Retail Business Breakdown - Everything You Need to Get Started

In general, a retail business is a company that sells products or services directly to the consumer. The transaction can take place in-person, online, by mail, or through various sales channels. As long as the buyer is the consumer, it is considered a retail transaction. This means that suppliers, manufacturers, carriers, and other businesses within the supply chain are not considered retailers, as they do not directly interact with the final customer.

For those looking to start a retail company, it is essential to look at the various types of retailers and how to develop a successful business model.

There are many different types of retailers, each within a competitive market, making it essential to have a unique perspective that attracts customers. While some marketplaces may be intimidating, startups need to keep in mind that all successful retail companies started as small businesses. The five main types of retailers include-

• Brick-and-Mortar Stores

There is a wide range of physical retail stores that flood the market. The most common include department, discount, convenience, and grocery stores. Some are mom-and-pop shops that found their niche, while others are large enterprises that have established a foothold within their industry.

Store retailers have physical facilities to accommodate walk-in customers, product displays, and advertisements. Typically, stores cater to the general public by providing products for personal use. However, some stores serve businesses, including software, office supplies, and building material retailers.

• Specialty Retailers

While large retailers, such as Walmart, sell products that meet customer needs, specialty retailers focus on tending to consumer wants. Specialty retail stores often offer goods that provide convenience, luxury, or a personalized experience. Smaller stores dominate specialty retail, as they can offer a unique customer journey and products that are hard to find elsewhere.

Since specialty stores are not essential like other retailers, they tend to be smaller, needing minimal employees to operate. This makes a specialty company relatively easy to start, as long as the business model is developed.

• Non-Store Retailers

As a $125 billion retail sector, non-store retailers have found success in the industry through a unique approach. Non-store retailers sell products or goods through different mediums, including television, newspapers, catalogs, door-to-door sales, and mobile vending. Unlike other companies, these retailers do not keep stock on hand and rely strictly on advertisements to attract customers.

• Mail Orders

For consumers that live far away from traditional shopping centers, direct mail shopping allows people to order products from brochures or catalogs. Mail order retailers can send thousands of sales materials to consumers to generate leads and sales. Typical mail-order companies sell CDs, DVDs, books, clothing, and novelty items.

These retailers can work out of their homes or a warehouse, keeping overhead costs low. The key to having a successful mail-order enterprise is finding niche demographics, pinpointing consumers, and keeping an updated mailing list.

• E-commerce

The internet has created a new retailing approach by allowing companies to directly connect to individual customers around the globe. While many online retailers also have brick-and-mortar stores, there are successful e-commerce sites that solely operate via the internet, such as Amazon. Launching an e-commerce site can significantly expand customer reach and product exposure.

After choosing a retail model, it is time to develop a detailed business plan and assess legal matters. By following these 11 steps, people can launch their companies and become business owners-

1. Create a Business Plan

First and foremost, owners need to create a business plan that outlines every element of the company, from the target audience and inventory to the retail structure. The more detailed the plan is, the better the execution, leaving little to guesswork.

By developing a thorough outline, everyone involved in the company, both internally and externally, can have a comprehensive overview of the business and their role. The plan should also be a living document, meaning it will adapt and be edited as the company evolves and takes new forms. This allows parties to reference the document at any point in time for clarification.

2. Choose a Legal Structure


All retail businesses need to choose a legal structure that is recognized by the Internal Revenue Service (IRS). This determines what legal documents, such as tax forms, the company must submit every year. The most common retail legal structures include-

• Sole Proprietorship

• Corporation (C Corp)

• S Corporation (S Corp)

• Partnership (LP and LLP)

• Limited Liability Corporation (LLC)

Owners should learn how each type affects business and ownership before making the final decision.

3. Name the Company

Once the legal structure is chosen, the business needs a name. The name should be easy to repeat, unique, and accurately represent what the company stands for. A solid name will resonate with consumers and be easy to recall, boosting customer advocacy.

Before settling on a name, owners should make a quick internet search to ensure it hasn't already been used. The United States Patent and Trademark Office (USPTO) has a public database that allows anyone to search trademarks by name. However, C Corp and LLC's will need to visit the Secretary of State's website to confirm their desired name is available.

4. File for an Employer Identification Number


In order to start the business, owners need to file for an Employer Identification Number (EIN), also known as a Federal Tax Identification Number. Almost every American business has this identifier, so the company and its employees can report their annual income tax.

Some states have exceptions for who has to obtain an EIN. Therefore, owners should refer to their state's tax laws before applying.

5. Research Retail Business Laws


The final legal step is going over all of the applicable state and federal retail laws. Aside from EINs and trademarks, there may be other legal matters specific to a type of retail that needs to be considered, such as advertising, labor, antitrust, environmental regulations, and licensing.

Every state has a public government website that outlines starting a business, such as California. By following the checklist specific to the company's state, owners can ensure they have addressed all legal matters. These sites also provide the paperwork necessary to obtain various permits.

It may be necessary to hire a legal consultant or lawyer to streamline this process and ensure no stone is left unturned.

6. Pick a Location and an Aesthetic

A store's location and appearance directly impact how well a company can attract customers. Regardless of how good the service and product quality are, if a store's area or appearance is not appealing, they can experience low foot traffic, visibility, and sales.

Location
Before renting a space, owners should speak with surrounding businesses and ask about traffic flow and the pros and cons of the location. Management can even conduct a private study to determine the store's foot traffic and how many people seem to fit their buyer personas. Businesses should also determine whether to rent or buy a commercial space. Aside from the price, having full ownership will avoid potential issues with the landlord and rising lease rates.

Depending on the type of retail, owners should also consider operating out of their personal homes to save money on extra rent and utilities. However, this may not be ideal for traditional retailers as it can be challenging to boost foot traffic in residential areas.

Once the location is chosen, owners need to ensure they research their city's zoning regulations. Some spaces may need to undergo structural changes before being approved.

Aesthetic
From the product displays to the aisle layout, the store should be organized and easy to navigate. It should also create a customized customer experience, so buyers are excited to shop. Businesses can create a unique aesthetic by manipulating lighting, advertisements, and inventory layout.

7. Source the Inventory

With online shopping gaining popularity over the last few years, retailers need to source unique goods that are hard to find elsewhere. Management can find rare items at fairs, trade shows, or even manufacture them personally. By providing exclusive products, companies can build a client base and boost sales.
When choosing product lines, owners should consider-

• Current Trends

By monitoring social media, market trends, magazines, and blogs, companies can determine what products are popular in their sector. Owners can also assess their competition to discover high-selling brands and customer demographics. This allows the business to establish buyer personas that are attracted to their inventory.

• Suppliers

There are different types of suppliers to source inventory from, including manufacturers, individual producers, and wholesalers. Businesses looking to create a new product can work with manufacturers to customize the design, quality, and price.

However, this process can be expensive and time-consuming, therefore not ideal for startups. Individual producers are people that create novelty goods themselves, usually out of their own homes. This is an excellent alternative to manufacturers, as they ensure consumers are receiving unique items, but at a much lower cost for the business.

Wholesalers, on the other hand, provide goods at a relatively low cost. However, wholesale products are sold across many stores, making it easy for customers to find elsewhere. Wholesale items can also limit profit margins, as the providers still have control over selling points.

8. Develop Store Policies

Company policies and procedures are essential for keeping the stores and employee activities in order. Dress codes and employee conduct state how workers are expected to present themselves and treat each other.

Policies should also outline how to handle various customer interactions, such as exchanges and returns. With detailed procedures, companies can avoid confusion between employees and customers due to mishandled scenarios.

9. Create a Customer Service Procedure


A customer service plan helps buyers understand products and provides answers for frequently asked questions. The plan should be proactive, solving a problem, and presenting an answer before customers even experience an issue. Standard elements in a customer service plan include-

• Customer-Friendly Policies- Aside from return policies, companies that establish 100% satisfaction guarantees and incentives provide a stress-free environment for shoppers.

• Employee Training- All employees should undergo training that teaches them how to handle customers and react to difficult situations, such as complaints. Proper training will equip workers with the skills to keep difficult situations professional and under control.

• Loyalty Programs- Offering loyalty programs give customers an incentive to return to the store and buy products. Some loyalty programs offer exclusive discounts to members based on their purchase histories, boosting customer retention and sales. This personalizes the buyer experience and enhances satisfaction.

10. Find Employees

Startups may only need one or two workers to run daily operations, but more employees may be required as a business grows. Owners should list the essential qualities their employees must have, such as the ability to multitask, time management, and people skills.

Applicants should be asked a list of questions catered to the business to get a good idea of how the person would handle certain situations. By narrowing down applicants based on specifications, companies can ensure that they are growing with like-minded people.

11. Launch the Grand Opening


After all legal and logistical requirements are sorted, it is time for the grand opening. The reveal is the first impression consumers will have of a company, and therefore, should be memorable and inviting. Some businesses offer free snacks, beverages, and other incentives to welcome customers. This is also a chance for owners to personally meet potential buyers and explain their business, products, and mission statement.

There are several retail software solutions that streamline standard procedures to promote smooth workflow and simplify daily operations, such as transactions and restocks. As startups begin to expand, small business owners should consider how different management systems can enhance their operational efficiency-

• Point-of-Sale System

A point-of-sale (POS) system is one of the most important tools a retail company needs, as it automates customer transactions. With a POS solution, check-out attendants no longer have to manually calculate totals and can accept multiple forms of payment, such as cash, credit, debit, and gift cards.

By automating transactions, retailers can minimize wait times and fast-track customer service. Advanced systems can integrate with other inventory management software to locate products and update stock levels with every purchase. This functionality enables quick item look-up and prevents stockouts.

• Stock Keeping Units

Companies need an organizational method to locate and keep track of inventory. Stock keeping units (SKUs) are a combination of letters and digits that run alongside barcodes to identify each product. This allows management software, including POS systems, to register and monitor scanned goods.

• Employee Scheduling Software

As more employees join a company, it can become overwhelming to coordinate schedules. With employee scheduling software, management can easily create virtual schedules that ensure proper staffing that does not over or under book workers. With scheduling software, employees are alerted with schedules in advance, giving them time to switch shifts if needed.


Establishing a retail business requires thorough research of models, inventory, customer, and industries to develop a successful business model. However, with thorough preparation, owners can provide consumers with unique, high-quality experiences.