Small Business Ideas: How to Make Money in Retail

by Greg DePersio

4 min read

Many fortunes have been made in retail. But many more retail shops have folded because they weren’t profitable. Retail is a difficult business, but a very lucrative one if done right. The traditional retail profitability model is to earn a target gross margin on sales. This number should be high enough to result in a positive net margin after subtracting other expenses, interest, and taxes. For example, a small retail clothing store might shoot for a gross margin of 25%, while a boutique jewelry store might be able to aim for 50%. Unfortunately, many retailers fail to achieve the metrics they need to stay in business. As many as 30% of Canadian retailers fail to stay open two full years, while 50% don’t make it to their fifth anniversary. By focusing on a few important details, you can give your new retail business the best chance of making money in Canada.

Conduct Market Research

A lot of retail businesses fail simply because there isn’t much of a market for what they’re selling. Either that, or the market is already being satisfied by competitors that can deliver goods faster, cheaper, or better. For instance, opening a hypermarket in a small town where Wal-Mart dominates is fraught with peril. Due to volume discounts from wholesalers, Wal-Mart can crush your business on price, not to mention the brand recognition the company enjoys. Unless you can come up with a unique selling point to bring in customers, market dynamics probably won’t support your business. If, on the other hand, you conduct market research and uncover that there’s currently no viable place for people to buy discounted shoes in your local area, then you could potentially make money with a discount shoe store if you establish relationships with the right wholesalers and market your store effectively.

Develop a Marketing Plan

How successfully you market during the early days can make or break your retail business. This is the time when your business is going to be operating in the red, since you won’t yet have enough revenue to offset all the expenses involved with starting your retail operation. Losing money early on is common for retail businesses and not cause for concern. But at some point, you have to cross over to the black for your business to make it, and the sooner that date arrives, the better. If you have no more than a trickle of customers patronizing your business for months on end after opening, you risk getting buried by operating expenses before you have time to establish a customer base and a profitable business. For this reason, it’s a good idea to put together a comprehensive marketing plan before you start sinking money into overhead. Don’t spend money on your business until you have a concrete plan to make money.

Get in With Suppliers

Your suppliers are a vital component of your retail business, and not all suppliers are created equal. Similar to conducting market research to identify the most profitable niche for your business, consider analyzing various suppliers to determine where you’ll get the best deal, and then be prepared to negotiate. The suppliers you use and how much you pay them for inventory determine your unit costs. If these are too high, then your business either sacrifices margin or is forced to sell goods at prices that aren’t competitive. Either way, it’s a recipe for failure, so you want to have the best possible suppliers and negotiate the most favorable terms possible with them.

Don’t Forget About Loss Prevention

Aside from the big things like conducting market research, having a marketing plan in place, and establishing relationships with the best suppliers, making money with a retail business requires that you do the little things right. One such example is loss prevention. Few things are more frustrating to a retail business owner than hemorrhaging money due to preventable losses. An effective loss prevention program minimizes losses from malfeasance, such as internal or external theft, or inadvertent human mistakes, such as operational errors. Consider hiring a skilled and experienced professional to oversee your company’s loss prevention efforts. At the very least, draw up a plan for minimizing losses. Try to install security cameras and anti-theft alarms, and ensure your sales floor doesn’t have areas that are hidden from view. Preventable losses, even in small amounts, can add up, so take a few simple steps to keep them to a minimum. Among the many small business ideas that can make you money, opening a retail store has the potential to be more lucrative than almost all of them. While it isn’t an easy venture, following the proper blueprint can maximize your chances for success.

References & Resources

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