How to Start a Retail Business in 8 Simple Steps [2023 Update]

Everybody dreams of owning their own business.

Though, it can be tough to figure out how to start a retail business successfully.

Breaking into the retail industry can be challenging, especially since the cost of physical stores is increasing while the market is declining.

That being said, if you research the retail industry and plan every detail, you’ll be able to own a profitable retail business!

In this post, we cover everything you need to know about starting and owning a retail business, from how profitable it can be to the exact steps you need to follow to start your own business.

How Profitable Is Owning a Retail Business?

Owning a retail business isn’t as profitable as many would think, especially in the early stages.

Retail business net profits can range from 1% to 10%, depending on the industry.

A retail business can cost you some money in the beginning. Most start-ups and online retail businesses shouldn’t expect to earn any profit until 3-4 years.

The business needs time to build a customer base, earn a steady stream of income, and pay off launching expenses and reinvestment.

The profit rates of retail businesses have been declining due to the rise of online shopping and e-commerce.

Consumers have been favoring online shopping over brick-and-mortar stores for some time.

Yet, retail stores offer a shopping experience unlike any other, as customers get to see the good in real life.

Retail businesses such as pet supplies, women’s clothing and jewelry, and baked goods have the highest inventory turnover and extra profits.

What You’ll Need to Start a Retail Business [& Associated Costs]

Retail businesses require significant start-up capital.

It isn’t as simple as displaying your products and waiting for customers to buy them.

You’ll need to find an appropriate space, transform it, stock the inventory, and pay the employees!

The initial expenses of your retail store can vary according to many aspects. Generally, you should have early funding of about $40,000.

Here are all the associated costs of starting your retail business idea:

• Rent: You might pay between $28 to $75 per square foot based on the location of your storefront.
• Renovations: Renovating a store depends on its size, location, and design. It can cost you $35 to $400 per square foot.
• Utilities: Utility bills can build up quickly, costing you $200 to $1170 monthly.
• Merchandise: The cost of stocking up your inventory depends on your business, but you should expect to pay about $6,000.
• Labor: Retail workers average about $2000 per month.
• Marketing: Marketing expenses should be about 3% to 5% of your gross sales revenue.
• Tech: POS systems can cost up to $1200 per month for a complete retail register, while security system expenses are $3000 on average.
• Insurance: Retail insurance costs $49 per month.
• Licensing: The cost of a retail business license varies according to the state, ranging from $50 to $500.

Do I Need a License or Certificates to Start a Retail Business?

You need multiple licenses to start your retail business. Each state has different requirements.

You’ll need the following permits, among others, based on the type of your business:

• Business License
• Business Name Registration
• Employer Identification Number/Federal Tax ID
• Resale Certificate
• Certificate of Occupancy

Why You Should Consider a Retail Business as a Side Hustle

There are many advantages to starting a retail business, even if you already have a 9-to-5 job.

Not only will you earn extra income, but you’ll make a tangible difference.

Here are the pros to having a retail business as a side hustle:

• You’re the boss: Owning a retail business means you’ll get to set the rules. You’re in charge of all the details, so this is the ideal side hustle for any perfectionist who loves to take the lead!
• Create something from scratch: There’s no better feeling than accomplishing something. With a retail business, you’ll have yourself to thank for every milestone.
• Make a living out of your special interest: Your retail store can be a place where you showcase your hobbies. For example, you can start a record or a musical instrument store. You can also open a clothing store if you’re a fashion enthusiast.
• Be a part of the community: Starting a retail business might be your chance to get out of your comfort zone. You’ll get to meet new people, help customers, employ workers, and be a part of a larger community.

How to Start a Retail Business in 8 Simple Steps

You can successfully start your retail business if you’re well-prepared.

Since this is a huge decision, you should have a detailed business plan.

Here’s a step-by-step guide to launching your retail store:

Step 1: Find Your Niche

The first and most important thing to do before starting your retail business is to figure out your specialty.

This goes beyond thinking of a profitable idea or turning your hobby into a business.

You should study the retail market thoroughly.

You’ll have to identify market needs and what you can provide to the industry.

This will lead you to find a profitable business idea that you enjoy.

Your niche can be anything from a handmade product to retail arbitrage.

Then, research the competitors.

So, you’ll learn from them and improve on their shortcomings.

Step 2: Develop Your Brand

Now that you’ve found your specialty, it’s time to conceptualize your retail brand!

Customers might need the product you’re selling, but your brand is the main thing that they’re buying.

Your retail business should have a distinct and consistent identity that sets it apart in the market.

You can establish your brand identity by answering the following questions:

• What’s the brand name?
• What are your brand’s colors?
• What does your logo look like?
• What’s your slogan?
• What’s your brand personality?
• Who’s the target demographic?

Step 3: Estimate Costs and Funding

Opening a retail store requires a hefty upfront investment. For this reason, you should create a concise business budget that includes the exact initial costs and the funding source.

This isn’t the only financial aspect you need to take care of.

You should estimate the annual revenues, the annual costs, the break-even point, and the gross profit.

Step 4: Register Your Business

The next step is to obtain the necessary licenses and officially register your business according to your state’s laws and requirements.

Step 5: Select a Supplier

The right supplier can make or break your retail business. You’ll need to pick a trustworthy supplier within an appropriate budget.

You should note that a great supplier will have high-quality products and might even introduce you to new merchandise.

They’ll significantly help you establish your profit margin and cut costs in the long run.

Step 6: Materialize the Business

This is where your retail business will come to life. You need to do the following to have your physical retail store:

• Choose a location.
• Refurbish the store to match your brand.
• Stock-up on inventory.
• Set up POS and security systems.
• Hire employees.

Step 7: Double-Check Your Compliance

Many retail business owners forget about this step. Yet, your licensing might expire by the time you’re ready to launch your retail store.

This might lead to problems that halt your business or even shut it down once it’s on its feet.

That’s why you should double-check all the paperwork and ensure you’re on track.

Step 8: Promote and Market Your Business

It’s time to get the word out about your business.

Having an exceptional marketing strategy can lead to a strong kick-off. Even brick-and-mortar businesses need a solid online marketing tactic.

You should utilize e-mail marketing, social media, paid advertisements, and SEO tools to reach your target audience.

As for in-person marketing, you might benefit from networking within your community, collaborating with other businesses, and even jobs as a secret shopper!

Things to Consider When Starting a Retail Business

You might have the perfect idea and plan for a retail store, but you should take some details into consideration before starting your retail business.

Can You Run a Retail Business by Yourself?

You can be the sole owner and boss of your retail business. It’s crucial to factor in your personal and professional life, though.

Your retail business might be only a side hustle, or you might have family obligations that take up much of your time.

In this case, you should expect slow growth. You can overcome this by hiring a reliable manager to supervise the business in your off time.

Do You Have a Back-Up Plan?

Most retail businesses don’t begin to profit until the third or fourth year. Your store might seem to be bleeding money at first.

So, you should figure out an alternate source of income to keep you going for the first couple of years.

Will Your Retail Business Remain Profitable in the Long Term?

Some business ideas are short-lived. Many entrepreneurs fall into the trap of creating a business based on trends only.

This might be remarkably profitable at first, but as time passes, they find themselves unable to keep up with the market, which leads to the business failing.

For this reason, you need to be aware of your merchandise and how you’ll be able to grow and expand your business to obtain a steady profit.

INSPIRATION: Retail Business Ideas

The options are endless when it comes to retail businesses.

Here are some noteworthy retail business ideas that work almost everywhere:

• Bakery business: Bakeries have one of the highest inventory turnover rates. This means more sales, more customers, and extra profit.
• Pet supply store: 70% of Americans own pets. Pet supply stores allow them to spoil their furry-friend while seeing the merchandise in real life.
• Thrift store: We’re heading into a sustainable world, which calls for plenty of thrift shops. Customers are also looking for one-of-a-kind vintage goods instead of mass-produced merch.

Frequently Asked Questions

Similar Businesses to Consider

If owning a retail business isn’t for you, here are some small, equally profitable, businesses to consider:

• How to start a clothing business: Clothing stores are cost-effective, fun, and perfect as a side business.
• How to start a boutique business: You can curate your collection of unique clothes, jewelry, and furniture by launching a boutique business.
• How to start an e-commerce business: If you have the ideal business idea without enough funding, starting an e-commerce business might be the thing for you.

Wrapping Up

A retail business is the best way to earn income through your hobbies, but you should have a clear guide on the market and all the steps necessary for your business to flourish.

Following the above-listed steps will give you a concise idea of where your business is heading.

Feel free to let us know what retail business you might get into, and don’t forget to share this article with other small business owners to help them along their journey!