Considering Options - Open a Shop or Not

[JMRidley]

Hi,
We launched our on-line business last year and have been doing fairly well with turnover having exceeded our expectations in the first 12 months. We are currently running the business from home but are starting to outgrow this and so thinking about moving to business premises. We have looked at rents for commercial units on an industrial estate, but are wondering if we should take the plunge and go for a shop on our local high street so that we can build a customer base locally as well as continue to develop our online customer base. We live in a fairly busy market town with limited competition for the product ranges that we offer. Does anyone have any advice on how we can find information on potential footfall, turnover etc.? Also, is there anyone out there that has had success opening a shop in the current climate. Any advice/experiences would be much appreciated.

 

[Merchant UK]

Opening a shop is cool but you need to remember that even though the rent might be low the rates will kill you, unless you have efficent turnover!!

 

[kulture]

Glad to hear that business is good and you can expand. The choices you have are warehouse unit vs shop. This choice will affect your business and how you expand and many many unforeseen consequences.

On a simple financial comparison it is likely that the warehouse unit will be cheaper, if you can find one suitably small. Having a warehouse unit means that your business continues mare or less as now. You just have more room to play with and more stock. You get to choose the hours you work and you can decide to go down the beach/whatever on a sunny day once the work is done.

A shop on the other hand is likely to cost more, but perhaps earn you more. It does however mean a significant change in the way you work. First you will have set hours. The shop opening times will tie you down. Second you will need the right layout so you can see the shop whilst picking and packing orders. (or employ someone). Third customers in the shop will inevitably interrupt the order processing (both good and bad, it is nice to have interruptions sometimes). Forth seting up and displaying stock in a shop is very different to piling it up in a warehouse. It takes more room to display less.

Having a shop means that you have face to face customers, they will give you new ideas and ask for different things. It can be easier to have sales and sell off old tired stock. You get to have shoplifters. It can also help online sales. If you have a shop, it can encourage more people to trust that you are a reputable business and thus buy.

I am not sure if you would be a passing trade shop (where people wander past and pop in) you may be a destination shop (where people seek you out as they are looking for something in your niche. If you are more of a destination shop then footfall is not as important. Being near a car park or having your own parking may be better.

On the one hand it is a number crunching exercise to see if a shop will be more profitable than a warehouse. On the other it is a decision regarding the direction of your life as well as your business,

 

[kulture]

Opening a shop is cool but you need to remember that even though the rent might be low the rates will kill you, unless you have efficent turnover!!

Regarding rates. These tend to be less than the rent! Also if the RV (rateable value) is less than £7000 ish there is 100% relief on the rates. It is however ALWAYS best to check.

 

[JMRidley]

On the one hand it is a number crunching exercise to see if a shop will be more profitable than a warehouse. On the other it is a decision regarding the direction of your life as well as your business,

Thanks for taking the time to respond and you make some good points. It's the number crunching really that we are having trouble with. We currently have no idea what to expect from a shop re turnover. I've looked on businesses for sales sites for small shops which often give the turnover. We sell quite a range of things rather than, for example, being a toy shop or a children's clothes shop so it's hard to find a reasonable comparator. Looking at toy shops/gift shops for sale, turnovers seems to be in the region of 100k - 3/400k for a smallish shop in a smallish town. It wouldn't be worth us considering a shop if our turnover was in the lower part of that range.

 

[deniser]

Looking at toy shops/gift shops for sale, turnovers seems to be in the region of 100k - 3/400k for a smallish shop in a smallish town. It wouldn't be worth us considering a shop if our turnover was in the lower part of that range.

I think you will find that those are at the more successful end of the market. These are the businesses that are actually saleable.

For each of these, you will find another lot who can't even break even.

Kulture addresses all the points well. We discussed them also a couple of days ago in relation to a business supplying equipment for horses and it would be worth searching for that thread.

For us, by far the most important issue was that of being tied to the shop v. the flexibility that an online business gives you, especially if you have children.

 

[Philip Hoyle]

turnovers seems to be in the region of 100k - 3/400k for a smallish shop in a smallish town.

That does seem quite a high expectation. There are plenty of shops at the lower end of that range and plenty who aren't even VAT registered (meaning turnover of under £73k).

Depends on what you're selling of course. If, say, you were selling furniture at £1k per sale, then it's easily do-able, but if you're selling toys at say £50 per sale, then it's a hell of a lot of sales to make a decent turnover which means more staff and tills.

What I like to do with new start ups is to work bottom up from the shop floor. I.e. get their estimate of the "average" sale value, then get their estimate of average number of buying customers on an hour-by-hour and day-by-day basis, to allow for virtually no customers on a Monday morning and being busy on a Saturday morning, for example. Then multiply them out to arrive at daily, weekly, monthly and annual turnover. This can all be done by a relatively simple spreadsheet with variable base assumptions so you can play around doing "what-ifs" - what the experts would call sensitivity analysis etc! So you pre-program it with say 40% of daily turnover between 12 and 2, 10% of turnover between 9-12 and 40% between 2-5, etc., then for days, you may say 20% Saturday, 15% Friday, 10% Mon & Tues, 15% Wed, Thu, Fri, which may well link in to number of staff needed on an hourly/daily basis. I.e. you don't want all staff in on a Monday morning, but need as many as possible on lunchtimes Friday and Saturday, etc. If you have a diverse product range, you can replicate this model for different ranges to account for different average sales, different sales profiles, different margins, etc. Sounds complicated, but it isn't really. The key is to identifying the core data assumptions which will change and have everything else linked to them so you only make a change once and it feeds through.

You just have to remember that this isn't really an estimation tool - your actual sales will never agree with the forecasted figures. The whole purpose is feasibility - i.e. it is really feasible to achieve £200k p.a. of sales from your product range, shop size, number of staff/tills, etc. It will give you an illustration of how many customers you'd need and what their average spend would need to be, to achieve your turnover and profit expectations. This is a point lost on too many people who either get upset because their actual figures don't match the estimates, or they just don't bother doing any forecasts or models because they know that the actual figures don't magically appear just by doing a forecast - the point is that it's a model to see if the figures stack up and what they have to do to make the figures work.

You'd be surprised at how low the turnover estimations come out at doing it bottom-up, sometimes less than half the estimate was by doing it top-down. I've seen some businesses where it was physically impossible to achieve the turnover the owners were expecting due simply to not being able to serve enough customers given the number of staff, tills, changing rooms, cafe tables or whatever. This is especially true when they see another business turning over £x and assume they can do the same, but completely miss the fundamentals of larger premises, more cafe tables, more tills/staff, more changing rooms, different product range, shorter opening hours, or whatever.

 

[RBS]

Hi,
We launched our on-line business last year and have been doing fairly well with turnover having exceeded our expectations in the first 12 months. We are currently running the business from home but are starting to outgrow this and so thinking about moving to business premises. We have looked at rents for commercial units on an industrial estate, but are wondering if we should take the plunge and go for a shop on our local high street so that we can build a customer base locally as well as continue to develop our online customer base. We live in a fairly busy market town with limited competition for the product ranges that we offer. Does anyone have any advice on how we can find information on potential footfall, turnover etc.? Also, is there anyone out there that has had success opening a shop in the current climate. Any advice/experiences would be much appreciated.

What is the reason you cannot operate from home? Storage space? Need for proper office? etc?

 

[JMRidley]

What is the reason you cannot operate from home? Storage space? Need for proper office? etc?

We don't have enough storage space which is now constraining our ability to grow further. Added to that it feels as though the business has taken over our home and we would like to be able to separate the two.

I think we definitely need to find premises and the choice seems to be between growing the business as purely on-line (for which premises on the local industrial estate would probably be fine) or growing the business as a shop and on-line business. I must admit that the idea of building a customer base in the local community appeals a lot more than running a warehouse/packing/shipping operation on the industrial estate. We would like to enjoy what we do and aren't looking to make a fortune. We do need to be reasonably confident though that the shop option is financially viable and won't undo the work we have done so far to get our business going.

 

[RBS]

If its purely storage - could you build extension to your house? Convert garage?

 

[the9to5escapeplan]

There are so many things to consider when opening a shop. By far the most important thing to spend your time on is Market Research (what you are selling & to whom? Best outlet? Physical shop? combine with Online? Shared space (outlet) or a combination of the above?)

With a Physical Premises things to consider would include- Location, Footfall, Competition, Size (now and future – room to grow), Lease or buy, Exclusion Clauses, Parking, Deliveries, Rates / Utilities / Service Charges, Accommodation, Security, Equipment, Fixtures and fittings (shop fit out)

The more time and effort you spend researching the above the more you reduce your risk.

Good luck

 

[kulture]

Good idea, research, like looking at the date of he thread and noticing that it is a year old.

 

[the9to5escapeplan]

Many people read threads of topics they are interested in- If the original post is a year old but the information will be of use to new readers that has to be to their benefit.

 

[kulture]

Yes, but its against the rules of this forum to re-open old threads. Questions like this are asked repeatedly. So your reply could easily wait until a more current thread comes along.

 

[simonswords]

Hey, this is a nice problem to have which makes a nice change.

Having worked with retail outlets and warehouses in the middle of nowhere that don't have a shop presence, I can pretty much guarantee you that the warehouse in the middle of nowhere will be less profitable.

Is there a middle ground here? Could you partner with an existing shop to sell your wares through them and pay them?

If you go down the shop route you'll find that lots of shops in the highstreet are sitting empty now and landlords will do (almost) anything to let them, so if you do decide to get a shop haggle with the landlord like your life depends on it.

Good luck

 

[grazzenger]

Good idea, research, like looking at the date of he thread and noticing that it is a year old.

sarcasm from a moderator - how useful and welcoming.