Human resources requirements in terms of
expertise: For example, the staff of a computer store requires knowledge
that’s not necessary in other retail operations.
Internet Retailing
While shopping on the Internet is all the buzz,
independent brick-and-mortars (retailers with physical stores) dominate
consumer sales and are expected to remain viable for several reasons.
Foremost is their real-world presence, having a location that people can
drive by, call, and walk through time and time again. A physical
building lends credibility as a solid and reliable enterprise. It also
provides an outlet, a destination, a gathering place for customers.
Shared experiences and one-on-one exchanges are
valued by people of all ages. The ability to look someone in the eye and
ask them questions or watch a demonstration appeals to human nature.
Another advantage is the ability to feel and smell the merchandise, and
to try it and compare it side by side with other items. Shoppers
appreciate having a selection of items at their fingertips. There’s
instant gratification for buyers in carrying their purchase home with
them. And there are no packing and shipping charges. People feel more
comfortable paying in person than giving out credit information to
disembodied entities. Returning items to a store is more convenient than
mailing something back. Personal service, community involvement and
local employment are three additional aspects of storefront retailers
that will continue to appeal to the public for decades to come.
David Vs. Goliath
You read a lot about the power retailers—the Wal-Marts,
Home Depots and Targets—with huge physical facilities housing a broad
range of merchandise. Faced with these price-oriented giants, won’t the
little guy get crushed? Not necessarily. Many “Davids” are learning a
thing or two about efficiencies and customer focus from “Goliaths” like
Wal-Mart, and they’re flexing their own muscles. In fact, the United
States is primarily a nation of small, independent merchants: More
stores are small, both in size and sales volume.
The typical store is run by the owner alone or by
a husband-and-wife team. Such small enterprises naturally lack the
substantial resources, purchasing muscle and sophisticated operations of
the large-scale retailers. For the small retailer, there may be a few
employees, and one or two may be part-time workers. The store’s size is,
of course, related to the type of establishment: Furniture outlets, for
example, require much more space than shoe stores and neighborhood
groceries.
Fred W. and his childhood friend, George M., often
discussed what they wanted to do when they grew up. While still in
college, they decided that music was what they loved most and could do
best, so when they found an empty storefront off the beaten path in
Montpelier, Vermont, they opened a music store in 1973.
“I’ve always been a musician,” Fred recounts.
“It’s an intuitive talent.” Fred’s brother and a friend ran the business
for a year or so while Fred pursued a professional career as a composer
in New York. “I probably could have done all right, but when my
manager/financial backer was murdered, I returned to Vermont and my
cabin in the woods and was glad I had my store to go back to.”
Stephanie B. decided to share her love of dogs
with fellow enthusiasts by opening an all-natural pet bakery in Newport
Beach, California, in 2000. She sees the market as strong and growing
because people are having children later and want more affection and
companionship in their daily lives. “Pet bakeries are popping up every
where in Southern California. There are about 10 that I know of,” she
says. “There are a ton of wholesalers for this all-natural industry.
I’ve been cooking for my own dogs for a long time. I love coming up with
new recipes—like the marinara morsels I made the other day.”
Specialty Retailing
While power retailers tend to sell “needs,”
specialty retailers tend to sell “wants.” They focus more on
neighborhood convenience, the richness of the shopping experience, and
inventory that meets the needs of their target customer on a
personalized basis. Small stores show surprising strength and resilience
in the face of competition from large-scale retailers and Internet
retailers. They offer the consumer a warmer atmosphere, and perhaps a
broader and deeper selection of merchandise.
Many stores can be owned and operated by one
person with minimal assistance. Compared to manufacturing operations,
specialty retail outfits are relatively easy to start both financially
and operationally. However, a number of failures are due to
undercapitalization, poor location and insufficient market analysis.
This guide is intended to help you avoid start-up pitfalls by providing
you with tricks of the trade to help you succeed.
There is always room for the right kind of store.
Geographic shifts of large numbers of consumers are characteristic of
our mobile population; stores need to be wherever people live. Fashions,
changing lifestyles, increasing concern about health care and
technological advances all contribute to the need for new variations on
old retailing themes. Finally, retail openings continue to occur as
established merchants retire, sell their businesses, or close down
because of poor management practices or changes in the local
environment. Your small store launched today may become the next Lowe’s
or Starbucks within the next decade.
Nonstore Retailing
When you look at the array of business
opportunities in retailing, be sure and include the $123 billion
nonstore retailing sector. These businesses are primarily engaged in the
retail sale of products through television, electronic shopping, paper
and electronic catalogs, door-to-door solicitation, in-home
demonstration, portable stalls, vending machines, and mail order. With
the exception of vending, these businesses do not ordinarily maintain
stock for sale on the premises. They deal in books, coins, computers and
peripherals, food, fruit, jewelry, magazines, novelty merchandise, CDs,
audiotapes, stamps, and home-shopping ventures, among others.
When exploring your options, consider combining
one or more retail opportunities. For example, if having a store is the
object of your desire, think about adding a toy or gumball machine as an
extra revenue stream. If you are thinking about setting up a
tax-preparation or insurance-billing service in your home, perhaps
you’ll want to publish a mail order catalog of topical audiotapes,
rubber stamps, forms and books you can sell to augment your customer
base.
There are many advantages to this type of
retailing—one being that the buying, maintenance and protection of a
large inventory is not necessary as you contract with others to handle
these matters. The U.S. Census Bureau says there are more than 44,000
nonstore retailers in the United States.
Temporary Locations
In your travels down remote roads and through the
countryside, you’ll find roadside stands offering ripe tomatoes, fresh
corn by the bushel, avocados, freshly laid eggs, and other agricultural
and dairy products. You might also see handcrafted items, artwork,
souvenirs, holiday gifts, regional tokens and novelties. Many of these
businesses sell year-round, though some are seasonal by nature. Carts in
malls and by roadways, swap meets, spontaneous garage sales, holiday or
summer retail operations, and weekly farmers’ markets are additional
outlets for the ambitious retailer.
Direct Selling
Direct retailing means selling to the consumer in
his or her home using the telephone, the Internet or direct mail.
Home-shopping television channels and infomercials have boosted the
popularity of shopping from the privacy and comfort of home. TV-based
home shopping was originally touted as a new era in retail, but today
its sales amount to only $3 billion, and the sector is dominated by two
main players. People have to watch a show in real time to order items
before they disappear from the air. Nonetheless, the convenience of
ordering from home amidst rising gasoline prices, crowded highways and
stores, time crunches, and physical and geographic barriers works to the
advantage of direct retailers.
With phone marketing, in less than two minutes,
you can complete a transaction—speak with your customer, exchange
information and take an order. For more than a decade, there has been an
increase every year of the use of pay-per-call, toll-free numbers and
fax-on-demand for almost every application imaginable. Consumers can
purchase advice, news and information, magazine subscriptions,
telecommunication programs, investments, videotapes, health supplements,
and exercise equipment over the phone. The market is endless. Using
telephone technology, you can inform, educate, solicit and satisfy the
consumer and your business needs. Because sales are made to one person
by phone at a time, bulk orders, higher-priced items and contract
purchases are the most cost-effective.
In this techno age, many consumers like to be able
to ask a real person questions before they buy and feel like the person
cares about them. About 10 percent of all consumer goods are sold by
direct-selling organizations such as Amway, Avon, Fuller Brush, and
Tupperware. House-to-house canvassing, party plans, network marketing,
street vending and route sales are among the techniques used to sell
almost everything—clothing, perfume, toys, china and crystal, home
furnishings, health and beauty aids, and general merchandise. In 1997,
the U.S. Census Bureau reports there were about 28,000 of these firms
nationwide, with a total sales volume of $37 billion.
Mail Order
From glossy wish books to basic brochures,
catalogs are popular with those who live far from shopping areas, the
elderly, those seeking the unusual or the obscure, and those who simply
hate to shop. What could be easier than calling a 24-hour, toll-free
phone number to order clothing, gifts and gadgets? With direct mail,
sales materials can be sent to thousands of potential customers at one
time to either make a sale or generate a sales lead. Between catalogs,
various direct-mail fliers and brochures, billing inserts, magazine ads,
and e-commerce over the Internet, the U.S. government reports that the
mail order business has soared to more than $200 billion in sales.
Selling products and services directly to consumers by mail is a growing
sector because it offers entrepreneurs a high return on a low initial
investment.
Mail order enterprises include general merchandise
businesses, companies that sell specialty goods of all kinds, novelty
firms, various types of clubs (CDs, DVDs, books, audiotapes, gifts), and
so on. In most cases, catalogs are sent to consumers in defined niches
on a regular basis. Most of the catalog companies offer some form of
expedited delivery so customers can receive merchandise quickly.
The extraordinarily versatile medium of direct
mail enables you to target people, groups or organizations within your
trading area, all of which may be likely prospects for your retail
business. And you can work out of your home, a warehouse or a
brick-and-mortar store.
An up-to-date mailing list is the key to
direct-mail profits with back-end fulfillment and relational database
support. Most people selling things by mail need at least a 200-percent
markup to make money. You shouldn’t pay more than $10 for something you
sell for $30. If you think this is the retail area for you,
Entrepreneur’s business start-up guide No. 1015, Mail Order Business,
will show you where to find the best products, how to save on
advertising costs and select mailing lists, and help you maximize your
print or online mail order operation.
The Internet
The Internet has changed the retail landscape,
connecting companies, markets and individual consumers. Industry
research firm Jupiter Communications predicts that by 2005, 25 to 35
percent of the global consumer marketplace will be connected with Web
sites or communities that enable like-minded consumers to do business
with a network of companies that offer complementary goods and services.
The online business model is accelerating the globalization of
retailing. The Internet is the fastest and potentially the most powerful
retailing tool the world has ever known.
“The retailer who does not understand the impact
of the Internet on its store and catalog channels is likely to
underinvest in the Internet, missing opportunities to capture
incremental sales in all channels,” according to Ken Cassar, a senior
analyst with Jupiter Communications.
Consumers who are online represent a large and
growing portion of U.S. consumer spending. Jupiter Communications
research forecasts that U.S. online users will account for 75 percent of
all online and offline U.S. retail spending in 2005.
Regardless of the type of retail business you want
to start, you cannot ignore the Internet. Don’t let it discourage you,
either. Each type of retailing has strengths and weaknesses, so you
decide which approaches you want to use in your business.
Storefront retailers are incorporating the power
of the Internet as a strategic business imperative, and you’ll hear from
some entrepreneurs in this book about how they’re doing that. For more
information on setting up an e-commerce business, read Entrepreneur’s
business start-up guide No. 1819, e-Business.
Vending Machines
Automatic merchandising—or vending machine
retailing—has been a proven business concept for more than a century.
Vending Times, the industry’s trade magazine, reports that snacks and
soda sales alone totaled more than $20 billion in 1999. As with any
other sales venture, having the right product in the right place at the
right time is key. This business is highly appealing because of the low
startup cost, low working capital and low overhead. This is a cash
business, with you collecting the money when you replenish supplies. In
Europe, shoppers can use their cell phones to pay for items in vending
machines by debiting their checking accounts online. This is the future
for American vendors as well.
Once mostly restricted to gum, candy bars and
canned sodas, today’s vending machines sell snack foods, fruit, hot
drinks, soups, milk, ice cream, fresh flowers and an array of impulse
goods and necessities. The machines are usually placed in high-traffic
locations, such as subway stations, railroad and bus terminals,
restaurants, office buildings, and bars. Entrepreneur’s business
start-up guide No. 1375, Vending Business, shows you how to capitalize
on the billions of dollars Americans feed vending machines every year.
Service Retailers are Different
Some retailers offer after-sales services, such as
repair and installation. For example, musical instrument stores,
electronic and appliance stores, pool and spa stores, and computer
stores often provide repair services. Then there are stores that are
dedicated to service, such as shoe repair, pool and spa water treatment,
and vacuum and sewing machine service. Service organizations include
those specializing in education, travel, entertainment, health care,
home care, child care, physical training, space planning/organization,
coaching, insurance, and countless others.
A service firm is one that derives more than 50
percent of its sales from providing services that may involve a
combination of tangible and intangible offerings. Service businesses are
currently the most frequently established operations. Since they usually
sell a specialty or skill, credibility is very important. Start-up costs
are often low, and many service businesses can be operated from home.
Services provided by baby-sitters, real estate
brokers and tax advisors require some knowledge or skill. Selling a
service to consumers is usually more of a challenge than selling
merchandise. Consumers can touch, handle and examine goods; this is
something they cannot do with most services. Services must be
experienced. For example, hair styling and dating services have to be
experienced to be evaluated.
You may need to tell the prospective customer what
you are going to do, do it, and explain why you did it that way. For
example, a carpet-cleaning service that uses a deodorizing process after
cleaning the carpet should tell its customers about the special care
included in the price and why this extra step is beneficial. Service
providers often spend more time with their customers than do merchandise
providers.
Many services are essentially perishable. For
example, event tickets are only good for the day and time of the
baseball game or performance. And dentists, physicians, attorneys,
consultants and accountants cannot recover earnings lost because of an
unfilled or lost appointment. In contrast, tangible goods can be held in
inventory and sold over several days or months. If a hotel room is empty
for an evening, the revenue is lost forever, whereas a book or roll of
wallpaper can be profitable for many seasons.
Most service firms are small, single-unit
operations, and small size limits service companies’ ability to achieve
economies of scale. Changes are occurring, however, as tangible-goods
firms have established major stakes in service and have introduced
tangible-goods merchandising techniques in the services area. One of the
biggest growth areas is in franchising service organizations in the
convenience industry. There are now child-care, car-care and home-care
franchises. There is also growth in chain dental, medical and legal
clinics, and real estate firms. Service industries are typically
characterized by low barriers to entry. Consequently, competitors can
quickly enter a market and challenge existing businesses.
Many service organizations are labor-intensive.
The output of an attorney, florist or tax preparer cannot easily be
increased. These and other services must be personally produced and
tailored to the needs of individual clients. This precludes the use of
automation and other laborsaving strategies. Because of this, and the
fact that many services are offered only at the point of sale,
standardization in the level of service and quality is difficult to
achieve.
The demand for services is often more difficult to
predict than the demand for tangible goods. And demand for services can
fluctuate widely by the month, day of the week or even the hour of the
day.
Consumers also seem to feel that purchasing
services is a less pleasant experience than buying goods, and consumers
perceive higher levels of risk in buying services than in purchasing
tangible goods. To bridge the “information gap,” consumers are
increasingly doing their research on lawyers, mechanics, banks, and a
host of service providers on the Internet the same way they compare
features and prices for tangible goods.
Consuming Appetite For Services
Time is becoming increasingly scarce for millions
of people. The 24/7 pace technology has brought us spells opportunity as
well as challenge for retailers. New businesses have sprung up to take
care of many of life’s chores. Personal shoppers, mother’s helpers,
after-school programs, tutors, handyworkers, maids, valets, insurance
and tax preparers, home grocers, pet-walkers, and reminder services are
just a few ideas entrepreneurs are cashing in on. The majority of
couples are two-income families, leaving little time for preparing
meals, picking up the dry cleaning, reading a software manual,
remembering birthdays, standing in bank lines, and waiting for the cable
installer to show up. People will pay dearly for more time, so figure
out what you can sell or do to put people back in charge of their days,
and you’ll be a winner. Check out Entrepreneur’s business service
start-up guides No. 1306, Gift Basket Service; No. 1334, Home Inspection
Service; No. 1058, Child-Care Service; No. 1313, Event Planning Service;
No. 1330, Wedding Consultant; and other start-up guides for details on
how to fill consumers’ needs.
Step Up
Whether you are interested in a store, service or
hybrid operation, the deciding factor in your success or failure will be
your relationship with the consumer. Get to know your prospects.
Consider testing your business concept from home to control overhead
costs. After gaining encouraging sales from friends, relatives and
neighbors, you can extend your reach through catalog, fax and phone
sales. From there, you might want to sell from a cart in a local mall or
through a short rental in temporary space to test walk-in traffic and
promotional efforts. Then you can determine if your sales and management
skills justify start-up costs and long-term commitments. With a
realistic view of what you’re getting into, you can examine your options
for location, size and format—that is, can you sell more, and more
profitably, through one distribution channel over another? Which form
would that be—catalog, physical or virtual store, or television and
radio sales?
Retailers Image
Retail businesses exist to make people happy. To
the extent that you satisfy customers, you fulfill your company goal.
After that’s said and done, retailers are in the business of customer
satisfaction. This is the key to growth and profits.
The industry continually strives to shift its
image from one that profits from others to one that serves people’s
interests. Image has many sides to it: friendliness of personnel,
quality of merchandise, level of service, and ease of access. You must
be ever-conscious of the perceived risk the consumer has of doing
business with you. One is social risk: What someone buys affects how
others view that person—fashionable and smart, or behind the times and
ignorant. The second risk is economic. This is the possibility that a
purchase decision will greatly reduce the consumer’s budget and not
yield substantial satisfaction or value.
Social Responsibility
Retailers are improving their image by assuming
greater social responsibility. In doing so, they’re meeting the needs of
society as a whole, rather than just focusing on maximizing profits.
They provide their facilities for art exhibits, forums and community
activities. Executives lead fund-raising drives that benefit the
community, underwrite programs, sponsor events, and mentor students.
Being a business owner provides opportunities for you to be involved in
issues that matter to you and your customers.
Some retailers choose to locate in a downtown area
that has become blighted over the years. They use some of their profits
to help supplement federal funds for revitalizing the area. Locating in
an inner city has special challenges because of the problems of
vandalism, shoplifting and other crimes. Nonetheless, some retailers
want to make a contribution to society by upgrading the inner city while
looking for profits over time.
Long a leader in providing career opportunities
for women, retailers have generally made an effort to match the cultural
mix of their employees to the community that surrounds them. This is a
combination of social responsibility and good business sense. Many
retailers have also initiated internal affirmative action programs to
provide minorities with equal opportunities for upward mobility. Some
retailers make a special contribution by employing high school dropouts
and prison parolees in an attempt to train and retain them for the good
of society and the firm.
Retailers are also assuming greater responsibility
for the products they sell. As a retailer, you will have to be careful
in buying products from resources. This involves not only ownership and
licensing issues but also labor practices, environmental concerns and
research procedures. Growing numbers of consumers prefer products made
with sustainable materials and will not use certain kinds of animal or
plant products. They want to discourage the use of chemicals and
materials that are harmful to people and the environment, are wary of
genetically engineered foods, and expect disposable items to be
recyclable.
Retailers should be aware of groups like the
Sierra Club, People for the Ethical Treatment of Animals, and
Greenpeace, which often influence consumers’ perception of proper
business conduct. The Fair Trade Federation is an association of fair
trade retailers, wholesalers and producers whose members adhere to
social criteria and environmental principles to foster a more equitable
and sustainable system of production and trade.
Know that you may also be required to have some
products tested or review test documentation before selling a product.
The reasons are obvious: Government regulations are making it mandatory,
the increasing cost of liability insurance is forcing retailers to
eliminate some items, and consumers are becoming better informed and
more demanding. You’ll need to do some homework to stand behind your
products.
Air and water pollution, accumulation of toxic
chemicals and wastes, and overflowing landfills are just some of the
environmental problems of the 21st century. Several existing businesses
and franchises are providing opportunities for entrepreneurs to operate
and invest in. Selling organic produce and herbs, natural garden
services, natural products, products made from recycled materials, and
ecotourism are a few of the ways retailers are making a living and a
life from their beliefs.
Windows of Opportunity
Today, finding the right goods or services and
creatively marketing them no longer assures that a retail firm will grow
and prosper. You must run your business with a constant eye on the
consumer. You must have a strategic view of your business and focus on
your positioning, changing consumer lifestyles, technological advances
and competitive business concepts.
Of all the habits of highly successful businesses
that sell directly to the consumer, the ability to assess relationships
with the marketplace is perhaps the most crucial. Being able to
anticipate and adapt to constant changes in the retail environment more
quickly and effectively than the competition is every retailer’s goal.
The ability to harness the energy of change is what separates
innovative, energetic, growing, profitable companies from obsolete,
static failures.
Store retailing offers you the kind of business in
which you get to meet lots of people. The retail store is a
cash-and-carry operation. The day you open your store to the public, you
begin taking in money at your cash register. Capital requirements are
characteristically lower than for either manufacturing or wholesaling.
This ease of entry is very attractive and explains the large number of
new stores launched every year.
Consumers 40 and older are more familiar with
retail stores than with all other business types because they have
shopped in stores all their lives. Younger consumers have a broader
perspective on shopping, which incorporates various electronic outlets
(telecommunications devices, the Internet and TV) for purchasing goods
and services.
The best retailers are outgoing, verbal people who
like to live in the fast lane. Most retail jobs present continual
variety, meeting and mixing with people, creating your own
opportunities, and generally engaging in self-promoting activities. This
is a dynamic field that places a high demand on responding quickly to
change, bringing a diverse elements and people together, working
unscheduled hours, taking rejection, negotiating deals, resolving
confrontations, and adjusting to periods of high and low activity.
Is this the kind of atmosphere you want to work
in? Do you have the personality for retailing? If you answer yes, read
on. The more you learn about retailing, the better prepared you are to
make the right choices when starting your business.
In the next chapter, we’ll cover more about the
personality of a successful retailer and help you decide, based on your
strengths and interests, what type of retail business is right for you.
