How Much Does It Actually Cost to Start a Small Retail Store?

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How Much Does It Actually Cost to Start a Small Retail Store?

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Always dreamt of having your own book cafe or a running accessories store? Or perhaps your entrepreneurship plans revolve around having your own fashion boutique?

Whatever your dream, it's probably accompanied by a lot of questions. Are small retail stores profitable? Should you open a brick-and-mortar outlet or go the ecommerce route? If it's the former, what is the cost of opening a retail store?

So many questions! And we've got the answers.

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Brick and Mortar vs. Ecommerce

In the current digital marketplace, you might be wondering if starting a brick-and-mortar retail shop holds any significance. Or you could be leaning towards a brick-and-mortar shop and questioning if you still need a website.

Let's dissect the pros of starting an ecommerce store vs. a physical retail outlet and whether it's possible to do both.

Are Small Retail Stores Profitable?

Much of the retail landscape in the U.S. is built by small business retailers.

It's easier to be noticed when you have a physical location away from the fiercely competitive online marketplace. Here's what else a small retail outlet brings to the table to make them more profitable.

  • Better customer experience and engagement: All senses are engaged in a retail shop experience. Your customer can touch, feel and possibly even taste the product — all factors that can aid the purchase decision and create a lasting impression. According to PwC's annual consumer survey, 61 percent of shoppers prefer seeing and trying an item before buying it.
  • Less shipping hassle: Did you know that 28 percent of shoppers abandon carts because of shipping costs? With a brick-and-mortar store, customers are able to directly take their products home. Not having to deal with shipping-related headaches like customer addresses and packaging has an added benefit to you, too.
  • Increased sales potential: In a physical store, your customer might walk in wanting product A and see products B and C and pick those up as well. Having the ability to display items and guide incoming customers encourages more shopping and sales.
  • Fewer returns: Shopping in-store also reduces the number of returns. According to National Retail Federation (NRF), the rate for online returns grew to 20.8 percent in 2021.

The Power of Ecommerce

According to a consumer study by KPMG, retailers need to develop their online capabilities as the convenience of shopping from home continues to be a major factor in customers' decision-making.

Some benefits of having an ecommerce store are:

  • Establishes credibility and provides an alternate source of revenue
  • Lower setup costs and 24/7 visibility
  • Easier to maintain than a retail outlet
  • Provides flexibility for customers — they can make their purchase anytime they want

Ecommerce or Brick and Mortar: We Say Both!

Rather than viewing brick and mortar and ecommerce as rivals, look at them as partners. Even Amazon, which is unanimously associated with online, has retail outlets. While customers love the convenience of the online marketplace, they still enjoy the experience of visiting an actual store.

Merging the online store with a physical one is also a smart, low-cost marketing strategy that will give you the highest chance of success.

A few ways to integrate the channels and deliver a unified experience are:

  1. Allow a "pick up from store" option for online products.
  2. Offer in-store returns for purchases.
  3. Encourage in-store customers to leave email or social media contact information.
  4. Include detailed information on products and where to locate them in store on the website.

Sold on doing both? Here are the costs associated with setting each up.

Costs of Opening a Retail Store

The cost of starting a retail store is all dependent on the niche you're targeting, location and size. But you can still get a ballpark figure. We've provided you with a few estimates.

costs of starting a retail store

Rent

The exact cost of a place really boils down to where you're located; average rent for a commercial space in the USA is around $18 per square foot. But the cost isn't the only factor to evaluate here. Scouting the perfect retail spot involves understanding area foot traffic, parking availability and zoning laws.

Utilities

The monthly utility costs are widely influenced by your location and the rate of electricity and gas. Utilities in commercial spaces average out to $2.10 per square foot.

Retail Systems

Retail stores are places where shoplifters and robberies are most frequent; therefore, it would be beneficial to install a security camera and alarm system. A simple one or two-camera system could run you $50 per month.

Also, consider the hardware and software costs for your retail store's point of sale (POS) system. A small retail store typically requires:

  1. Computer/tablet
  2. Cash drawer
  3. Barcode scanner
  4. Credit card readers

Depending on what system you choose, the costs can be as low as $0 to $230 per month. We recommend picking a system that can integrate with your accounting or bookkeeping system as it will make managing finance easier.

Storage and Shelving

In a retail shop, you'd need space to display all of your products. A good rule of thumb is to set aside $50-$100 per shelf. Standalone display cabinets are priced between $150-$700.

Signage

Your retail store's sign builds your brand image and tells everyone that your business exists. The cost of the sign depends on size, material, design and installation; estimates range from $200 for simple fabric ones to $10,000+ for large digital designs.

Licenses and Permits

There's a lot of paperwork and licenses and permits to be acquired if you have to start a small retail store.

A few of the common licenses are:

  • Sales tax license or seller's permit
  • Resale license
  • Doing Business As (DBA) registration (if you are operating under a name different from your legal name)
  • Sign permit
  • Fire department permit
  • Health department license
  • Certificate of Occupancy

The average business license can run you between $50 to a couple of hundred dollars, but all of this is dependent on your state, industry, business size and locality.

Insurance

Just like insurance is needed for life and health, it's needed for your retail shop. Applicable insurances in a retail setting are:

  • Liability Insurance
  • Property Insurance
  • Workers Compensation Insurance
  • Equipment Breakdown Insurance
  • Business Interruption Insurance

Incfile's partner CoverWallet can help you quickly obtain a comprehensive quote that meets your needs.

Costs of Setting Up an Ecommerce Store

There is some money required to go online. Below are a few approximate expenses to consider as you calculate startup costs.

costs of starting an ecommerce store

Technology has made it possible for you to launch an ecommerce site without coding. Wix is a free, all-in-one ecommerce platform that can help you design and set up a professional store within minutes.

A Perfect Pairing

So, here's the scoop — starting a retail store is worth it. But, combining a brick-and-mortar outlet with the powerhouse of ecommerce makes the best of both worlds. Yes, it's a huge undertaking, but there are plenty of tools out there that can make the process easier. As you navigate the steps around starting your shop, Incfile's Start a Business Checklist can help.

Want to Know All the Steps to Start Your Biz? Download Our Free Checklist.

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