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May 4th, 2007, 11:58 AM #1To Brick & Mortar or Not to Brick & Mortar...?
We started Black Cat Mining in November of last year and the response from the market has been pretty awesome. That said, I'm thinking about opening an actual retail storefront. It's a corner space on a busy, busy street (main one in the town), and there aren't any similar shops for many miles.
Yes, I know, spending all these years online only to move some of my energy offline isn't really the normal progression for online marketers, but I think it could work for me...
Anyway, I've not owned a retail shop before and don't really know all the potential hidden costs. The obvious rent, equipment, initial construction, utilities, insurance, security system, etc jump to mind, but I assume there are things I may have not thought of.
Anyone active in brick and mortar retail have any hidden costs to mention? Shoplifting and spoilage shouldn't apply too much (unless someone plans on stuffing a metal detector in their pants, of course), but there must be others.
May 4th, 2007, 12:14 PM #2
Employees and benefits? Seems like that's a big one. You have to sell quite a bit to cover the overhead (much of which is fixed). Online, the overhead is much smaller and is almost entirely variable.
May 4th, 2007, 12:37 PM #3
To start, I'd be the only employee, so the main cost there is potential time away from some of our other ventures, which has certainly stung us in the past when I was doing a lot of consulting. Good point.
I think one of the other costs I left out is the additional cost of merchandise to fill the showroom. It's one thing to have inventory on hand ready to ship and another entirely to have inventory there for customers to pick up, play with, potentially damage, etc. Seems like "floor models" would add quite a bit to initial startup costs.
May 4th, 2007, 12:52 PM #4
- Join Date
- January 18th, 2005
You have done business online and enjoyed the flexibility associated with it. Now you will be tied to a store. If you are sick or just tired, you still have to go work the store. You will not be able to take vacations. You will not be able to decide on a moment's notice to go play golf, go fishing or whatever activity you enjoy.
I would take all that money you will spend opening a BM store and put it in online advertising. Once you have maxed out your capacity to sell online you should consider a store.
It is a lot of work and a lot of expense and even more of a headache.
I am looking to start a venture for my girlfriend to run. We can do it online and wholesale. I considered opening a retail front...for about 30 seconds. Been there, done it...love the flexibility I have now way too much to tie myself down again.
I know that in some niches it is best, like you mentioned in another thread you have items that are not cost effective to ship. That might be a plus on the side of BM.
May 4th, 2007, 01:48 PM #5
I'm sure you've done your research, but would that niche do well in your area (i.e., enough of an interest)?
May 4th, 2007, 01:54 PM #6
You're kidding, right Eathan> GAWD - just the thought of being ball and chained to a B&M store, let alone having to deal with CONSUMERS daily is horrifying! Think long and hard about this one.Peace,
Loving Everyone's Child Creates Magic
May 4th, 2007, 02:34 PM #7
I have never been in B&M retail, but I did have my own office for 20-plus years, and had a high volume of clients, potential clients, businesspeople and professionals coming through daily, plus several employees.
I wouldn't go back to that for anything, even though the income was significantly more than I make now.
Besides the obvious matters to deal with, and other less obvious one that you, MichaelColey and UncleScooter have mentioned, depending on state and local business regulations, you also have to deal with fire inspectors, health inspectors, County Business Property Tax forms and payments as well as business licensing requirements, risk management as well as liability insurance coverage, unruly customers, vandals and thieves, electric and plumbing problems (even if paid for by the landlord, still a substantial inconvenience).
As to vandalism, I can't image what happens to the product in a store, especially when manned by a single person, but in my office, even with people continually going in and out and several employees close by, you could not believe what people did In the waiting room; people were continually ripping off wallpaper, writing on the walls, staining the carpet, and before smoking was outlawed in office buildings, burning the carpet and furniture.
You mention equipment, but I don't know if you include fixtures in that. Beside business equipment, you need storage racks, display cases, etc.
You mention utilities, but as far as telephone is concerned, besides equipment and service, you have to have someone man the phones, at least during business hours, if not for lengthier periods.
Advertising costs are also a condsideration. Print and media advertising would be more expensive than online marketing costs like ppc that can be done on a set, low budget as need be, at least at the beginning. For newspaper, telephone book, radio, etc. type ads, the set-up can be very high plus most require a set commitment, be it 3 months or some for some, or a year with telephone book ads, for example.
You say no employees, but what if you need to get away for a while, or an emergency comes up? Your only alternative to closing is to hire someone, as least temporarily. Unless you can use a temp agency where someone filling in is not your employee, then even for a brief period, you need Workers' Compensation Insurance, and must take care of State and Federal payroll tax forms and payments.
If business got to the point where you needed someone to work in the store, even part-time, dealing with employees pose many more problems. I had a couple of secretaries that worked for me for 10-12 years, and I could rely on the most of the time. But even with them, they always fudged on their hours, did as much personal "business" on my time as they could get away with, and tried to take advantage of our long-term relationships as often as they could.
As Rexanne said
Originally Posted by Rexanne
Last edited by Phil Kaufman aka AffiliateHound; May 4th, 2007 at 02:35 PM. Reason: typo
May 4th, 2007, 02:34 PM #8
I made the progression in the opposite direction, offline to online.
I ran a small imports shop with a business partner and it took me less than a year to jump ship. 5 years later he's still running that biz, but I'm glad I got out. I pity him...
A few things from my experience:
- Shelving (or merchandise display of any sort) is more expensive than you might think. If you're lucky, you can find used stuff, but if you're not near a metro area it's tough.
- Triple-net leasing. If you're in a small town, you'll probably have a gross lease and this is moot. If not, triple-net leases suck. Basically, it's a guaranteed rent payment (per square foot) for the landlord *plus* all fixed and operating expenses including taxes, insurance, mainteance/repairs separately, the triple-net. If these costs go up, you rent goes up.
- Inventory. You mentioned this, but you might be surprised how much inventory it really takes to fill a store and make it 'look' full. We had a small shop (~2000 sqr ft) and $30k of inventory was pathetic. The first few months, customers would walk in and sometimes say, "Oh, are you guys not open yet?" Embarassing...
- Working Capital. Unless you are a corporate retail operations strategist, you will most likely go over budget, just through incidentals and things you "didn't think of." How much *extra* cash will you have once the doors are open and how long will that keep them open, even if you don't sell a single item.
- Advertising. Sure, a good location helps, but unless your target demographic is also in magically your geographic area, you'll need to advertise. Unlike the online world, it's a bit harder to narrow your target market perfectly and track your success. It's broader and slower to implement, so if something doesn't work, you can't just switch gears quickly. And it can become costly quickly.
- Liability. This is a longer discussion, but in short you'll generally have more liability with a physical store. This either means more insurance costs or attorney fees, or both.
- Salaries. Even if you're going to do it yourself, you have bills to pay. Unless you've got sufficient personal savings you'll need to budget at least a small salary.
- Time!!!! I cannot emphasize this one enough. Even if your doors are only open 40 hours a week, you'll work 60, especially if you're alone. Just when you're trying to place orders, work on the books, or even tidy up, a customer will walk in and you'll quickly find these things will need to happen in the 'off hours' And taking the day off to go fishing...forget about it!
Hopefully that was enough to bring you to your senses!
May 4th, 2007, 03:03 PM #9
- Join Date
- January 18th, 2005
Had enough yet Eathan?
May 4th, 2007, 03:09 PM #10
Let me add one more point about employees - which I think if your store is successful would be inevitable - yes, I had some really good, long-term employees, but I also had dozens of short-term DISASTEROUS employees. The entire hiring process is painfull, and firing employees even more so, and the damage a bad employee can do in a short time is remarkable.
May 4th, 2007, 03:19 PM #11
Great replies so far!
Many of the freedom issues unfortunately cropped up the minute we launched our retail venture, even online. Somebody has to be here when UPS shows up for our daily pick up, somebody has to drop shipments off at the post office, somebody has to pack 'em and answer the phone. It's a big jump in commitment just going from affiliate and consultant to merchant.
My wife and I just went away for two weeks and just addressing who was going to do all that was a huge pain, not to mention keeping inventory stocked, etc. On the positive, having a retail space might've actually made some of those arrangements much easier. I mean you can't always have a family member come live at your house and run your business while you're away...
Another advantage would be getting some of the inventory out of the house. 2 bedrooms, part of the living room and dining room devoted to inventory is getting to be a bit much. Of course some warehouse space would address this just as easy.
Of course there were about 100 other really good negative points made here that need to be considered.
After 10 years online, you forget about some of the issues that come along with work out in the real world...
May 4th, 2007, 03:28 PM #12
Sounds like you just need a storage room. Just my honest opinion, your product isn't something that every consumer is looking for. Pizza, hot dogs, clothes, etc. get value from a lot of traffic. If you were next to a river with a recreation area, maybe. The ball and chain, and the expense of maintaining it, would kill that deal for me.
May 4th, 2007, 04:04 PM #13Originally Posted by Mack
The nearest "big" city is the state's second largest and home to quite a few prospectors (centrally located to the major gold areas of the state). It also has no shop. We'd be the closest...
At $600 a month for the space it might be worth a try if only for the main selling season. I'm still torn.
May 4th, 2007, 04:22 PM #14Many of the freedom issues unfortunately cropped up the minute we launched our retail venture, even online. Somebody has to be here when UPS shows up for our daily pick up, somebody has to drop shipments off at the post office, somebody has to pack 'em and answer the phone. It's a big jump in commitment just going from affiliate and consultant to merchant.
At home, you can still do things when you want. As in, you don't have to be doing it from X-time to Z-time of the day. The PO lobby closes at midnight, and I've made many drops at 11:59PM. I guess you're stuck for the UPS pickup. I don't use UPS--DHL charges a lot less. But, DHL doesn't have a free pickup service at residences, either, so that's another place to drop off to. Most of my stuff goes via postal service anyway, so no biggie...
So I didn't think it was a big jump from affside.
Running a physical store, on the other hand, now that's different! Along with what's already been mentioned:
Set hours! Ewww!!
Stock getting shopworn/damaged. It's amazing how destructive customers can be when they can get their mitts on the stock!
And shopwearing is greatly accelerated: Most stock in retail stores I've been in is dusted *daily* and some of it even twice a day. That's not just the nonselling stuff. It's ALL the stuff. The amount of crud that wafts in from the parking lot and street and gets all over everything is amazing.
And customer service. Idiots who can't even figure out how to email, will manage to walk in. And try to blame you for BS like their metal detector dying after they threw it in the lake. With a straight face. And then be amazed if you tell 'em to GTFO!
All that said, I think a physical store could have its fun points.
(What?!? What could be fun about running a physical store!!?)
Seeing customers lining up--waiting for the store to open! How awesome is THAT!
There's nothing like the sound of 7 registers cranking away at the same time. It must be better than any dope, to be the one who owns those reggies! (Unfortunately, just 1 or 2 registers doesn't seem to bring much energy.)
"I always shop at [your store]! I wouldn't shop anywhere else!"
The sight of people eagerly grabbing stuff off the shelves, to buy it.
I wouldn't just jump into a physical business, anyway. But in the back of my mind, the thought of running my own grocery store sometimes pops up. As the owner, the biggest bad thing I saw in that biz would be eliminated: It wouldn't be a J*B. At least...not MY job! It'd be the job of several *other* people, who would be known collectively as "my staff."
May 4th, 2007, 04:24 PM #15
Figure up all of your costs, fixed and variable. Use that to calculate what sales you need to break even. Estimate what sales you would expect to make each month (maybe even a low, middle and high guess) and calculate what profit you would make each month. Figure up how many hours of your time it would take. Calculate your "hourly wage" based on the low, middle and high guesses. Would it be worth it to you?
My guess is that you time could be much better used elsewhere.
May 4th, 2007, 04:59 PM #16Originally Posted by Leader
I literally cracked up at that.
Michael, that's about where I'm at in the process. It's the hidden costs that always creep up and bite you, which this thread has helped with quite a bit. The rest add up okay...
May 4th, 2007, 05:05 PM #17
If you're not sure on the costs, I would add an "Unknown costs" into your spreadsheet and take a guess as to what you don't know.
May 4th, 2007, 05:08 PM #18
I also went from offline to offline, but on the sales side. I worked for many years for a very large gift and home decor company. (Made famous by certain porcelain sculptures of teardrop-eyed children.)
I consulted with many new retailers, and 95% of them failed for two reasons.
1. They planned on being in the black immediately.
3. Lack of planning. (The "if I open it they will shop" philosophy just doesn't work!)
Regarding #1, you NEED NEED NEED to plan on being in the red for a good year - 18 months. That you may not be is a best case scenario. Worst case is you don't plan for it, wind up largely in the red and have to liquidate your inventory and close up shop before your store has had a chance to grow roots.
This means you need to allocate a substantial budget for 12 months of advertising and other store expenses AND for your own personal expenses while you're getting off the ground (unless your online activity offsets all of this). The smaller your niche, the more this may apply to you, depending upon local demand for your product. The first thing struggling retailers cut is advertising. This is the kiss of death, in my experience.
I know #2 sounds dumb but in the collectibles industry it's a HUGE problem. In order for a product to become high turn, consumers have to touch it...to experience it with multiple senses. Thus, display cases were left unlocked. Thus, clumsy individuals would grab a figurine, drop it, and the store is out $79.99 @ 45% margin. Ouch. This might not be as much a problem in your store.
Just like we measure our online *inventory* profitability in RPC or eCPM (for the mailers out there), retail stores measure in sales per square foot. So you need to figure out what s/ft2 you need in order to 1) cover expenses, 2) break even, and 3) profit.
How many annual turns can you expect to get out of an item? Are your suppliers giving you adequate credit terms, or do you have to float the balance of your inventory?
How often do you need to change your traffic pattern/move inventory to keep repeat customers engaged?
How will you remarket to first time consumers to get them to stick?
What will consumers come in to purchase and after that, what can you upsell them?
Not all of your competition will be from stores of your same type. For example, the independent card and gift industry was decimated a few years back by big-box retailers and the internet. What alternatives do your consumers have and how do you plan to make yourself the preferred source for what you sell? (As an example, if consumers can walk into a Wal-Mart near your town and get a cheap, $49 metal detector I would be very concerned about planning a competitive strategy and coming up with a "beginners" kit of some sort.)
May 4th, 2007, 05:42 PM #19Originally Posted by Joe Lilly
Thanks for the great posts all! I think the start-up costs are the real killer. Building the displays (even doing the work myself), display inventory, grand opening marketing, etc, on top of all our normal costs, plus the increased time commitment would be a tough pill to swallow...today... Not ready for online to supplement too much of the offline at the moment.
It'd be a pretty big investment just to make selling the big equipment a bit easier, open doors to a few of the stickier suppliers and satisfy all the customers who ask where we're at... It's true, the money and time could likely go elsewhere for a lot bigger ROI. Heck, we get more requests for a catalog than retail shop, so maybe that's a better route, maybe do the show circuit a time or two...
May 4th, 2007, 06:00 PM #20
and what about conventions and shows? I'd think you'd do really well at a variety of those, including gun shows, antiques shows, coin shows, stamp shows, etc.
May 7th, 2007, 06:23 PM #21Originally Posted by Joe Lilly
Will at least do some of the local ones though. You'd be amazed at how much equipment walks out of the Gold and Treasure shows!
May 7th, 2007, 10:35 PM #22
There are tons of cons to having a b&m establishment. Lack of freedom, being tied down to hours would kill it for me.
That being said, if you are in a region that is ripe for metal detecting AND has a large tourism base, I can see the potential for growth into rentals or guided detecting tours that would bring some fun factor in, provided you have someone trustworthy to run the store during those times.
I don't like dealing with people face to face so the internet will do me just fine, but good luck whichever way you decide to venture.
May 8th, 2007, 07:24 AM #23
I don't know if this is as much a problem in your niche as it is in our BM, but my biggest gripe is chiselers, the ones that think they know a product or business better than you so they try to chisel down your product to get a better price.
I just love being bugged and nagged to give a discount because so and so's friend is working with so and so and they could just as easily take their business there So our partner was nice a few times and gave some discounts to new customers. Guess what, not only did their checks bounce but we haven't seen them since.
Oh yes, and customer complaints. That's always fun.
But despite all the headaches and gripes, I do like having a BM.........but that's just until I get really good at AffM
Best of luck to you in your endeavorBe the change you want to see in the world ~ Gandhi
May 8th, 2007, 12:44 PM #24
If you're determined to have a physical "store", why not set up a kiosk at the RV center? That way, you don't have to "man" it - maybe you can even have them own it or rent it and then you can just be playing middle man. Maybe you could be available on a schedule when they're having big sales or remotes or open houses.
If that wouldn't work at the RV place, then maybe somewhere else in the area. Add a couple of trade shows and you'll have all the non-virtual store you can handle. When you figure out which part of these works the best, then just do more of the same.
May 8th, 2007, 01:20 PM #25
The "kiosk at the RV center" is pretty intriguing. I envision some great possibilities:
Does the RV center have Wi-Fi? If not, you could offer to provide it for free. Get a T-1 or business DSL or something and put up an access port. You'd have to research the solutions, but I'm pretty sure you can make they initially go through your own portal (where you could advertise your shop and maybe even ads from other local stores for a monthly fee). Hotels and other Hot Spots do the similar things.
Then, on your web site, if you have a good developer, have them automatically detect customers coming in through that RV Center and offer them "Free Same-Day Delivery" (for your in-stock products) and perhaps even other promotions/specials. Modify checkout so you can capture their location at the RV Center.
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