I took a tour around my town's main street last weekend and saw several recently emptied storefronts. It reminded me of a basic truth of retailing: Having a physical store costs a bundle.
Not only can the expense of keeping up a storefront smother a budding business, established chains often flounder when they have too-big or too many stores. Case in point: the once-mighty movie-rental chain Blockbuster declared Chapter 11 bankruptcy last fall and was recently sold for a bargain-basement $320 million to business ally Dish Network, after closing more than 1,000 stores. Blockbuster's huge footprint hobbled its ability to ride the change wave to digital downloads, and the chain buckled under the weight of its leases.
Whether you already have a brick-and-mortar location or you're just thinking about opening up shop, here are some questions to ask yourself:
- Can you afford the rent? Many retail-rent contracts are fixed, which you'll have to pony up no matter how much you sell. If you don't have enough cash to cover that nut at the outset, think twice. If you do, shop around for the best rental deal -- some landlords are highly motivated right now and might give you a few months free, or you may negotiate a variable percent-of-sales clause to help you get started.
- Do you understand all the build-out costs? Low rent can lure a new retailer in, but don't forget to figure the costs of turning that empty shell into the store you envision.
- How do you feel about standing on your feet 10 hours a day? When you've got a store, someone has to be there ready to help customers. And when you're just starting out, that someone is almost always you. To get a taste of the retail lifestyle, try volunteering at a local store for a day.
- Will the location bring in foot traffic? Time after time, I see retailers make mistakes like opening an impulse-driven concept such as a candy store on a little-trafficked corner. Instead, make your future store's visibility a priority.
- How much business do you do online? If your business does well online, maybe you could save on overhead and remain virtual. Products that don't cost a lot to ship may thrive online and never need a retail outlet.
- Could you start small without a store? If so, do it. Before you open a restaurant, for instance, consider renting a commercial kitchen space part-time and do some catering. See if a buzz forms before you spend $300,000 or more remodeling that former pizzeria you've been eyeing.
- Could you team up, or piggyback? Rather than take the plunge alone, see if you could combine forces with several similar merchants and rent one space. Alternatively, place your products in an existing retailer's store. Or, you might rent a cheap kiosk space within an established store.
- Is this just an ego trip? Some entrepreneurs don't feel like they've "arrived" without opening a storefront. Try to keep personal feelings separate from the business realities and evaluate whether a store makes financial sense.
Is real-world retail right for you? Leave a comment and tell us why brick-and-mortar retail works for you -- or doesn't.
Correction: An earlier version of this post incorrectly stated that DirectTV purchased Blockbuster. Dish Network purchased the company.