Advice needed : Making the eCommerce -> Retail jump

[joshgeake]

Hi all,

I run an ecommerce company that's going well. Orders are seasonal with the first having just finished and so I'm preparing for the next gift market season and looking at moving into a purpost built place for holding stock, processing orders etc.

Thing is, when I look around, there's not much available that's ~500sqft and at a decent price. It's all office space on the third floor with plenty of doors, shared areas etc. These places are geared towards agencies/professionals with large profits like estate agents/recruitment people/solicitors/accountants...not ecommerce.

So instead of looking for a ~500sqft warehouse with a small adjacent office (~£600 per month)...I'm thinking of going into retail at the same time...

I've found somewhere central, fully fitted, clean and very quirky on a busy thoroughfare for only £495 per month.

Apart from a till, a card machine, some public liability insurance and a saturday staffing issue...is there anything else to worry about in making this plunge?

Advice would be massively appreciated!

 

[David1962]

Well just to get you started you need to budget for:-

£1,500 rent deposit
£1,500 initial first three months rental
£200 business rates per month (guesstimate)
£1,000 - £1,500 legal fees
£200 - £500 survey (not always necessary though, depends on lease and shop)
£xx,xxx shop fitting
£500 - £1,000 sign writing
£200 - phone line connection
£1,000 alarm system

Plus a whole host of smaller items such as waste disposal, toiletries, shop lifting (shrinkage), water rates etc.

So before you even get the keys you are looking at about £6,100 - £7,400 plus shop fitting. Those figures are average figures (bar the rental and deposit).

Also remember you are not committing to just £495 this month, depending on the lease, and saying you have a lease with a common break at three years, you are committing to £17,820 plus three years of rates so in the region of £25,000, now add on the contracted utilities/services and your at about £30,000. Can you cover that if things don't go to plan and you need to get out in six months time?

Saying that £495 is very cheap for a retail unit, there will be a reason for that which will almost certainly be lack of footfall and/or restrictions of use on the unit. If it's footfall but your not worried about the retail side so much then that may not be an issue for you.

 

[joshgeake]

Thanks David, I needed some constructive advice!

The history is that the current tenant's run out of cash. They want out and I'm told it's because of their business sense that it's all gone belly up. They did the classic mistake of blowing way too much on stock, fittings, cosmetics etc without thinking very much about customers, revenue and profit. They kinda thought it would all work out when it's only taken ~3 months for it to fall apart. As ever, they can't seem to find a way to last until the Christmas market kicks in.

As it stands the shop's in great condition and its had love thrown at it from all angles. Removing a big wooden unit, moving the main counter and painting a couple of walls is all that's required. Then a further £100-£250 of additional display fittings.

The location is slightly off the beaten track but it is very central and an ideal "destination" shop - click to collect, google places marketing etc. It's also on a commuter path.

Rates for 2013/14 are £0 and it looks as though they will be £0 for 2014/15 too as the rateable value is low (£4400). Signage is quoted at £500 for a vinyl graphic, text and plenty of window displays.

Deposit is £500, first month's rent up front is £500, legal fees are debateable because it's a let rather than a lease and my other half could take care of it.

Phone is already connected and there may be scope to pull the wool over BT's eyes to avoid a £140+VAT reconnection charge. Internet is a requirement, we're on VOIP phones here.

Alarm is as yet unknown.

Initial stock spend would be around £5000.

 

[groovyjon]

Does the shop trade 7 days a week? You'll want a day off at some point and getting the right staff to run things in your absence is key.

 

[joshgeake]

I'll plan to not be open on Sunday. Maybe around Christmas but see what the neighbouring shops do.

Make no mistake, the plan for this is for the ecommerce to prop the business up, the shop is just to pay the rent. Anything else is a bonus.

 

[Esk247]

Make sure you have a commercial solicitor to hand. They'll save you more than you pay them.

 

[deniser]

If your Ecommerce business is going well, I really wouldn't go into retail. If you are planning to operate the ecommerce business from the same premises you need to consider the following:
1. you can't serve shop customers, pack parcels, answer emails, work on the website and operate the customer telephone helpline at the same time. We came to resent the customers in the shop who might waste an hour of your time and not buy anything when you could have spent that time on the ecommerce business where there is endless stuff to do.
2. the shop really ties you down in terms of hours/days/weeks/months spent there. It becomes tempting to close sometimes but it becomes a slippery slope and people stop coming if they don't find the shop open when they come.
3. you can't pack parcels easily on the shop floor because it is too messy yet you have to stay on the shopfloor to watch out for shoplifters and they do steal a lot.
4. to sell things in a shop you have to take them out of their packaging, display them and price them up. This was the biggest problem of all because an ecommerce business relies on things being quick to pack up. It is a nuisance therefore to take the packaging off and store it to reuse again. Things also get dusty, faded and shop soiled and can't then be posted out to people. Stock counting becomes more difficult.
We did the opposite - started in retail and then closed the shop because it was too much hassle for little money and really got in the way of the ecommerce business which is where the real money is.

 

[Page]

If your Ecommerce business is going well, I really wouldn't go into retail. If you are planning to operate the ecommerce business from the same premises you need to consider the following:
1. you can't serve shop customers, pack parcels, answer emails, work on the website and operate the customer telephone helpline at the same time. We came to resent the customers in the shop who might waste an hour of your time and not buy anything when you could have spent that time on the ecommerce business where there is endless stuff to do.
2. the shop really ties you down in terms of hours/days/weeks/months spent there. It becomes tempting to close sometimes but it becomes a slippery slope and people stop coming if they don't find the shop open when they come.
3. you can't pack parcels easily on the shop floor because it is too messy yet you have to stay on the shopfloor to watch out for shoplifters and they do steal a lot.
4. to sell things in a shop you have to take them out of their packaging, display them and price them up. This was the biggest problem of all because an ecommerce business relies on things being quick to pack up. It is a nuisance therefore to take the packaging off and store it to reuse again. Things also get dusty, faded and shop soiled and can't then be posted out to people. Stock counting becomes more difficult.
We did the opposite - started in retail and then closed the shop because it was too much hassle for little money and really got in the way of the ecommerce business which is where the real money is.

Well saved me a post since this is similar to what I would have said but I would also say that what you are thinking of might work well provided that you do not try and mix the two staffing wise and if possible even stock wise - you must have someone always immediately available for the retail shop even if they do other stuff for "free" when there is no-one else in there and if ecommerce is dead and the shop is bust the reverse or to give cover for each other etc

And if you do do it split the phone numbers etc from day 1

 

[kulture]

Deniser, you are right, all are challenges. None insurmountable. I am with the OP here, it sounds like a good idea to use a retail space as a base with which to grow. So long as you know what you are getting in to and be aware of the challenges that Deniser has so accurately listed.

 

[Stuart Bailey]

why do you think let and lease are different?

 

[arcon5]

Particularly if you are a sole trader do not enter in to a lease without advice. The LL will by default seek a full repairing and insuring lease which if anything was to happen you could be liable - a major repair to a startup could cripple you outright.

 

[The Byre]

It sounds as if the whole thing is built on a certain amount of wishful thinking. Will there be extra trade? Will you minimise costs and improve margins? Will this help to streamline your business? It looks like a 'No!' to all those.

I would use the £500 a month that this shop would cost, to buy a bigger house with room for stock.

Or if you have the space, build a stock room onto your present house.

I would concentrate on adding equity and value to the present business, rather then getting involved in some new adventure that will only serve to distract you from your core task.

 

[kulture]

I could not disagree more with Byre. The idea is to increase the stock holding, grow the business, and thus increase turnover and profit.

I think that the idea of moving house just to expand a business is flawed.

 

[aogilvie]

Perhaps a little "off topic" but why not investigate using an e-fulfilment business to handle the space needs (and you'll get other benefits as well of course). I'd be tempted to cost that out first before getting too committed to the high street option. It might be a more "elastic" model when business increases further.

Either way - best of luck - good to see business is on the up.

alex
Seller Dynamics

 

[Tech4Homes]

I've considered a shop, but I think the only way I'd actually ever seriously consider it is if I could buy a shop with flat on a busy highstreet, rent out the flat and use the shop as a base for online orders and a front for daily passing trade. The theory would be that the flat rent covers the mortgage so running costs are minimal. This is how we currently run my dads business, the two flats pay for the two shops below and he owns the lot, means the business premises cost is negligible compared to what it would be if leasing.

The other option is to buy a shop with flat and live in the flat whilst building the business up as effectively keeping overall costs about the same as if renting out. May or may not be the right thing to do, but the above is how I'd tackle it.

However, I worked out that you could send about 80 items a day via a decent ecommerce fulfilment warehouse company before it starts to cost more than having a shop/warehouse + full time employee to do the work. Something to consider maybe? This is definitely the route I will be taking when big enough. You just have to find a decent and reliable company. My local company will process the order via my shop and pick, pack and dispatch for £1.30 per order. Or pick pack and dispatch for £1 per order. They appeared to have a very sleek operation from my walk round but I haven't actually been able to try them out yet.

 

[Paul Norman]

At Soleheaven we opened up a showroom to supplement our online sales. We did this about 3 years ago.

Our online sales continue to be 80% of our revenue, but the showroom does sell enough to cover its costs. It is out of town - more reasonable cost!

We needed warehouse space anyway, to carry our stock. The difference in cost between completely invisible warehouseing and the showroom was not, in the end, all that much.

The costs listed above, however, are about bang on, so don't forget to budget for them!

Three years on, we are just about to move to a larger showroom - we need double the storage capacity now.

 

[Hoppimike]

Wow well done!

I tried many times with e-commerce and never managed to get far off the ground due to the difficulties of increasing traffic. I am very curious as to how you managed to overcome that! I am pretty technically capable but still found it to be very difficult!

I have also given reasonably ambitious (indoor) market stall trading a go, and found that attractive shelving, good labeling, friendly staff, eye-catching display cabinets and so on go a long way and getting regular customers is always a great feeling!

Card payments may be tricky due to things like initial costs and monthly charges I think, but I must admit that's something I've never dabbled with in a bricks and mortar shop environment, only in e-commerce.

I wish you the best of luck!