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Owning a retail business has always been a key component of the American dream. Many successful businessmen throughout our nation’s history got their starts in retail merchandise. They may have started with single products or product categories but gradually expanded their operations to include many products or many stores. While the typical mom-and-pop stores of the twentieth century may appear to be fading into history, the opposite is actually true. Modern technology has made it possible for a small-scale entrepreneur to have a presence in the global marketplace. The following guide sheds light on how to navigate your way through the many aspects of owning a retail business.
Opening a retail business has never been easier with the connectivity the Internet provides among merchants and other businesses. There are many advantages to going into retail merchandise, such as being able to use personal knowledge and experience to help others, a practically unlimited profit ceiling, a recession-proof business model, and a discount on the goods that you provide.
Business Thrives Without Relying on the Economy
There has never been a better time to get started in retail. According to About.com, most retail stores saw decreases in sales numbers during the first half of 2009 but quickly experienced turnarounds by the second half of 2009. These numbers continued to climb as the sales increase pushed up through 2011. Even the U.S. Census Bureau reported that the U.S. Retail Industry had a second annual shrink in profits in 2009. Despite this quick slump, the industry is thriving again and prime for new establishments.
When you open your own retail business, you have the opportunity to choose whatever business type you want. If you have an incredible knowledge of stereo equipment or an eye for fashion, you can open up either type of retail business while still being fully secure in knowing that your passion for the product will only help in future sales.
Another advantage to opening a retail business that is part of a niche or industry you like is the ability to purchase products at wholesale prices. If you decide to open a car dealership, you will have the option to buy a new car at the absolute cheapest price possible. This is literally straight from the manufacturer because you have already established the purchasing accounts for your business previously.
No Profit Ceiling
Retail businesses and many other types of personally run businesses have the ability to work with an unlimited profit ceiling. When you own your own company, you don’t have to wait for a promotion from a boss or wait for a quarterly raise. Your work directly reflects the amount of money you make from the business. This is the greatest benefit of being part of a free market.
If you have a passion for a certain product or have the ability to produce one that isn’t on the market yet, then a retail business is the perfect solution for you. Whether your end goal is to consistently gain profit or to receive the discounts provided by having a retail company, you are sure to benefit from the process in one way or another.
When you open a retail business, you probably have a target clientele in mind. Throughout the course of running your business, this target clientele may change slightly or significantly. Because of shifts in consumer buying habits and the changes of your clientele, you have to exercise caution when you buy retail merchandise for your business.
Quality of the Products
The first thing you need to consider when buying any retail merchandise for your store is the quality of the product. You may come across deals on merchandise that fit in with the products your customers like, but if the quality of the products is subpar compared to the ones you normally offer, your customers may begin to associate your store with the lower-quality items and start looking for a new place to shop. Eventually, you will start getting in a clientele that doesn’t mind the subpar products because of their lower prices, but you have to determine if your business can survive in the interim.
Consumer Product Expectations
Along the same line of the quality of the product pitfall is the consumer product expectation pitfall. Once you have an established customer base, your business will be known for what it offers. Switching up the products you offer, even if you are only changing brand names, can spell big trouble for your business. Most consumers are creatures of habit, and most have at least a small sense of brand loyalty. For these customers, small changes to your product line may encourage them to look for another store to find the products they want. For example, if you offer a sporty clothing line by XYZ, switching to a sporty clothing line from ABC may send some customers to your competition that sells the XYZ sporty clothing line.
Buying retail merchandise has some hidden costs. Your supplier or vendor may charge a handling fee. Shipping costs are another fee. You will have to decide if you are going to let your bottom line cover the cost or if you are going to pass the cost along to your customers. Quantity discounts are sometimes offered, meaning you will pay less money per piece if you order more pieces. While this may seem like a good deal, if you can’t sell those extra pieces, it is usually a good idea to just stick to the smaller quantities, even if you have to pay a little more per piece.
Supply and Demand
If the retail merchandise you offer at your store suddenly becomes very popular in the market as a whole, you may find that your suppliers and vendors increase the price you have to pay per item. You then have to pass this cost along to your customers, who may not like you increasing the price of the items you sell. Again, you have to decide if you would cover the increased cost of your products for a short time while slowly increasing the prices to allow your customers to get used to the new prices.
The prices that manufacturers place on their products will determine whether or not a customer is willing to purchase them. If a product is priced too low, the manufacturer and seller will lose money. If the item is priced too high, consumers won’t buy the product and it will end up on the discount rack or will be discontinued. The seller will again lose money. When a product is priced correctly, the result will be increased profit. According to the international consulting group Deloitte, 10 of the largest retailers in the world are from the United States and Europe. In 2009, these retailers had combined sales of $1.15 trillion.
Cost of Goods
Costs include how much money it takes to make the product and how much it takes to purchase the item from a wholesaler. A retailer needs to know this amount in order to be able to mark up the price to make money.
Operating costs are also key to determining retail price. This includes any money that is used to manufacture or sell the goods. It can include payroll for laborers, marketing, or office supplies.
Owning a retail business is not without risk, but the potential for success is unlimited with the right approach. Because there is no profit ceiling, you can continue to build your income as you build your business. The ability to buy products for your own needs at wholesale prices is a definite plus.
Care has to be taken in product selection, and customer preferences must be taken into account. You don’t want to risk losing customers because Product B has a cheaper wholesale price than the customer’s preference, Product A. If your supplier or vendor suddenly raises prices for one reason or another, you may have to pass that price on to the customers, some of whom may then take their business elsewhere. If you can find the right balance between pricing and markup, however, your chances of thriving are very good.
Before you ever open the doors to your store or begin advertising an online shop, you must have retail merchandise on hand, which refers to products you sell. Department stores and chain stores use merchandising experts that watch trends and predict the items that customers want. Merchandising is especially important in clothing stores, as you order the clothing months before the season. You start stocking autumn and fall clothing during the summer season and should know what your customers want.
If you cannot afford an expert, then you must act as one yourself. Watch what your customers buy and make note of the items that sit on the shelves for months. Merchandisers also determine the price of an item on the shelf and base the price on the demand and the cost paid. The cost per unit refers to the cost you pay for an item, which includes any shipping.
The price of your merchandise must cover not only your wholesale cost, but also any other costs associated with running a business. Rent, gas, electric, and payroll are just a few costs that come from your overall profit. Unless you make enough profit on everything sold, you cannot pay your costs.
For more information on retail merchandise, please see the links offered by Business.com, your number one business source.
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