PROPERLY ESTABLISHING A FOUNDATION IN RETAIL SALES
by Jon Robert Quinn
I remember sitting at home one night and getting the crazy idea of opening a retail store. I already had dozens of online stores selling motorcycle gear and my apartment was filled with hundreds of items I would be taking to local flea markets and selling on Craigslist. I literally had two to three people per day coming by my home to pick up gear, so a retail store was inevitable.
The first challenge was getting the capital needed and finding a good store front. Retail space is very expensive and the last thing we want to do is go out of business before we are actually in business. I scoured Craigslist looking at retail space and the cheapest place I could find was about eight hundred square feet and about one thousand two hundred dollars per month.
Building a retail store, you need to pay attention to ROI (return on investment). ROI is simple. If you invest one thousand two hundred dollars per month into a space, the space must create a return equal or greater to your cost of the space. My recommendation is two-to-one. Meaning, if you spend one thousand two hundred dollars per month, the space should create a return of two thousand four hundred dollars per month net or after expenses.
My decision was instead of opening a retail store, I would rent some commercial office space for under four hundred dollars per month. The space was much smaller and in a strip mall, which was harder to find and less retail looking, but my return would cover the expenses of rent, electricity, internet, phone, etc. This was a smart move and an instant success for my customers. This was a safe bet in order to get started and learn the operation of running a retail store.
One of the biggest mistakes entrepreneurs make is reading books on business but never applying themselves or when they do apply themselves, they bite off more than they can chew and create a lot more risk that they can handle, which is the mistake I made with my retail stores. Years later, I look back and love the fact that I made the mistakes because of how much I learned and that I was smart enough and strong enough to bounce back and come back even more successful than before in a matter of a few short years.
Building retail stores was a challenge, but a fun challenge. Sales will obviously affect your profit margins, as well as theft, as well as taxes paid to IRS. You also have to factor in the cost of doing business, ie: Employees, Rent, etc, but this is a general idea.
Now obviously it makes sense to sell the more expensive item because you’ll make more money on that item. However, not every customer wants to spend hundreds of dollars during one purchase. So, those clients will want a product of maybe a little lesser quality but something that will fit their budget. Now flipping the coin. There are customers who absolutely want the more expensive product and will pay full retail for it.
There are three types of customers. I call them the Dollar Store Customer, The Wal Mart Customer and The Nordstrom Customer. All three customers are shoppers and buyers in your store, however their wants and needs are different. The Dollar Store customer doesn’t make a ton of money and wants whatever will get the job done for as little money as possible. The Wal Mart Customer wants a good product, not superior and wants it for a fair price. They won’t buy the cheapest product but also aren’t interested in the top of the line either. The Nordstrom customer may make the same money as The Wal Mart Customer but will take their time and buy the best they can get because they feel like they deserve it. Some Nordstrom customers make more money than The Wal Mart shopper and simply don’t care about price. What does all this mean?
When pricing your products and building your store, make sure you have products available for each of those customers. You want all of them in your store. However, when that Nordstrom customer is buying your product, this is a fantastic time to upsell them with VALUE, meaning, you can sell them an additional product or products of lesser quality and they feel like they are getting more for less. This also works with your Wal Mart customers with small ten dollar add ones. By showing the benefits of accessories, both The Wal Mart and Nordstrom customer will most likely spend more on additional products. This increases your point of sale transaction amount increasing the health of your business.