How much do you realistically need to be turning over to operate a high street store

[BlackMagicX]

Hi,

We've considered opening a retail store for our business instead of warehousing and importing as the next chapter in our venture, but when researching the actual costs of operating a retail store the only thing we seem to find is doom and gloom on the high street. I understand this may apply to general stores, but in our case, we'd be the only store within miles selling our specialist products. It also eliminates the risk of us holding lots of stock. We can order in, as and when we need and continue to dropship through our ecommerce site (Our products are fairly bulky).

So far I've found expenses such as business rates, staff costs, fitting, EPOS, Bills, Rent etc, but it still doesn't give me an idea of what kind of turnover a shop needs. 50k, 100k, 200k?

So my question is, what is the average turnover of a successful independent high street shop. Is it just a no go, or is there still value in operating one?

 

[Scott-Copywriter]

There is no average. But it's a completely meaningless figure anyway.

Expenses can differ by an order of magnitude depending on location, size, fixtures and fittings.

Profit margins can also be drastically different. A low-margin shop may need double, triple or quadruple the turnover of a high-margin shop to be viable.

You need to work out the maths that are specific to your circumstances. Find a shop you like, tally up all the costs, factor in expenses, factor in your margins, and then calculate exactly how much revenue you would need to bring in per week to break even.

From that, you can take your AOV and work out the average number of daily customers you would need so you have a handle on how busy your shop would have to be.

I do understand the temptation to look for a benchmark of some kind, but with such major circumstantial differences, that would probably do more harm than good. You asked if there's still value in operating a high street shop. The answer is that there's still loads of value for some businesses, but absolutely none for others.

 

[The Byre]

As Scot implies, it's a case of "How long is a piece of string?"

You don't need me to tell you that most one- and two-man little shops are not really businesses, but rather binding and tedious places of work that pay remarkably little. Anything under c.a. £150,000 with a 50% mark-up (i.e. about £75,000 gross mark-up) is a place of work and not a real business.

That assumes about £10,000 rent and another £10,000 in other fixed costs, such as rates, insurance, utilities, etc. That gives two people an income of sorts and leaves just £10,000 to cover all other costs such as loans, breakages, equipment replacement and all the other things that keep rearing their ugly heads.

So the short answer is, that you need about £75,000 in annual gross margin for two people to live. North of that figure, some genuine gross profit may be found between the cracks. The problem is, as you head North, staff costs, rental costs, rates, utilities and just about everything else, heads North with you!

Groceries are different, in that they are low-margin - Lidl recons about £200,000 turnover per employee, of which about half are part-time. 32 employees per shop, inc. HQ staff and £6.5m TO per shop.

 

[BlackMagicX]

As Scot implies, it's a case of "How long is a piece of string?"

You don't need me to tell you that most one- and two-man little shops are not really businesses, but rather binding and tedious places of work that pay remarkably little. Anything under c.a. £150,000 with a 50% mark-up (i.e. about £75,000 gross mark-up) is a place of work and not a real business.

That assumes about £10,000 rent and another £10,000 in other fixed costs, such as rates, insurance, utilities, etc. That gives two people an income of sorts and leaves just £10,000 to cover all other costs such as loans, breakages, equipment replacement and all the other things that keep rearing their ugly heads.

So the short answer is, that you need about £75,000 in annual gross margin for two people to live. North of that figure, some genuine gross profit may be found between the cracks. The problem is, as you head North, staff costs, rental costs, rates, utilities and just about everything else, heads North with you!

Groceries are different, in that they are low-margin - Lidl recons about £200,000 turnover per employee, of which about half are part-time. 32 employees per shop, inc. HQ staff and £6.5m TO per shop.

Thanks, so really it's a gross margin game. Even owning a shop means importing would still be the obvious option for a/our shop. Most UK distributors we work with operate on a 30% margin and that's pushing it in some cases. This strategy doesn't seem viable to me.

Who made it so difficult to open a shop? lol

 

[Mr D]

A few years back at a business link seminar a speaker gave a rough rule of thumb he used.
For every thousand pounds you want to use to cover costs, take four thousand pounds in sales.
Costs being rent wages insurance etc but not stock.
That coming from the rest of the four thousand along with vat.

 

[bovine]

I suppose it depends what you are selling. You mention its fairly specialised. Then do you need a high street shop? How about an outlet attached to your warehouse?

My shopping style now is I will do most of my specialist shopping online. My hobbies, buy online (sometimes import from abroad direct). Any IT, online. If i need something quickly, online still works, but might somewhere online and then hop in the car. If I can avoid high street, great because its harder/more expensive to park and often has higher prices in store.

If having a high street presence dramatically improves margins or sales, then it might be worthwhile, but there are probably better options.

 

[BlackMagicX]

I suppose it depends what you are selling. You mention its fairly specialised. Then do you need a high street shop? How about an outlet attached to your warehouse?

My shopping style now is I will do most of my specialist shopping online. My hobbies, buy online (sometimes import from abroad direct). Any IT, online. If i need something quickly, online still works, but might somewhere online and then hop in the car. If I can avoid high street, great because its harder/more expensive to park and often has higher prices in store.

If having a high street presence dramatically improves margins or sales, then it might be worthwhile, but there are probably better options.

Our products probably fall into 'Automotive' category, mixed in with hobbyist children's products. We cater for a specific niche, and roughly 50% of our inquiries involve a request to visit and see the product before hand. We currently sell out of a container, but we don't hold enough variety there to satisfy our inquiries, not to mention it's appointment only and we have no card machine.

My wife talked about opening a shop, ignorantly, but working in online retail, I understand that this is not as easy as it sounds. It would help increase our sales, but would it be enough as a next stage. It could literally kill the business in a year, when right now it's plodding along nicely with hardly any effort and low overheads. It's just that right now, it's not scalable and is a side income rather than a business. I want to quit my day job lol

 

[Mr D]

So for you the location is not so important as it is for someone solely relying on foot traffic?
Can get cheaper rent if not in high footfall area.

Converting those who want to see the product on a visit into buyers could that be worth the cost of a shop?

 

[BlackMagicX]

So for you the location is not so important as it is for someone solely relying on foot traffic?
Can get cheaper rent if not in high footfall area.

Converting those who want to see the product on a visit into buyers could that be worth the cost of a shop?

There lies the dilemma. Do I become a showroom, away from the high street with reduced costs to convert my online inquiries. Or do I become a high street store and potentially attract new customers because of increased footfall? The latter will require less marketing, and our products are a window shoppers dream.

Competition in our space operate from a showroom/warehouse outside of a town, but they are all importers who store and deliver themselves. I don't hold any inventory, and if I were to, it would be to fill a shop based on Analytics data etc. Importing would be too big an investment.

 

[The Byre]

Buy a small shop freehold and at least that way you are building up equity in the property.

Who made it so difficult to open a shop? lol

You did! Well, you are all the others who sell on-line! Add to that, greedy councils, greedy utility companies and greedy landlords.

 

[Mr D]

There lies the dilemma. Do I become a showroom, away from the high street with reduced costs to convert my online inquiries. Or do I become a high street store and potentially attract new customers because of increased footfall? The latter will require less marketing, and our products are a window shoppers dream.

Competition in our space operate from a showroom/warehouse outside of a town, but they are all importers who store and deliver themselves. I don't hold any inventory, and if I were to, it would be to fill a shop based on Analytics data etc. Importing would be too big an investment.

Then perhaps a shop doesn't suit you.
Analytics data can show what has been purchased, does not mean its what you will be able to sell locally.

 

[billmccallum1957]

we have opened two shops in the last three years, both cost less than £15K rent, rates are minimal (didn't pay any rates in year 1 when we only had one shop under the UBR threshold).

we don't have EPOS, we use bog-standard tills, we don't take debit or credit cards, only cash.

turnover is under £150K, but we net 30%. That's after 3.5 fte equiv. staff salaries.

The right location at the right price can pay off.

 

[japancool]

RC cars?