What every specialty retailer needs to know before launching a new business.
The experts, the consultants and even the retailers offer the same advice: Don’t open a specialty retail business without a passion for the product, the right location, an exceptional margin, and enough capital to sustain your business for at least three months.
Starting a business from scratch is not for the faint of heart. Deborah Kravitz, partner at Provenzano Resources, Inc., a West Hollywood, CA-based specialty retail leasing consulting firm, says prospective retailers “need to have a ‘no fear/just try’ kind of attitude. Once that risk [to open a cart or kiosk] is taken, it really isn’t a skill, but a talent,” she adds.
It is important for retailers to come into a leasing meeting with a clear idea of what they want to sell. The prospective merchant who hasn’t spent any time in the property and is unaware that the same product already exists is likely to be sent home immediately. “Typically the retailer comes in and they know what they want to sell. You can tell if they are enthusiastic about a product they have made, researched or sold elsewhere because they have a passion to share it with you,” Kravitz says. “Set your business apart. If you have a passion, and are truly interested in a long-term business commitment, it will make a difference in your business’s success,” Kravitz advises retailers.
Micheal Brother, a retail consultant with N & F Global, operators of Christmas In [Your City] stores, suggests picking a product and a program with an established track record. “Because most entrepreneurs think in 30-60 day time frames, I recommend any start-up only lease space for a 60-90 [day] period,” Brother says.
People and place
Kravitz points out that it is important to hire the right people and focus on exceptional customer service. “It’s hard to vet a retailer’s level of customer service, so you need to stress it. It’s in a retailer’s behavior and how they carry themselves when they come in for an interview,” she says. While these service-oriented cues might be subtle, it is nevertheless important for specialty retailers to look for them when hiring.
Davida Bates, specialty leasing manager at La Palmera in Corpus Christi, Texas, encourages all prospective merchants to spend time in the shopping center and get to know the property. While certain desirable spaces are not a guarantee, “It’s important to visit the property on a Friday or Saturday night to watch the traffic flow at the busiest times. It will help you understand where your product will showcase best,” she says. Bates also stresses the importance of a strong staffing plan, especially during the holidays.
Kara and Avi Dar, owner/operators of Epic Accessories, a Denver-based cellphone accessories business, agree that location is incredibly important for a specialty retail business. There are currently five Epic Accessories locations and the leases were negotiated based on sales projections made by the owners.
Some retailers are not prepared to work the cart or kiosk themselves. What they must realize is that hiring the right staff and paying them well is crucial to getting the desired result. Employing the right people is key. The Dars know this only too well. “I wish I had attended my human relations classes to familiarize myself with my local and state laws and statutes so that I didn’t have to scramble for answers when difficult questions like maternity leave, unemployment or hospitalization came up.”
Making margins work
Most retail consultants agree that it takes more than love and abundant optimism to sell a product. Sales success is largely dependent on good retail product margins, so choosing products with a three to four times mark up is an important first step. In addition, according to Kravitz, a retailer must be prepared with an initial investment, which she says, “should be three times as much product at retail that they will sell.”
Both Kravitz and Brother agree that inadequate preparation is the most common mistake new operators make before opening a retail cart or kiosk. The biggest issues are not having enough working capital, products or well-trained staff. “Businesses need to calculate all the start-up costs [inventory, labor/payroll, and rent] and how much capital they need to operate for at least thirty days before beginning an operation,” Brother says. Test marketing on a cart is a good idea. “If you know it works on a cart, you can scale it up to an inline store,” he says. Most retail consultants suggest the following parameters in establishing a business: cost of goods should be 25% of gross sales; payroll/labor should be 20% of gross sales and rent should not exceed 20% of sales. This allows the retailer to retain a 20% profit.
What most prospective retailers don’t realize is the level of investment they must make to start and operate a business in a shopping center, says Heather Epstein, Specialty Leasing Manager for the Irvine Companies, who operates Fashion Island and The Spectrum Centers. Despite carts and kiosks being among the most affordable of retail ventures, Epstein reminds retailers to budget for product; visual merchandising and display fixtures; signage; security deposit, signage fee and insurance. Retailers need to set up merchant services with a bank or financial institution and establish a DBA. (Doing Business As is creating and registering a legal trade name.) In addition, retailers need to secure a business license and account for miscellaneous overhead such as training, hiring, phones, bags, etc. While the list might seem intimidating, most savvy, street-smart retailers are adept at putting a business plan together.
- Spend time in a center and talk to fellow merchants to determine potential sales volumes
- Study mall traffic patterns to identify strong locations for product
- Have enough capital to run the business for at least three months. (Numbers vary based on types of products sold, staffing costs and rent. Ranges $7,500-$15,000 per month)
- Become familiar with mall customers/demographic, the stores, other cart/kiosk operators and
- center staff
- Utilize the skills of SCORE, an organization within the Small Business Administration that gives free advice to retailers and entrepreneurs
Among developers offering a perspective, Epstein says prospective retailers should look for the right margins on product; figure out if they can afford to start a business and operate a cart for long mall hours. They should also make sure there is a fit between the product and the mall demographic and that the product fills a merchandising gap in the center. Finally, a retailer should be ready to work hand-in-hand with mall management, Epstein suggests.
She encourages merchants to take responsibility for their business by working on email marketing campaigns focused on upcoming holidays, providing exemplary customer service, and utilizing social media to keep guests aware of new product offerings. The job of the retailer is not over once they sign a license agreement. “It’s the merchant’s responsibility to be timely in their obligations of rent, sales reporting and communicating if they are having challenges so we can partner with them to try to find a resolution,” Epstein points out.
If they had to do it again, Dar says he would research as many distributors as possible and not rely on any single source. He also suggests newcomers not be afraid of turning over merchandise, staff and the overall look of a cart.
Like most, the Dars suggest soliciting advice from others. “Talk to as many friends, associates, family members and other business owners that are not ‘yes people.’ Get honest feedback as to what they think and listen to them,” suggests Dar.
La Palmera | The Shops at La Palmera
Corpus Christi, TX
Kara and Avi Dar
Owner/Operators of Epic Accessories
Highlands Ranch, CO
Director, Specialty Leasing
Irvine Company Retail Properties
Partner, Provenzano Resources Inc.