How to start a retail business

Step 1: Find your niche

If you want to stand out in the competitive retail market, niching down can give you an edge. Focus on a specific segment where you can offer unique products or superior service. Research market trends, analyze competitors, and understand customer needs to pinpoint a niche that aligns with your passion and expertise.

For example, Levis are known for their denim jeans. Although they sell other products, denim is their specialty and their brand is built around it. 

Step 2: Write a business plan

A comprehensive business plan serves as a roadmap for your retail business. It should outline your business goals, target market, competitive analysis, marketing strategy, and financial projections. A well-thought-out business plan not only guides your business operations but also helps attract investors and secure funding.

While some retailers may find this unnecessary, it is better to have one and not need it than to need it and not have it. For example, if you grow quicker than expected and you are seeking funding for an expansion project, they will require a business plan as well as well-kept financial records. 

Example Components of a Business Plan:

• Executive Summary: A brief overview of your business, including your mission statement and objectives.
• Market Analysis: Detailed research on your target market, including demographics, purchasing behavior, and market trends.
• Competitive Analysis: An assessment of your competitors, their strengths and weaknesses, and your competitive advantage.
• Marketing Strategy: Your plan for reaching and attracting customers, including pricing, promotion, and sales tactics.
• Financial Projections: Detailed financial forecasts, including projected income statements, cash flow statements, and balance sheets.

Step 3: Register Your Business

Registering your business is a legal requirement that establishes your company as a recognized entity. Now, this step can be done yourself or you can hire a third party to complete the registration for you. 

How Do I Register My Retail Business?

First, you will need to choose a business structure (e.g., sole proprietorship, partnership, LLC, corporation) and register with the appropriate state authorities. This step also includes obtaining an Employer Identification Number (EIN) from the IRS.

Here’s a more detailed process:

1. Choose a business structure: Decide whether you want to operate as a sole proprietorship, partnership, LLC, or corporation. Each structure has different legal and tax implications.
2. Register with state authorities: File the necessary paperwork with your state’s business registration office. This process varies by state, so check specific requirements.
3. Obtain an EIN: Apply for an Employer Identification Number (EIN) from the IRS. This number is required for tax purposes and for hiring employees.
4. Register for state taxes: Depending on your location, you may need to register for state and local taxes, including sales tax.

Step 4: Obtain licenses, permits, and business insurance

Depending on the type of retail business, and its location you may or may not need to worry about certain permits and licensing. Check with local, state, and federal regulations before obtaining the licenses and permits for your retail business. As for insurance, you should at least get the basics to protect your business from potential risks including general liability, property, and workers’ compensation coverage.

Common Licenses and Permits:

• Business license: Required by most local governments to legally operate a business.
• Sales tax permit: Necessary if you plan to sell taxable goods or services.
• Zoning permit: Ensures your business location complies with local zoning regulations.
• Health permit: Required if you plan to sell food or beverages.
• Sign permit: Needed for any outdoor signage.

Types of Business Insurance:

• General liability insurance: Protects against claims of bodily injury, property damage, and personal injury.
• Property insurance: Covers damage to your business property, including buildings and equipment.
• Workers’ Compensation Insurance: Provides benefits to employees who suffer work-related injuries or illnesses.

Step 5: Find a location and build an online store

For the sake of argument, let’s assume you want a brick-and-mortar location with an accompanying online store. Choosing the right location can make or break your retail business’s success. 

Consider factors such as foot traffic, visibility, and proximity to your target market. A great example of this is how large retailers position their locations. Ever wonder why Macy’s or Ulta seem to always be located near other major retailers like Sephora or Dillards? It’s because of the amount of traffic they feed one another.

Having an online presence is equally important. Build a user-friendly online store to reach a broader audience and increase sales opportunities. 

Tips for choosing a physical location:

• Foot traffic: High foot traffic areas, such as shopping centers or busy streets, can attract more customers.
• Visibility: Ensure your store is easily visible and accessible to passersby.
• Proximity to competitors: Being close to competitors can draw in customers looking for similar products.
• Parking and accessibility: Ensure there is ample parking and your store is accessible to all customers.

Building an Online Store:

• Choose an E-commerce platform: Select a platform like Shopify, WooCommerce, or BigCommerce to build your online store.
• Design your website: Create a visually appealing and easy-to-navigate website. Include high-quality images and detailed product descriptions.
• Payment gateway: Integrate a secure payment gateway to process online transactions.
• SEO optimization: Optimize your website for search engines to attract organic traffic.
• Mobile optimization: Ensure your website is mobile-friendly, as many customers shop on their phones.

Step 6: Establish relationships with vendors and suppliers

Let’s talk about your products and inventory, this is where reliable vendors and suppliers come into play. Negotiate favorable terms and build strong relationships to secure the best prices and delivery schedules. A good supplier relationship can also lead to better payment terms and exclusive products.

Tips for building vendor relationships:

• Research potential suppliers: Look for suppliers with a good reputation and competitive pricing. 
• Negotiate terms: Discuss payment terms, delivery schedules, and return policies.
• Communicate regularly: Maintain open lines of communication to address any issues promptly.
• Build trust: Establish a relationship based on trust and mutual benefit.

This is also a good time to consider where you will be sourcing from. Many times you can find suppliers outside of the U.S. that offer more affordable products, but if you’re seeking a local partner there are options close to home as well. 

Step 7: Hire staff

Hiring is a big decision for many businesses but a necessary one to grow. Having staff allows you to delegate responsibilities, expand your footprint, and give you precious time back to focus on the back end of your business.  

When on the employee hunt, look for individuals with relevant experience, a positive attitude, and a customer-centric approach. Progress always outdoes perfection so at the very least you need employees willing to learn that have a strong work ethic. Their experience in your industry won’t matter if they don’t want to show up on time and are always calling in. 

Also, give your employees the best start possible, provide comprehensive training to ensure your team is well-equipped to handle various retail scenarios.

Let’s summarize these into five steps.

5 Steps for hiring staff:

1. Define job roles: Clearly outline the responsibilities and requirements for each position.
2. Recruitment: Post job openings on job boards, social media, and your website. Consider using recruitment agencies if needed.
3. Interview candidates: Conduct thorough interviews to assess candidates’ skills and cultural fit.
4. Background checks: Perform background checks to verify qualifications and work history.
5. Training: Provide training on company policies, customer service, and product knowledge.

Step 8: Find the right POS system

As you can imagine, cash is not always king in retail, in reality, many customers no longer have it on hand anymore. 

This is only one of the many reasons you need a point of sale (POS) system. A reliable POS system streamlines transactions, manages inventory, and provides valuable sales data. Choose a system that integrates with your online store and offers features like customer management, sales reporting, and inventory tracking to enhance operational efficiency.

Features to look for in a POS system:

• Inventory management: Track stock levels, manage orders, and generate inventory reports.
• Sales reporting: Analyze sales data to identify trends and make informed decisions.
• Customer management: Store customer information and track purchase history.
• Integration: Ensure the POS system integrates with your e-commerce platform and accounting software.
• Payment processing: Accept multiple payment methods, including credit cards, mobile payments, and gift cards.

Step 9: Organize your finances

Bookkeeping is one area you do not want to mismanage or place on the back burner. Come time to pay your outstanding invoices and quarterly taxes you will want to have your finances in order. 

Set up a business bank account, track expenses, and maintain accurate financial records. Consider using accounting software to manage your finances and stay compliant with tax regulations. If the DIY approach seems overwhelming then contacting a CPA or bookkeeper in your area can lighten the load. 

Financial management tips:

• Separate personal and business finances: Use a dedicated business bank account and credit card.
• Track expenses: Monitor all business expenses, including inventory, rent, and utilities.
• Cash flow management: Regularly review cash flow statements to ensure you have enough cash to cover expenses.
• Budgeting: Create a budget to plan for future expenses and allocate funds effectively.
• Tax compliance: Stay on top of tax deadlines and maintain accurate records to avoid penalties.

Step 10: Market your retail business

Marketing your business is selling yourself to your target audience. It lets them know who you are, where you are, and why you’re better than the competition. Develop a marketing strategy to attract and retain customers. Implement a mix of online and offline marketing tactics, such as social media campaigns, email marketing, local advertising, and in-store promotions. Focus on building a strong brand presence and engaging with your target audience. 

Here are a few marketing strategies to consider:

• Social media: Use platforms like Instagram, Facebook, and ‘X’ to promote your products and engage with customers.
• Email marketing: Send newsletters and promotional emails to keep customers informed about new products and sales.
• Local advertising: Advertise in local newspapers, magazines, and radio stations to reach your community.
• In-store promotions: Offer discounts, loyalty programs, and special events to attract customers to your physical store.
• Content marketing: Create valuable content, such as blog posts and videos, to educate customers and build brand authority.

When you are just starting out, this may feel like drinking from a fire hydrant. Select only one or two mediums to focus on at a time, repurpose your content, and grow from there.