Starting a Small Business:
Basics of Retailing
Source: Managing
a Small Business
In the classification of retail stores by type of
operation, approximately 85 percent are single-unit, independent stores and account for
approximately 55 percent of all retail sales. Firms that operate more than one store
amount to approximately 15 percent of the total store population and they realize about 45
percent of the total retail sales volume. Included in this 15 percent are those that are
termed nonstore retailers, such as mail order firms, house-to-house companies and vending
machine operators.
The Retailer as Purchasing Agent for the
Customer
When a retailer opens a store the philosophy should be to
serve the customer; this means that the retailer should be the purchasing agent for the
customer rather than the distributing agent for the manufacturer. Therefore, from the
opening day of the store, merchandise should be purchased that customers want rather than
merchandise that the manufacturer wants the retailer to carry. When retailers act as
purchasing agents for their customers, they assure themselves a greater probability of
success. Customers like to do business with retailers who serve them and consider them
their most valuable asset.
The Retail Owner/Manager
The sole owner/manager should like people! People are
customers, and they represent "stock in trade." As a representative of customers
in the market, the retailer should purchase for resale those items of merchandise that
customers will buy. They should make certain they associate with manufacturers,
wholesalers, manufacturers' representatives, or their middlemen, who are responsible, and
who will stand behind their merchandise. The retailer should buy from vendors who believe
in the adage, "No sale final!" This means that the item purchased can be
returned for credit if a customer is not completely satisfied.
Today's retailing is vitally concerned with motivating customers, and attempting to
learn why they purchase one product rather than another of equal price and quality.
Customers today are better informed than ever before in our history. To do business with
these customers requires the employment of well-educated and articulate individuals. The
impact of poorly trained employees on the present and future image or reputation of the
store can be very damaging.
Another important consideration in today's retailing is the mobility of customers.
Approximately 20 percent of customers move each year. This does not mean that the
customers move out of the city; they may move to another part of the city, and, in the
future, another retail store will receive their business. This is important to the
retailer because he or she should always be adding new customers. If retailers fail to
replace this 20 percent who move with new customers, they may soon find themselves without
an adequate customer base, and this may cause them to fail.
Another aspect of mobility concerns new and attractive shopping plazas and malls.
Customers often drive many miles to shop in them rather then doing business locally in an
out-of-date, unprogressive retail store. This is an important consideration when store
location or relocation is being planned.
Planning for the New Store
When a decision finally has been made to open a retail
store, the retailer should make certain he or she possesses sufficient retail experience
in the particular line of merchandise being sold. Far too many businesspersons believe
that because they have sold a certain type of merchandise for another retailer, they are
well qualified to go into business for themselves. This is a frequent cause of retail
failure. There is much more to becoming a successful retailer than previous retail sales
experience. The buying function for a new retail store requires a knowledge of the raw
materials, manufacturing costs, and an understanding of the retail value of the item. When
purchasing merchandise for resale the retailer should be a keen judge of what the customer
will pay for an item. The fact that another retailer's customers will pay a higher price
for an item is no logical reason why the same method will be successful for someone else.
Financial Needs
It is necessary to acquire capital to carry the retailer
through a minimum of two to three years of operation. Many large retail firms believe that
it requires three to four years before a new store will return a profit. The cash-flow
position should be of concern because without sufficient cash coming into the business it
is not possible to take advantage of "good buys" from vendors or to pay invoices
in the cash discount period. Expenses continue, and should be cut when daily sales
decline, or when the business is closed because of floods, strikes, or other unforeseen
emergencies.
The retailer's largest item of expense is for personnel, and a close control on the
productivity of each employee should be maintained. The small retailer cannot afford the
luxury of specialists who are capable only of performing certain tasks; most small
retailers employ those individuals who can be used in many different parts of the store.
The motivation of employees rests on the retailer, and every attempt should be made to
understand what makes employees productive and assist them in their desire to perform to
the best of their abilities.
Tips for Retailers
One problem that creates difficulty for small retailers is
their reluctance to visit trade shows, or to visit the market occasionally in order to see
what other retailers and manufacturers are doing. Retailers who do not attend trade shows
are sincere in wanting to stay close to their business; however, they fail to realize
their customers prefer to shop with those merchants who are progressive, not only in their
merchandising offerings, but in their store layout, fixtures, and over-all environment.
The small retailer should pay periodic visits to other successful merchants in larger
cities, visit the market centers occasionally to see what other vendors are offering, and
visit "key" manufacturers with whom they do business.
In summary, small retailers should make stores exciting places to do business. Remember
- if retailers want a captive audience, they must captivate the customer! |