Contents Part 1: Introduction 1 1. What to Expect from This Book 3 How We Learned the Hard Way 3 How Information Is Organized in This Book 7 2. History and Current State of Retailing 9 History of Retailing 9 Current State of Retailing 10 3. The Future of Retailing in the Electronic Age 13 What’s in Store (Pun Intended) for the Future? 13 Meeting Consumer Needs vs. Selling a Product 14 Part 2: Decisions Must Be Made! 17 4. Is Retailing Really for You? 19 Assessing the Realities 19 Psychological Demands of Retail 21 The Good, the Bad, and the Ugly 22 Get Informed 23 Research Available Resources 24 Check Out the Competition 26 5. Planning for Your Business 29 Develop a Business Plan 30 Monitor Your Progress 31 Keep Up with Changing Trends 33 Continuing Education 33 Seven Planning Do’s and Don’ts 36 iv Contents 6. What Will You Sell? 37 The Selection Process 37 Consumer Demand 38 Selling “Green” 42 Compatibility with Your Lifestyle 44 Can You Make a Profit? 44 7. What Venue Will You Use? 47 Traditional Fixed Locations 48 Cooperative Markets 48 Catalog Selling 49 Internet Selling 49 Should You Become an E-Tailer? 50 Starting Out 52 Domain Names 54 Website Design and Hosting 55 Credit Card Processing 56 Reaching Potential Buyers 56 Shipping and Receiving 56 Sales Tax 57 Evaluate Your Options 57 8. How Will You Choose a Location? 59 Selecting a General Location 60 Personal and Family Lifestyle Issues 61 Narrowing the Field 62 Zeroing In 64 Zoning Compatibility 65 Merchants 65 Special Atmosphere Requirements 67 Space Needs 67 Costs and Landlord Rules 69 Customer Traffic 71 Final Evaluation 72 9. Closing on Your Location 73 Buying vs. Leasing 73 Negotiating the Lease 74 Basic Lease Elements 75 Contents v Part 3: Starting Up! 79 10. Money, Money, Money! 81 How Much Do You Need? 81 One-Time Costs 82 Recurring Expenses 84 Sales Estimates 85 Where Will It Come From? 88 11. Legal and Regulatory Issues 95 Business Organization Options 95 Naming Your Business 97 Registration and Licenses 99 Insurance 99 12. Purchasing Your Inventory 103 Merchandise Markets 103 Planning Your Buying 105 Surviving the Market Environment 107 Buying Strategies 109 Other Buying Options 111 Online Buying 113 13. Preparing for Your Grand Opening 115 Finishing Touches 115 Staff Training 116 Advertising Your Opening 117 Part 4: Daily Operations 119 14. Displaying Your Merchandise 121 Display Strategies 121 Deciding on a Theme or “Look” for Your Store 122 Permanent vs. Moveable Displays 125 Keeping Displays Fresh 126 Store Layout Strategies 127 Window Displays 127 Seasonal Displays 128 Display Talents 129 vi Contents 15. Pricing Your Products 131 Pricing Policies and Procedures 131 Exceptions to Standard Pricing 133 16. Customer Relations 137 Establish Policies Ahead of Time 138 Credit 138 Layaway 138 Special Orders 139 Damage Recovery 139 Hours of Operation 140 Credit and Debit Cards 141 Gift Wrapping 142 Gift Registry 143 Business Ethics 143 Questionable Business Practices 143 Continuous “Sale” Prices 144 Advertising Very Low Prices for Items When You Have Only One or Two 144 Sensational or Misleading Advertising 145 Other People’s Ethics 145 Customer Relations in a Nutshell 145 17. Risk Management 147 Insurance 147 Workers’ Compensation Insurance 147 Unemployment Insurance 148 Casualty and Property Insurance 148 Liability Insurance 149 Life and Disability Insurance 149 Employee Theft 149 Shoplifting 150 Store Security 152 18. Day-to-Day Cash Management 153 The Daily Grind 153 Managing the Cash Drawer 154 Cash 154 Checks 156 Contents vii Credit and Debit Cards 157 Traveler’s Checks 157 Reconciling Daily Receipts and Sales 157 Cash Management Systems 159 Instructions for Figure 18-1 160 19. Financial Management and Bookkeeping 163 Paying Your Suppliers 163 Paying the Government 165 Preventing Cash Crunches 165 Taking Draws 166 Reducing Self-Employment Taxes 167 Keeping Your Books 168 Two Essential Financial Reports 169 Balance Sheet 169 Profit and Loss Statement (P&L) 171 Using the P&L Statement 171 Computerizing Your Books 173 Computers and Software 174 Wrapping It Up 177 20. Managing Inventory 179 Establishing an Inventory System 179 Inventory Management Advantages 180 Setting Up a System 181 Managing Your System 185 Physical Inventory 186 Summary 188 21. Family and Employee Relationships 189 Employee Options 189 Employing Your Children 189 Spouses and Partnerships 191 First Rule 192 Second Rule 193 Third Rule 194 Fourth Rule 194 Fifth Rule 195 Sixth Rule 195 viii Contents Recruiting Employees 196 Training and Communicating with Employees 197 Complaints about Employees 198 Dismissing Employees 199 Employment Laws 200 Principles of Employee Relations 201 Part 5: Marketing Your Product 203 22. Marketing Basics 205 Marketing for the Small Retailer 205 Image and Branding 205 Advertising Methods 206 The Importance of a Marketing Plan 208 23. Marketing with Email and Websites 209 “Snail Mail” vs. Email 209 Blogs 211 Online Forums and Message Boards 212 Part 6: Planning for the Future 215 24. Managing Change in Your Operating Environment 217 Human Tendencies 217 Pull of the Status Quo 218 Paradigm Shifts 219 Thinking Creatively 219 Expecting the Unexpected 220 25. Protecting Your Store from Internet Competition 223 Utilitarian or Decorative? 223 Size and Personal Fit 224 Time Sensitivity 225 Price Point 225 Gift or Personal Use? 226 Combined Evaluation 226 26. Selling or Closing Your Business 229 Is Your Business Marketable? 229 Tips for Closing Your Business 230 Contents ix Setting Up the Sale 231 Timing the Sale 232 Selling It Yourself 232 Listing with a Broker 234 Establishing the Price 235 Cost Basis 235 Disadvantage of Cost Basis 236 Return on Investment Method 236 Determining Risk vs. Return 237 Determining an Equivalent Return 238 A Bitter Pill 239 Good News 239 Appendix A. Glossary 241 Appendix B. Resources 247 Appendix C. Market, Gift, and Design Centers 253 Appendix D. Exhibition Companies and Trade Associations 257 Index 261 Part 1: Introduction S ince Retail in Detail was originally published in 1996, it has sold more than 25,000 copies in four editions, and established a reputation as a no-nonsense, down-to-earth guide for small retailers. It contains many specific examples and case studies, based on my experiences starting and success- fully operating three retail stores and a bed-and-breakfast over a 20-year period. This fifth edition retains the down-to-earth approach that has received positive reviews from both users and industry review- ers. It still includes worksheets that can be used by retailers to plan for and operate their businesses. It continues in the style of previous editions and makes liberal use of humor and personal experiences to illustrate important concepts. In order to provide the latest up-to-date information, the entire book has been updated to reflect current conditions. References have been checked and modified to ensure that they are still cur- rent and valid. In order to ensure that cost data is currently valid, dollar amounts included in the various worksheets and performance ratios were checked using Bureau of Labor Statistics cost indi- ces for a number of items normally sold in small retail stores. The 2 Retail in Detail results show that, surprisingly, small retailing dollar values of the ’90s are essentially the same, two decades later. This verifies my own observations that items similar to the ones we sold in 1996 have not risen in price, but have actually declined in many cases. This is probably due to the increase in the number of items that are imported, and the general flattening of inflation in recent years due to monetary policy and the slow growth of the U.S. economy since the recession of 2008. While this is good news for consumers, it represents yet another chal- lenge for small retailers struggling to maintain profit margins with flat prices and their own Increasing labor and utility expenses. I hope this newly revised edition will prove valuable to you, whether you are considering opening a small retail store, or you are a new or experienced retailer who needs more information to help you operate your business. Let the selling begin! Chapter 1 What to Expect from This Book I am assuming, since you have purchased or borrowed this book (or are surreptitiously reading it at your bookstore. . . Look out! The clerk is watching—better buy it now!), that you or someone you know is interested in becoming a retailer. I’m also assuming that you are planning on starting small and being actively involved in the business and that you would like to actu- ally make a profit. Don’t laugh: Some folks just want to keep busy, achieve tax deductions, or maintain a favorite hobby through own- ing a store. I’m also assuming that you are not planning to use this book to learn how to rise to the top of Walmart or JCPenney’s. It’s on a much more basic level than that. If my assumptions are correct, once upon a time I was in your shoes. Writing a book about it, however, was the furthest thing from my mind when, in 1985, my wife, Susie, and I decided to open our own retail store. If you stick with me, I believe you will find the information I am about to share useful. How We Learned the Hard Way Before starting our store, we sought all available information and references that would help us navigate the maze of planning and 3 4 Retail in Detail startup. While we were able to obtain a lot of information, most of it was not directly applicable to small business retailing, nor was it specific enough to allow us to foresee and plan for the actual costs and events that materialized. The Small Business Administration (SBA), for example, has a lot of information and many publications available for free. However, the government definition of “small business” covers companies with gross sales in the multiple millions of dollars. Many of the free pamphlets simply assume too large a scale of operation to be of any real use to a mom-and-pop retailer. Much of it also relates to manufacturing or service operations, which are also far removed from the reality of the small retail store we wanted to start. We didn’t want to use their retired business executive assis- tance program (called SCORE), because, frankly, we wanted to do it ourselves, our way, and really didn’t want an outsider planning our shop. Ego aside, we also secretly feared that a rational, experi- enced businessperson might take one look at our plans and imme- diately fall into a fit of uncontrollable laughter at our ignorance and naiveté. This is not to minimize this resource; I’m sure these gentle- men and ladies are actually quite helpful and would never make fun of rookies such as us, but I guess we were a little apprehensive and perhaps too stubborn to admit we needed help. In any event, we decided to proceed on our own, at our own pace, and desperately needed a how-to book, perhaps with a plain brown wrapper, that would give us detailed instructions on how to set up shop, without having to go public with our intentions. Alas! With the exception of one simplified accounting and finance hand- book, we found no such resource. We found plenty of books on business management in general, and others on how to get rich in real estate without investing a cent, but you can get this kind of information for free on early Sunday morning television infomercials. This kind of free information is usually worth exactly what you pay for it! So, after finding out virtually everything by trial and error, I decided to try to fill this void in the information marketplace by What to Expect from This Book 5 writing down our experiences, our methods, and our failures so future entrepreneurs would have some footprints to follow, even though they may sometimes appear to have been left by a drunken sailor! Besides, with the eternal optimism of the entrepreneur I could see burgeoning book sales, huge royalties, autograph par- ties, talk show appearances. . . Whoa; back to earth! Where were we? Oh, yes, why I wrote this book! So, if you are expecting a scholarly treatise on the science of retailing, instead of a commonsense, step-by-step instruction book on how to start a small retail store, you should probably look elsewhere. Susie’s and my objective was to combine her talents for deco- rating and crafts with my skills in business and management into a tangible enterprise that would also, hopefully, produce some extra income and provide a nest egg for retirement. Of course, we also harbored that secret dream of all entrepreneurs that our shop would prove wildly successful, be franchised nationwide, and make us millionaires by age 50. OK, so we got started a little late to fulfill our Horatio Alger fantasy by 30-something! Better late than never! In fact, retailing has become an attractive option for seniors who are at or near retirement and wish to keep busy, while earning supplemental retirement cash. After more than 20 years in the retail business, we have yet to see our store name in lights in shopping centers across the nation, but we have successfully operated three retail stores and a bed- and-breakfast in two cities in the United States. We have achieved a degree of success that gave us some additional financial security in our “golden years.” (We are now retired—well, almost.) We have also gained a lot of experience, met many new and wonderful people (along with a few grouches), broadened our range of interests, and strengthened our relationship with each other and as a family. So we consider the venture a success. And even though we are not rich and famous yet, the first four edi- tions of this book have sold more than 25,000 copies and we have received numerous testimonials from readers about how the book 6 Retail in Detail has helped them in their retail adventures. Neither of us had any real experience as retailers when we began, but we believed we had the basic ingredients for a successful store, if we planned carefully, were fiscally prudent, and executed our plans cautiously and deliberately. Our family situation when we began was such that Susie could devote full time to the shop and I would be able to assist on a daily basis, while maintaining full-time outside employment. I also used vacation time to help during buying trips and at other times of peak need. The buying trips have proven to be what the Cajun people call “lagniappe”—something special and extra that is not expected. We have had many wonderful trips together all over the United States. We had two sons, one working part time and attend- ing the local community college and the other in high school when we started. Both have completed their educations and have now started families and careers of their own. We began serious planning for our first store in spring 1985, opened it in September, and operated it successfully for 14 years through a period of changing economic climate. In spring 1991, we began planning for our second store, which we opened in August 1991, in a shopping center across town from the first. In 1998, we closed this second store. In 1999, we moved to our eventual retire- ment location and opened another store, combined with a bed-and- breakfast. In 2000, we sold our first store and, in 2001, we closed the last store and B&B. Since then, we have maintained a foothold in the retailing arena by operating several booths in cooperative markets, as well as speaking to and advising other retailers. Through these experiences, which can best be characterized as trial and error, we developed a reliable operating philosophy, established a credible reputation in the community, and achieved a degree of financial success, which we are attempting to share in this volume. It is our hope that the book will help you as you chart your own course into the business of retailing. What to Expect from This Book 7 How Information Is Organized in This Book Since I was educated as an engineer, my thinking is pretty linear. Susie has other words to describe it, sometimes, but let’s not get into name calling! Accordingly, the material is presented generally in the order in which you are likely to need it, starting with a brief overview of small retailing and proceeding through research and planning, opening and managing your store(s), and finally, closing or selling your business. I’ve also included appendices containing useful reference materials. Interspersed throughout the book are worksheets, tables, and figures designed to provide actual tools you can use to plan and manage your retail business. Feel free to photocopy and use them as needed. Having made the point about sequential organization, let me also note that retailing, as life in general, does not lend itself to neat chronological sequences. Some subjects pop up unexpectedly and some issues recur throughout the business cycle. So some subjects are organized into what I considered the most appropriate chapter, rather than in strict logical sequence. All this is to say that you should read the entire book before proceeding with your plans. Throughout the book, I have attempted to share our specific experiences relating to our retailing operations. They are identified in sidebars captioned “Our Experience.” Other than this device, I have tried to avoid the “CNN method” of presenting information. There are no bottom-line crawls of unre- lated data on each page. I have not used tired graphics or “fac- toids” encased in text boxes containing tips and trivia that are, well, trivial, just to provide eye candy. I am assuming that your attention span is greater than a turnip’s and that you are capable of follow- ing a logical sequence of thought for more than a few seconds. If I am wrong, I am also writing a comic book. . . Oh, yes, if you find a term that is unfamiliar, look it up in the Glossary included as Appendix A.