitors might include:

  • your location
  • your product range. You may decide to stock only the very best product lines, or to offer niche products that aren't sold by many of your competitors
  • your prices
  • the level of service you provide. Depending on the products you sell, it can be important that you and your employees have an in-depth knowledge of your stock and provide customers with sound advice and good service
  • your opening hours

Find out what people want

It can be a good idea to get out on the street and talk to people in your area about your proposals. Ask them:

  • what sort of product ranges or services they would like you to offer
  • what opening hours would suit them best
  • what do they like and what, if anything, don't they like about existing businesses similar to yours
  • what they think of your proposals - it could be that although you think there will be a demand for your goods or services, in fact hardly anyone would want them

Research current trends, plus legal and tax issues

Selling on eBay and Amazon

Selling online can be an excellent way of reaching new customers and boosting your sales. But setting up your own ecommerce website can be expensive and you may not be sure at the beginning whether the value of the sales you'll make online will justify the set-up costs.

As an alternative, trading on eBay or Amazon lets you get a feel for selling online but with much lower start up costs. And you may decide to keep on selling through eBay and Amazon even when you have your own online shop.

Getting started

You might already have your own personal eBay account that you use to buy items for yourself and to sell things that you don't need any more. But if you're trading as a business on eBay you're legally obliged to make it clear in your listings that you're a business seller. This means that you'll either need to register a new business account or upgrade your personal account to a business one. There's guidance in the eBay Seller Centre on the definition of 'trading' if you're not sure whether you need to register as a business seller.

Similarly, with Amazon you can use an existing account or create a new one when you register as a business seller.

If you're not already running a business and you intend to start selling things on eBay or Amazon - perhaps just in a small way to begin with - then you'll need to notify HM Revenue & Customs (HMRC) that you're trading. There's guidance on the Gov.uk website that gives an overview of what counts as trading and what counts as self employment. It also gives details of your tax and record keeping obligations.

Decide whether to have your own virtual 'shop'

Having your own virtual storefront will give your business a valuable online presence and will allow you to display all your products together in one place.

When you sign up to sell on eBay, you have the option of setting up an eBay Shop. This allows you to create your shop using an existing template or to customise it to your own design. You don't have to choose the eBay Shop option straight away - you may decide it's best to wait until your monthly sales build up to a certain level and then upgrade.

With Amazon, you'll automatically create your own storefront regardless of the package you choose. You won't be able to customise it very much but you will be able to add your name and logo and provide some information about your business.

How much does selling on Amazon and eBay cost?

Before you start selling on Amazon and eBay it's a good idea to find out how much you'll have to pay in fees. Depending on the items you sell and the method you choose for selling them, your total fees can be quite substantial. And while some of the fees you pay will be linked to the number of items you sell each month, others are likely to be fixed costs which you incur even if you don't sell anything.

Both eBay and Amazon give you the option of selling as a business seller without paying any fixed monthly fees, although it's usually more cost-effective to choose a subscription-based package unless you're only selling a small number of items each month.

The eBay website has a fee illustrator tool and a fee calculator that will help you compare the fees for different selling methods and get a good idea of how much your actual per-item selling fees are likely to be.

The Amazon website gives detailed fee guidance, including some examples of pricing for their subscription and non-subscription packages.

Managing your listings

Uploading your inventory to eBay or Amazon and managing your listings can be a time consuming task, particularly if you're planning to sell a large number of items.

Both eBay and Amazon offer useful listing tools, some of which are free and others that you'll have to pay for.

Promoting your items

Because there's such a huge number of items for sale on eBay and Amazon at any one time, it's very important that you do everything you can to stand out from the crowd.

Always make sure that your listings include accurate, spell-checked descriptions and that your photos and other images show the items that you're selling in the best possible light.

You might want to take it a step further and use the various marketing tools provided by eBay and Amazon such as search optimisation, cross-promotions and paid-for advertisements.

Your reputation

As an eBay or Amazon seller your online reputation is extremely important. All sellers have a feedback score based on actual customer feedback and this is the main measure that future customers will use to check that you are trustworthy and reliable.

So you'll want to keep your rating as high as possible by providing an excellent level of customer service and fast delivery at reasonable prices. Make sure you always respond promptly to customer queries, deal with returns efficiently and keep an eye on your stock levels to avoid your listings showing an item as being in stock when it has sold out.

Be aware that packing up orders and sending them out can be time consuming, but it's important to stay on top of the job to make sure that the right items get delivered in good time to the right people. Very many parcel delivery services now offer bulk shipping tools that integrate with your eBay or Amazon account and these can greatly simplify the process of arranging and tracking your deliveries.

If you're selling on Amazon you might also consider using the Fulfilment by Amazon service, where you send Amazon your inventory and they do all of the picking, packing and shipping as well as providing customer service.

More information

The eBay and Amazon websites have a great deal of useful guidance to help you get started as a business seller and to expand your business as demand for your products grows. Both also have lively seller community forums where experienced sellers are often happy to answer questions.

Decide what to sell

It's likely that you already have a good idea of the types of product you intend to sell - for example you might be planning to open a food shop, a household goods shop or perhaps a leisure goods outlet. Once you've decided on the type of shop you're going to open, you'll need to give some thought to the exact nature of your stock and/or the range of services you'll offer.

A number of factors will influence the range of goods or services your business will offer, for example:

  • the sector of the market you will target. Are you aiming for low margin, high volume sales or will you be aiming up-market and offering exclusive products and services to a discerning customer base. You might decide to target the ethically minded consumer by offering a range of fairly-traded products
  • the nature of the products or services. Are you going to offer a broad range or will you specialise in a particular area
  • the size of your premises
  • how the market is moving - for example, women's wear shops are closing at the moment as women choose to buy clothes online, while cafes, takeaways, grocers and convenience stores have been opening

Your market research will help you to identify whether or not there is likely to be a demand for the business you have in mind. Be prepared to be flexible - your aim is to provide your customers with what they want, not what you think they want.

Establish your customer profiles

Your market

Your customer base might be exclusively made up of private individuals or you may also have some trade customers as well.

Depending on what you sell, your location and the nature of the business, you might build up a personal relationship with many of your regulars, or you might rarely see the same customer twice.

Special offers and discounts

If you have trade customers you will probably offer them a discount as a matter of course. You might also offer your retail customers a discount in some circumstances or have special offers and promotions. If you do, this might attract more customers so you sell more - or, on the other hand, you might not get any extra customers and you will receive less income (and profit) into the bargain! Check out the local competition for ideas and keep a close eye on any special offers you do make to be sure they are working for you.

Don't forget to brief your staff on which customers are entitled to a discount, and how much. Look out for staff offering unauthorised discounts to their friends and relatives.

Fairtrade

Recent years have seen an increase in consumer demand for ethical products that help the producer or farmer in the developing world. You could meet this demand by stocking a range of Fairtrade products. This would show customers that your business is ethically aware and committed to fighting global poverty. Offering Fairtrade products can also be a good way to differentiate your business from its competitors.

What is Fairtrade

Fairtrade guarantees a fair deal for disadvantaged producers and farmers by making sure they receive a fair price for their work and goods. Fairtrade items are generally slightly more expensive than similar products, but more and more people are happy to pay a little extra to help producers become self-sufficient. All Fairtrade products are marked with the easy to recognise Fairtrade Mark and there is a huge range available including fruit, teas, coffees, sugar, chocolate, flowers, alcoholic drinks and clothing.

How does it work

The Fairtrade system works by paying producers a set minimum price for their goods, giving them a living wage. On top of this, producers also get an extra sum of money to invest in their business or community. This is called the 'social premium'.

In return, producers who want Fairtrade certification must meet certain standards. As a retailer of Fairtrade goods it's unlikely that you'll deal with producers - you'll probably buy your Fairtrade stock from a UK supplier.

Licensing

Because the goods you buy will probably already carry the Fairtrade Mark you may not need to be licensed. But if you plan to use the Fairtrade Mark in any of your advertising or point of sale materials you'll need to have these approved by the Fairtrade Foundation.

Where to obtain Fairtrade goods

As a retailer you won't be able to apply the Fairtrade Mark to goods or products yourself. Only licensees, such as importers and manufacturers that are registered with the Fairtrade Foundation, can apply the Fairtrade Mark to a product. So you'll buy your Fairtrade goods either direct from manufacturers or importers or - more likely - from registered wholesalers and distributors in the UK. The Fairtrade Foundation website has a list of wholesalers throughout the UK that sell Fairtrade marked products to retailers.

Pricing

When you buy Fairtrade goods from a wholesaler, importer or registered manufacturer, you can probably expect to pay a little more than you normally would for similar products. The slightly higher trade prices cover the set price and social premium that are paid to the farmer or producer, as well as supply chain costs and the cost of certification and product licensing.

Although trade prices for Fairtrade products are higher, you may well be able to charge a little bit more for them. You may benefit from extra sales, too. The Fairtrade Foundation isn't involved in setting retail prices, so the mark-up you add is entirely up to you. While you'll want to cover your costs and retain a healthy profit margin, bear in mind the purpose and aims of Fairtrade when you set your prices. The Fairtrade Foundation makes it clear that profit margins on Fairtrade items shouldn't be higher than on similar products.

Promoting Fairtrade goods

Offering Fairtrade products can be an attractive selling point for your business and can help to attract new ethically aware customers. So it's important to make sure that any potential customers know about the Fairtrade products you stock.

The Fairtrade Foundation is responsible for promoting Fairtrade in the UK and can provide useful materials and advice to help you to advertise your Fairtrade ranges. Any promotional materials that contain the Fairtrade Mark, like posters or leaflets, must be approved by the Foundation.

The Fairtrade Foundation organises a Fairtrade Fortnight each year to promote the Fairtrade system. This could be a good time for you to raise customer awareness about the Fairtrade products that you offer. For example, if you offer Fairtrade food perhaps you could hold a tasting evening or suggest recipes that customers could make using the Fairtrade ingredients you sell. You could also put up posters in your outlet promoting the benefits of Fairtrade and informing customers what Fairtrade products you stock. Perhaps you could hold a competition with Fairtrade products as prizes.

Where to find out more

The Fairtrade Foundation is part of the international Fairtrade movement and oversees all aspects of Fairtrade in the UK - including retailing. For more information on Fairtrade, the range of products available and how you can get involved visit the Fairtrade Foundation website.

Promoting your business

The right image

It's important that your outlet projects the right image to customers. Everything about the way your outlet looks and feels should be designed to encourage customers to keep coming back regularly.

It's generally important to make the outside of your outlet as attractive and welcoming as possible. Try to make sure that signs are professionally made, clean and in good condition. Use colours, lettering and design that you feel put across the right image. Bear in mind that things like the condition of the paintwork can make a difference between a shop that looks like it's up and coming and one that looks old and run-down. Keep your windows spotlessly clean and well lit.

Whatever you plan to sell, make sure that your window displays are attractively laid out and changed regularly. Think about what would make you stop and look if you were a passer-by. If you offer other services then it's probably a good idea to advertise these in your window or on a sign outside your outlet.

Depending on the items you stock, think about the different ways of displaying them - such as shelves, hangers, racks, rails, stands, dump bins, carousels and so on. Try to make sure that goods are arranged neatly to help customers find what they're looking for. Look into ways of encouraging customers to buy as much as possible. For example, you could put a rack of attractive but inexpensive goods on the counter top next to the till. Talk to your suppliers about the availability of attractive point-of-sale materials such as stands, leaflets and signs.

You and any staff you employ play a key role in the image of your business. Customers will expect staff to be friendly, helpful and enthusiastic. Ideally, they'll also be knowledgeable about the products you stock and be able to give customers advice when required.

Advertising your business

Without customers your business won't be able to survive, so you need to make sure that as many potential customers as possible know that your retail business exists and are aware of the products and any services you offer.

There are a number of things you can do to promote your business, for example:

  • launch your own website to advertise your business and the product ranges you stock. You may also decide to sell online
  • run a regular email newsletter for customers who agree to receive it, telling them about the latest new products and special offers
  • develop an effective social media strategy and use Facebook and Twitter to keep customers up to date with your business
  • have leaflets printed outlining some of the unique features of your outlet and distribute them to your target market
  • leave publicity material and contact details with a related outlet - for example a bridal wear outlet may be prepared to display a florist's promotional material
  • advertise in an online directory - maybe a trade association for your sector provides members with a listing on its website
  • sponsor local events and organisations such as a local sports team
  • advertise in your local newspaper
  • take out an advert on Yell.com and other online directories
  • offer special discounts and free goods from time to time - for example buy one, get one free on certain products. Advertise special offers prominently in your window
  • make sure that your logo is on any packaging and carrier bags you use

Almost all types of advertising and promotion have a cost, whether it's financial or your own time and effort - or both. You need to make sure that the beneficial effects of your advertising efforts are worth the time and money spent on them. It's up to you to decide which types of advertising work best for you - sometimes this is down to trial and error.

Franchises

When you start up a retail business, you may decide that you would benefit from being associated with a well known established company. Franchising can be a good 'halfway house' between starting out from scratch and buying an existing business. If you purchase a franchise you'll still be setting up your own business, but you'll be able to benefit from the experience, resources and the name of a business that is already successful.

There are a number of different franchise opportunities available to UK businesses in various different retail and shop-based service sectors.

Franchises range in size from large national schemes to small regional and local operations. Although different schemes vary in detail, most feature the following key points:

  • as a franchise holder, you will remain self-employed but will normally use the identity (corporate colours, logos, trade name and so on) of the franchisor
  • in return, you will pay the franchisor a fee; this might be a one-off investment or a monthly charge, or a combination of both
  • you may have to buy some or all of your stock from your franchisor
  • both you and your franchisor will have to fulfil certain obligations; the franchisor might, for example, agree to allocate you an exclusive territory, while you might agree to maintain your outlet to a particular standard

Many franchisors will provide you with training if you need it, as well as advice and support on a range of business and technical matters.

Details of the above points are set out in the franchise agreement or contract, which both you and your franchisor will sign. The agreement will also deal with other matters, for example the minimum period for which the franchise will run.

Before entering into a franchise agreement, it is advisable to compare the terms of different franchisors to be sure that you are getting a good deal. Go through the contract with your solicitor before signing anything. Also look at things like the franchisor's track record and how long they've been in business.

The British Franchise Association offers guidance and advice on choosing a franchise and becoming a franchisee. There is also some useful information on the Franchise Info website.

Buy an existing business

You might decide to buy an existing retail business rather than start your own venture from scratch. Buying a going concern can mean that:

  • the premises, business equipment and shop fittings are already in place
  • some stock is already in place
  • there are established customers
  • the business can generate income immediately
  • the business is a member of a buying group
  • suppliers have been identified and relationships established with them
  • the business has a reputation and a track record which can help if you are looking for finance
  • staff are already in place
  • the business website (possibly ecommerce enabled), eBay and Amazon 'shops' and social media accounts have already been set up

However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up. Find out if any changes are planned for the locality which could affect footfall or the type of customer coming to your outlet.

Your market research into the sector as a whole - and the locality in particular - will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high.

Other matters to consider include:

  • the state of the premises, equipment and so on. Will you have to spend money refurbishing or replacing assets
  • the condition and value of any stock you are buying. Check this over carefully before agreeing a price. Is it affected by changing fashions, seasonal factors or changes in legislation? Does it have a shelf-life and, if so, how long is it?
  • existing staff rights
  • how to retain key personnel once you've taken over
  • does the business owe money that you will be responsible for
  • if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller

Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs.

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