Articles Retail & E-commerce

How to create a profitable retail store?

January 26, 2016
retail store

Creating a retail store in fashion or luxury that recoups the often very high initial investment cost can be a scary endeavour, be it for the fledgeling wholesale operation or start-up brand, or even the established heritage company that wants to break into another market. A couple of key things have to be considered before pumping money into a project like this:

Optimal retail store location

retail store

It’s all about location, location, location. Like in retail investment, the right location for the right product will elevate sales or crush the business. The goal here must be to find a location that attracts a lot of foot traffic from the right kind of ideal customer. For fashion, it could be the eco – conscious hipster, the rich and famous on a luxury shopping spree or the price sensitive mainstream consumer who goes for high street brands. But how can we find a location that attracts high numbers of these people? Pretty much two methods on opposite sides of the price spectrum:

1) Hire an agency to find the right spot or 2) Look for neighbourhoods and districts which already have successful competitors or similar offerings to yours. A retail specialised agency can provide you with a cross-referenced analysis of traffic routes, median incomes of people frequenting or living near that area and average food traffic that will pass your store every day. For high profile investments (luxury flagship store opening) the costs of using these agencies can often pay out later. For anybody else, it usually boils down to hands-on research about established shopping districts, rental prices as well as spending couple days in a café near the desired location to get a feeling for how many people a particular street attracts.


retail store

Will the store require a lot of space to showcase product? (Selling cars, suitcases or audio equipment will usually require more space) How much space will the displays, windows and changing rooms / consultation desks take up? Is there enough space in the back to host an office or storage room? These questions will not only affect overall costs but also can affect the climate of the whole store. Luxury, for example, is usually associated with comfort, space, timelessness and abundance. So lots of comfortable seating opportunities, no overcrowding and space to move around are essential for creating this vibe. A vintage fashion boutique, on the other hand, can be a bit smaller, packed with racks of dresses and shirts, decorated top to bottom and still bring in a lot of money because it fits the flair of the brand.

 Visual Merchandising

retail store

The role of how to arrange and decorate a store and create engaging windows is an artform. The key goal here is to make the products shine and showcase the identity of the brand to the people who come to the store while making optimal use of the available space. It takes a creative spirit and keen eye for angles, colours and patterns to make a sales floor shine.

Retail Talent

retail store

Hiring the right people is probably the second most important factor right after the location. I can not count the times anymore where I was greeted by bored, rude or suspicious sales people. Hiring the right people is probably the second most important factor right after the location. I can not count the times anymore where I was greeted by bored, rude or suspicious sales people who thought I had come to steal either their products or their “precious” time. Even though some sales theories exist that state that snobbism in luxury can increase sales by attacking the ego of the customer I wouldn’t recommend it. There is already enough negativity in the world without playing on people’s insecurities or inflated egos.

Staff, in a nutshell, has to be trained, look the part (which often is a problem in terms of hiring bias), be well groomed and be happy with working in sales. Retail sales have a bad rep for being high turnover jobs that drive most people insane, the reason being that the staff doesn’t get the proper mentoring and coaching that high-quality service requires. Hiring attractive but unmotivated people and stressing for sales targets leads to high staff turnover and hiring costs, not great service.

Overhead costs

retail store

Last but not least everything comes back to the finance part. After adding up rent, bills, salaries, cleaning/upkeep, buying stock and setting up visual merchandising and windows how much sales must the store make in a certain time period to break even (or even better, earn profits) before the initial start capital runs out? How long can the store run negative numbers (if the market is weak, seasonal fluctuations, lack of tourism etc.) before the initial principle is eaten up by the total costs? And how high must the product margin be, to support the business and grow it over the long term? A good store manager and his senior management (or the owner of the store) MUST have the answers to these questions. And if the answers are not satisfying, one should think twice before opening a store. But if the math adds up, the forecasts look good and there is demand, a retail store can be a very profitable business.

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