What is it?
The retail industry is vast. Retail covers everything from the tiny village shop where the owner knows every customer by name, to the giant department stores on London's Oxford Street. The industry ranges from shops you can walk into, to shops you can browse with a mouse and keyboard, with every market stall and mail order catalogue in between.
According to a report commissioned by the Department of Trade and Industry in 2003, retail sales topped £221bn in the UK, employing around three million people and making up around 12% of the entire UK economy. We live in a consumer-driven society, where shopping often constitutes more of a hobby than a genuine need to purchase products.
However, despite the healthy contribution to the economy that the UK retail sector provides, consumers are becoming more and more convenience driven, with the internet and superstores often providing an easier alternative to hunting out bargains on the local high street.
According to official statistics the number of VAT registered retail enterprises has fallen from 215,170 to 182,475 over the last 10 years. Not the best picture to paint for someone thinking of opening their own shop. It would be hard to argue that large supermarkets stocking everything from a pint of milk to your new television haven’t had an effect on the smaller independent retailer.
However, in many areas the small specialised shop offers shoppers the advice and expertise that a big superstore just cannot provide. If you can find the right product to sell, in the right location, the Tesco down the road doesn’t have to be the death of your business. The important thing is finding a niche.
Of course online retailing has exploded onto the market in the last few years, providing much speculation about the future of the high street. But for the moment, people still like to ‘try before they buy’ and being able to showcase your product – allow customers to pick it up/ try it on / have a feel of it – can work in favour of the retailer who sells out of a shop.
If you are more interested in online retailing, keep an eye out for our ‘online guide’ which should be appearing on the site soon.
Who is it suited to?
Most people who have set up their own shop well tell you about the strain on your time. As with setting up any business you will have to dedicate a big portion of your days, night and weekends to getting your research and planning done, so you need to be someone who can manage time effectively. But ploughing yourself into the business for 24 hours a day might not be the best way to go about things.
Julie Goodwin has been running her Natural Health store in Hertford for a decade and has recently opened a second shop. “When I first took on the shop I was working everyday, but I quickly realised I needed a day off. I took the decision to close on Sunday even though I’d take in less money. I keep Sundays for home now and completely cut myself off from the shop that day.”
Dawn Burden and her mother set up My Small World, a specialist toyshop in Bath. She agrees that although you have to be prepared to work hard, you also have to set aside some time to relax.
“People say you have to work 24/7 but I don’t think that’s necessarily the best way of going about it,” says Burden. “You have to be organised and give yourself time with your family otherwise what’s the point.”
One thing that both Burden and Goodwin are positive you need to run your own shop is passion. “You’ve got to be passionate about things and believe in the products you’re selling, otherwise it shows,” says Goodwin. “It’s much more than just a job – you have to live and breathe it.”
Burden agrees that unless you’re really enthusiastic about what you’re selling, you will find it too hard to convince others to buy from you.
Teresa Andrew runs the successful butchers Andrews of Bourne. She says it’s crucial that you can deal with the public. “We offer a personal service – unlike the supermarket. You do get a lot of people that come in for a chat or some advice – and it’s not always about the meat!”
Andrew is also keen to point out the importance of co-ordinating your time and skills. “When you first start it’s very much like learning to drive. There are so many things to remember and you wonder how on earth you’re actually going to manage to work them all out.
“But all of a sudden it all sort of clicks into place.”
Finding the right premises
Location will determine a lot when it comes to what kind of shop you’re running, and how successful it will be.
Neil Thompson is an account manager at Business Link, providing start-up advice to individuals. He says the product or service that you are selling will determine where you have to be positioned geographically. “If you have a unique product then your location isn’t so critical, it’s more about making people aware that you exist. For example, if you’re selling a unique piece of jewellery, customers will come to you. But if your shop is selling a tin of beans and they’re available on every street then you’ll need to have people passing your store all day.”
Thompson says access to good quality retail units is very difficult, as there’s a lack of decent premises and they’re simply not being built. When Burden was looking for a location for My Small World, she spent a long time looking for, and researching, the right spot.
“Even when we found this shop we weren’t really sure,” she says. “We spent a long time just sitting in the shop and looking at how many people were passing. We bought a lot of market research reports which weren’t cheap but were worth it. They gave me an idea of what footfall I should be expecting so I could judge what premises would be too expensive.”
Teresa Andrew had already made up her mind that her butchers in Bourne had to be located near her brother who owned the local slaughter house so she could trust her supplier. “I started off looking at the classifieds and then realised there were business transfer agents that specialised in selling businesses. I contacted them, and probably looked at about 20 businesses within about a 40 mile radius.
“The population of Bourne is only about 12,000 but my shop is in a precinct between a car park and the main shopping high street so we get about 5,000 people a week walking past the store.”
Thompson says it’s always a good idea to just camp outside a premises and do your own footfall research before committing to a location. He suggests recording footfall over varying days over a four-week period.
Thompson says that one of the most important pieces of advice he gives his clients is to try and negotiate a 12-month lease with the landlord. “Within a year you can usually gauge whether or not it’s going to be a valuable business. If your lease is longer than 12 months then you could be liable to pay rent for several years – and if the business doesn’t work out then that can be a very expensive situation.
How much does it cost?
The cost of premises is obviously something you need to consider very carefully. Your turnover needs to greatly outstrip what you’re paying on rent or mortgage of the shop. The location of your shop will determine how much you pay on to rent. For example, around 800 SqFt on the high street in Chester will cost about £22,000 a year to rent. However, the same amount in space in central Manchester can top £100,000.
Julia Minchin owns Hippychick, a children’s retail business in Somerset. “I don’t think you’ll find anyone setting up a business who doesn’t want to make money so margin is absolutely key. Keep your overheads down in the early days. Watch your costs and maintain your margins.”
Your biggest expense after the cost of the stock will most probably be staff costs – unless, that is, you are running the shop on your own. It’s very common for staff wages to make up 8-10% of all your costs, and with a high turnover of staff in the sector due to the relatively low wages, you may need to set aside a regular allowance for recruitment and training.
If you are buying an existing business remember to factor in an amount for goodwill. This is the amount designed to cover the previous owners work in building the business up in terms of reputation and customer base. There’s no set amount here – you’ll just have to negotiate with the seller.
When Julie Goodwin bought her first store, which was already a health shop, she paid about £9,000 for the stock, and a further £2,000 goodwill to the previous owner.
Unless you are buying a beautifully presented shop you will probably also need to spend a fair bit on refitting and signage. Dawn Burden has all the shelving and display furniture in her Bath toyshop made bespoke when she started the business.
Burden says the first couple of thousand she spent on the business was for market research. “We didn’t want to be in the dark about the kind of people that would come to the shop.”
Neil Thompson of Business Link says there is a lot of market research out there but it can be quite costly. “The larger documents can cost thousands in certain cases,” he says. However, if you go through organisations such as Business Link, certain sections of the documents can be singled out for a lesser cost depending on what information would be useful to you.
Teresa Andrew said buying an existing butchers was the only way she could afford to open. “If you wanted to set one up from scratch you’d be looking at £100,000 at least because of all the equipment involved.”
When she opened the butchers back in 2000 she got a bank loan for £66,000 which covered fixtures and fittings as well as giving her some working capital. She now turns over between £150-200,000 per year.
You will also need some kind of till system. An electronic point of sale (EPOS) system can give you sales information, and keep track of stock levels which will help with inventory and projections. A small individual unit for smaller shops can be bought for a couple of hundred pounds but for a series of units networked together, cost can run into the thousands.
As with any business property you will also have to pay business rates to your local authority, and it’s important to factor in the cost of building and contents and public liability insurance.
Rules and Regulations
There are certain legal acts that apply to businesses which trade in goods and products.
One of the most important of these acts are The Sale of Goods Act 1979, Supply of Goods and Services Act 1982 and the Sale and Supply of Goods Act 1994. This is the main legislation governing the retail industry. The main requirement of these acts is that goods sold are as described and of satisfactory quality. The seller, not the manufacturer is responsible if goods do not conform to these contracts.
All of these acts are subject to amendments, orders and guidelines so you’ll need to keep up-to-date with them once you’ve started the business.
More detail on these acts can be found in the Department of Trade and Industry factsheet, Trader’s Guide: The Law Relating to the Supply of Goods and Services.
As with any business where you take on staff there are regulations and laws you must adhere to as an employer, including paying your staff the National Minimum Wage. It also goes without saying that your premises must comply with health and safety standards.
The Disability Discrimination Act also requires service providers, which can include local shops, to make ‘reasonable adjustments’ to allow people with disabilities to have access. However, this does not necessarily mean a small shop is bound by law to, for example, install ramps or hearing loops. A reasonable adjustment for a large chain of department stores will not be the same for a small local shop. The point of the law is to make practical adjustments based on the means and resources of the shop.
“You have to be very proactive about keeping on top of new laws that come in,” says Goodwin of Natural Health in Hertford. “Regulations is one of those things you have to keep up to date with on a day to day basis. It wasn’t really so much of an issue until I took on the second shop but keeping on top of staff issues can be difficult. I’ve been caught out on contract issues in the past so now I make sure a solicitor checks things over.”
Neil Thompson says it’s important to get all your planning in order and make sure you have enough funding to cover you for the first few months until you start to bring in money.
“You need to work out exactly how much everything is going to cost before you even start. Once you’ve got your estimates done, then you’ll know if you need more capital, and that’s the time to ask the bank for a loan – not when you’re six months in and have run out of cash – the bank will not rate your business acumen if you do it that way. But if you go in there with proper projections then you’ll have more credibility in their eyes.
“So many times I’ve seen people with a lump sum of money from redundancy pay that they’ve ploughed into the business and then they run out half way through. The planning process makes you think about the business. It opens your eyes to what it’s really going to involve.
Teresa Andrew had been teaching NVQ business studies before she started her butchers, which she says gave her a brilliant grounding because she used all the skills she’d been teaching on the course.
Dawn Burden also put herself on a business course before starting. “I thought it was important to get as much information as possible. The thing about starting a business is, if you look at everything as one big project it becomes really daunting. But if you take things one step at a time you start to get things organised.
“Take everything as a learning curve. It’s fine to make mistakes but it’s not ok to make the same mistake twice. There’s no harm in being an amateur – we got advice from everyone – there’s so much help out there if you’re not too proud to ask for it.”
You should also try to get the right systems and staff in place from early on as it can save you a lot of time and money. Julie Goodwin says the hardest thing she found getting to grips with was bookkeeping. “After a couple of years I took on a bookkeeper and she’s worth every penny,” she says. “That kind of thing was never my forte and now I don’t to worry about paying invoices or anything like that.”
Burden says she made the same mistake of not getting in a bookkeeper early enough, but it also took her a while to make the most of her till system. “We would have saved a lot of time and money if I had had a few more lessons in how the EPOS system can help run things.”
Competing with online retailers or the major supermarkets can be a struggle but you should remember what it is that you can offer your customers that they can’t.
“Retail is changing rapidly,” says Burden, who has recently launched a website to go along with her store in Bath. “Keeping on top of that is really important. Talk to your customers all the time – ask what they like and what they don’t. Loyalty cards in the supermarkets are one thing but you can’t beat personal service.”
Teresa Andrew says being a small independent retailer can allow you to react much more quickly to what your customers want than the supermarkets do. “If we have a freak heat wave I can have barbeque products prepared and in the window in a couple of days. The supermarkets can’t respond that quickly.”
So keeping ahead of the game is crucial if you want to survive as an independent retailer. The little touches can make all the difference. Julie Goodwin recently started charging for plastic bags in an effort to help the environment. The scheme has proved successful and is getting people talking about the shop.
“You can’t sit still,” says Goodwin. “The supermarkets are only a year or so behind us so you have to be constantly looking out. You have to actively seek out new products and think ‘what’s going to be the next big thing’.”
British Retail Consortium
020 7854 8900
British Shops and Stores Association
01295 712 277
Department of Trade and Industry
Government guide to business rates
The Alliance of Independent Retailers
01905 612 733