How to open a shop and start a retail business

Amid supply chain issues and horrific rising business energy bills as the cost of living crisis bites, it remains a challenge for the bricks and mortar sector to return to pre-pandemic levels. Retail sales were badly hit during the height of the coronavirus, and many big names have gone bust as a result.

It’s not all doom and gloom, however. High street footfall in April 2023 surged 7.2%, and a number of savvy retailers have used clever marketing strategies like TikTok and the pop-up shop to capitalise on the return of shoppers including Glossier, JD, and Waterstone’s.

Wannabe-retailers with a creative mindset and a canny understanding of their costs and potential profits can still find ways to succeed. Our experts have pulled together their experience and knowledge from the past 20 years helping SMEs, to create a comprehensive guide to running a shop.

How have small retailers fared?

While the impact of COVID-19 on small retailers hasn’t been all good, local and independent firms have actually been some of the biggest success stories from the pandemic.

During the various national lockdowns, SMEs proved more resilient than chain stores as they were able to adapt to regionalised lockdowns and take advantage of financial aid. In fact, of the 9,877 businesses which closed, only 1,442 were small retail, restaurant or leisure businesses.

The UK government has also introduced plenty of incentives for the current tax year, designed to make it easier for new vendors to get themselves set up on the high street. These include a discount on SME Business Rates bill.

For the 2023-24 tax year, all eligible hospitality, leisure and retail companies received 75% off their business rates bills from 1 April 2023, up to £110,000 per business.

Small business relief, which was introduced in 2005, is also still in place. This means you will not pay business rates on a property with a rateable value of £12,000 or less.

Is now a good time to open a shop?

All this means that while now might not the ideal situation to start a business in, if you can keep atop of new and emerging trends you’ll be well on your way to success.

Amongst the ‘new normal’ for in-store shopping is an emphasis on creating smaller, more affordable sales outlets that can deliver on service rather than a warehousing of goods. These experience-led locations can showcase concepts, provide human service and engagement opportunities and even, if appropriate, house social occasions.

Retail business plan

Your business plan is perhaps one of the most important documents you will create. It should outline your business idea, market strategy, funding and costs, as well as a development plan for your product or services.

However, while a business plan is important for keeping you on track to creating a profitable business, it should by no means be rigid. The nature of planning a business is that there will be peaks and troughs. This means your business plan should be realistic – and not just a speculation based only on hope.

We’ve simplified how to create an excellent business plan into seven key elements.

According to Karen Whybro, owner of bridal store Rock the Frock, “A good business plan will be a working document. It’s not enough to simply write one and put it in a drawer to be forgotten about.” Keep this in mind when you’re putting yours together.

Executive summary

The executive summary serves two purposes. Firstly, it allows you to lay out all the key points you’re going to address in your business plan. Secondly, it gives you the chance to hook your reader, which is especially important if you’re wanting investment or a business loan.

Make sure you include your objectives, mission, and keys to success in your opening few paragraphs. Someone who’s done this really well is the owner of Cicano Stylez, a US-based business.

Below is an extract from its business plan. We’ve highlighted where the owner has mentioned objectives, mission, and keys to success.

Once you’ve lured your reader in with strong opening paragraphs, you’ll need to create subsections that list your objectives, mission, and keys to success in more detail.

Business analysis

Your business analysis section should cover your business model and structure, and research on your competitive scene, and target market.

When you’re analysing your industry, make sure you include stats that justify why opening your retail business is a viable option. You should also look to include stats that prove your market is growing – or at least stable – and then justify why there’s a gap for your business.

You can do this by stating competitor brands and their market share, then explaining how your business is going to claim some of that share.

An example of this comes from Flyleaf Books, which sells second hand books:

Target market research is also an imperative part of your business analysis section. You can’t begin to think about your shop’s branding or marketing campaigns without knowing who you’re reaching out to.

As Mayna McIntosh, founder of specialist fashion shop Hope, says: “It’s important to conduct thorough and in-depth market research on your core target consumers. Find out what they read, where they shop, [and] how much they spend on outgoings.”

This is key to proving that your business idea is going to be a success. Without this stage, you won’t know where to market your business, how to brand your business, or whether there will be enough of a demand for your products in your area.

While you should be able to get a fair amount of information from desk research, heading to the high street and asking people to fill out questionnaires – or even setting up a temporary pop-up stall – will help towards conducting thorough marketing research.

Marketing strategy

Brand image and brand strategy are an integral part of your overall marketing strategy, so make sure you start this section off by explaining how your branding is going to appeal to your target audience.

You may want to state which design agencies you plan to work with to create your branding, and the costs involved.

After this section, you should tell your readers exactly how you intend to raise brand awareness. Erica Wolfe-Murray, a leading business expert and founder of Lola Media, advises: “A really good marketing plan has an inventive combination of both digital and real world activity.”

So make sure you research both digital and traditional marketing channels, and get an idea of how much different marketing campaigns could cost you.

On creating a digital plan, Wolfe-Murray advises:

But in a world where there are nearly 3.48 billion social media users, there’s still room for traditional marketing tactics. While there’s the option of printing flyers and posters to stick around your local area, or drop through people’s letterboxes, Wolfe-Murray also suggests the following:

When thinking about which marketing campaigns to run, it’s always a good idea to refer back to your target audience. You may want to look at how your audience interacts with social media, and look at the success of marketing campaigns carried out by similar retail businesses.

Products and services

Use this section to explain the nature of your shop. Tell the reader what products you plan to sell, and why you’re inspired to sell them. Make sure you explain how these products set your shop apart from others in your area.

If you are looking for investment, this is a really good opportunity to sell your product. Explain why the products you stock represent a great investment, and include any stats or research to back up your points.

In addition to naming the products that you’re stocking, you should also provide your reader with information on your suppliers.

If you’re planning on selling your own inventions or handmade products, you should include any patent or copyright information.

You may also want to include a section on your plans for future growth. For example, will you expand your range, or start using additional suppliers after a certain time period?

Management plan (i.e. recruitment and staff)

Your shop won’t be successful if it doesn’t have the right human resources. This is why you need to convince the reader that you have the skills to manage your shop, or explain how you’re going to go about employing a manager who does have the skills.

Start this section off by selling yourself. List all of your relevant qualifications, and explain how your experience has helped you to gain the skills you need to start a shop. This could be experience in management, specific leadership training, and even interview and hiring experience.

If you already have a manager in mind other than yourself, don’t hold back on writing down all of their relevant qualifications and experience, too.

Next, think about how you’re going to recruit potential shop assistants. It may be that you’ll sign up to the government’s apprenticeship scheme, or perhaps you have the recruitment experience to know who’ll make a good hire and who won’t.

Include CVs and any other qualification certificates in the business plan appendix.

Lastly, you’ll need to state any personnel compensation and benefits that staff will receive. This includes:

• Guaranteed pay
• Performance-based pay (commission or bonus)
• Pay supplementations, such as paid time off, insurances, and company vehicles
• Stock or pseudo stock options

Financial plan

There’s lots to think about here, so you may want to use a checklist to ensure you’ve covered all bases.

First of all, you’ll need to show that you’ve assessed how much capital the business needs to get off the ground. You’ll want to show how you’re going to use those funds, and clearly explain what potential investors will get from lending you their cash.

This means you’ll need to include a table that lists the costs of all of the equipment you need to purchase, such as shelving, racks, and an EPOS system.

You’ll then need sections that cover the costs of:

• Inventory
• Utilities
• Rent
• Transport
• Legal support
• Insurance
• Council tax
• Marketing
• Loan repayments
• Salaries
• Expenses
• Miscellaneous

Once you’ve done that, it’s down to the figures. You should include:

A sales forecast

In addition to inputting all of your figures into a sales forecast table, you may wish to show your forecast in graph form – this is a good way to draw your readers’ eye to the good stuff.

Profit and loss statements

If you have been trading for a while, include any profit and loss statements, as this will give any potential investors an idea of the financial health of your company.

Cashflow forecast

Working out your cashflow forecast for every element of your business can be a fairly hefty process, but to make things easier, you can split each element into different tables. We’ve compiled a page that’s dedicated to helping you work out your cashflow forecast.

Break-even analysis

You’ve officially broken even when you’ve produced enough revenue every month to cover your fixed and variable costs. There are lots of factors that you need to include to work out whether you’re breaking even or not, so we’ve dedicated an entire page to help you.

Personal survival budget

A personal survival budget helps you to keep an eye on your personal outgoings. This means you’ll know exactly how much money you’ll have left each month to inject into your business if required.

Retail business planning: a summary

Although a business plan will take time and attention to write, there’s no denying how hugely beneficial they can be for anyone looking to start a retail business.

While not the most straightforward document to write, there’s heaps of advice, templates, and example business plans on the internet to help you.

In fact, in addition to this page, we’ve partnered with Start Up Loans to provide prospective new business owners with a business plan template to help you get started on your journey.

Good luck!

Conducting market research

First and foremost, you need to do your market research. Before you commit to a physical presence on the high street, it’s essential you conduct thorough market research. Review other successful stores, and look at how they have established themselves in your target location.

This means it’s worth asking yourself the following questions:

• Is there a demand for your product in the local area?
• What does the competitor landscape look like?
• If you are completely set on opening a certain type of shop, what can you do to be different?

Once you’ve conducted thorough market research, you’ll be able to create your shop concept and work on a unique selling point (USP).

Just keep in mind that you’ll need to consider both the retail industry in your area as a whole, and the industry in which your shop’s products and services will fall (e.g. fashion, homeware etc).

Also remember that you’re likely to be more successful if your USP genuinely fills a gap in the market. For example, in an area inundated with homeware shops, you could hone in on a certain line of products, such as kitchenware.

Conducting market research isn’t just about working out which products to stock and which services to offer. It’s also about learning what attracts your target market.

It’s important to conduct thorough and in-depth market research on your core target consumers. Find out what they read, where they shop [and] how much they spend on outgoings.

For example, say your target audience is young, fashionable, and ethically conscious – you’ll want to know what their interests are, and the types of places they shop in general (e.g. independent stores rather than huge retailers).

Most importantly, how much are they willing to pay for an item? For example, there’s no point pricing your ethically sourced jeans at £90 if 70% of your target audience believe £50 is a reasonable price to pay for good denim.

Once you know what your audience is all about, you’ll be able to come up with some effective branding, as you will be able to see what is and isn’t currently available to your target audience.

We go into more detail about how to create your brand later on in the guide.

Accountancy software is designed to make complex financial processes much easier to manage. From keeping an eye on your outgoings, to arranging your taxes, you’ll find almost every finance process much simpler with the right tools in place. We recommend that every business considers accounting tools in the early days, and have picked our top choices for you to take a look at.

Deciding on branding, concept, and design

Your branding is effectively the common thread that ties together your shop’s name, your business’ logo, the shop’s interior design, the tone of voice you use when communicating with and advertising to customers, the way the shop’s website looks and feels, and the posts you share on social media – making all of these facets recognisable as a part of your business.

In short, branding needs to:

• Communicate the personality of your business. Whether you’re a haughty high-end jeweller or a fun-loving chocolate shop, your branding should make your tone obvious
• Represent the preferences of your target audience. Which colours, imagery, and communication styles tend to resonate with and draw attention from shoppers?
• Promise a good quality product and shopping experience.

When coming up with your initial branding concepts, make sure you refer back to your market research, as this should contain valuable information on your target audience.

Even big name companies forget to consider their target audience sometimes.

When you’re thinking about your brand design, make sure it’s accessible. Many startups are all guilty of wanting to be perceived as ‘top end’ – however, you can achieve this too well, and frighten off your customers with the perception that your products will be too expensive and out of their budget.

Shop name

Your shop name should be memorable and easy to read, spell, and pronounce. Make sure you’re being original, and that the name reflects the brand identity you want to get across.

Tone of voice and communications

How do you want your retail business to come across to your customers? Tone of voice is everything, as you’ll need to replicate it across all of your communications, whether it’s a marketing email or a digital receipt.

Packaging

Packaging is effectively free advertising, and paper bags featuring a logo are more environmentally friendly than plastic when it comes to getting the name of your shop out and about.

Interior design

How do you want your customers to feel when they walk into your shop? What experience do you want them to have? For example, Lush is famed for its deli-style layout. Think about human psychology, too – have your popular items to the right of the door, and draw customers all the way in by placing eye-catching products at the back of the shop.

Window displays

Window displays also count as free advertising, so make sure yours are as eye catching as possible. They should be an extension of your interior design, and convey your values and a selection of your products as attractively as possible.

More shop owners are choosing to lease retail units that enable them to create unique shopping experiences.

Take a look the four ways current shop owners are increasing their footfall.

Whether it’s offering shoppers a coffee as they walk through the door, investing in the latest digital technology, or giving your most loyal customers attractive discounts, setting yourself apart from your competitors is the true route to success if you’re looking to open a shop.

On top of that, you’ll need to remain resilient, adaptable, passionate, and customer-focused.

Still keen to open a shop? Read on for our comprehensive guide to launching a retail business.

Creating an excellent retail website

Once upon a time, creating a retail website would have been a daunting and expensive task. But these days, thanks to website builders, you can create a beautiful, professional-looking website all by yourself. The only costs you’ll need to consider are your domain name, and a monthly hosting fee.

And that’s good, because websites are essential to the modern day retail experience. Consumers not only need to see your shop when they’re out and about, but they’ll also need to engage with it on social media, and visit your website while they’re browsing the web.

Add to that the fact that the latest figures suggest 1.6 billion people around the world shop online, and chances are, if you don’t have a website, you’ll lose a lot of valuable customers.

But it’s not all about expanding your purchasing channels. Websites are also essential for:

• Showcasing your brand
• Creating awareness around your brand
• Promoting your brand

If you’re thinking about where to start, you could always look at online store options from payment providers. For example, Square Online is a free tool that enables businesses to set up a sleek, professional online store with minimal hassle. The only time you pay is when someone makes a transaction through your website.

When setting up your online store, just make sure you include the following:

Finding a shop premises

If there’s one thing you should not underestimate, it’s the importance of picking a good location for your shop.

No matter what you sell, if there aren’t enough customers coming through your doors, you aren’t going to succeed. If you’re difficult to find or in an area of low footfall, for example, you’ll miss out on those customers who’d otherwise spontaneously wander in to see what you’re all about.

Of course, a more specialist store might have better luck convincing customers to travel out of their way. But to achieve this, you’ll need to undertake the mammoth marketing task of showing people who you are, what you’re doing, and why they should come to see you – without them having seen your shop first.

A few tips for finding the best location for your business:

• Research local towns or city boroughs. Different areas have different demographics, so while it may be feasible to open a high end boutique in one town or city borough, it won’t be feasible in another. The best way to identify a suitable location is to look at supply and demand for your product or service in a specific area. Bustling market towns can often present a hotbed of opportunities for independent stores and top high street brands, as there is guaranteed footfall there.
• Learn about the population. Visit the shopping districts and observe the people who frequent them; you’ll want to be in an area with considerable footfall from your target customers. Make sure you’ve spent a lot of time in the area, both at different times of day and on different days of the week. Pay attention to how busy the streets are, and who’s walking them. For a more accurate picture of the local demographic, try online tools, or even meeting with a local estate professional who knows the area back to front. Just be wary that these services might charge.
• Find your competitors. Seek out areas where businesses similar to yours have settled. Is there a particular street where fashion-lovers shop, or a corner of the shopping centre where hungry shoppers know they’ll find a bakery? It may seem counterproductive to open near your competitors, but since they’ll be attracting your ideal customers, you’ll want to be nearby – effectively benefitting from their marketing efforts. Just make sure that you have the capacity to compete with them (see Section 9).
• Consider the cost. Certain areas will be more expensive to lease a property in than others – and unfortunately, these are likely to be the busier, more popular hubs. Paying extra may well be worth it to gain access to more customers, but if you decide it’s not, try looking for ‘up-and-coming’ places in your town. These are often cheaper than the established areas of interest, but may well see their fair share of trendsetters. Whether these areas are right for you or not will again depend on who tends to shop there, and what they’re looking for.
• Check out available properties. Obviously, you can’t launch on your dream street if there’s no free space for you on it. Keep this in mind while exploring locations, and be wary of the areas that have ideal properties available to you. Services such as Appear Here specialise in helping start-ups locate ideal rentable spaces for their business, so this could be a good place to start.

Furniture and equipment suppliers

To make things simpler, you might want to sign up to a service that provides everything you need to set up a shop in one place. Companies like Display Centre, Morplan, Shopfitting Warehouse, Equipashop, and e-shopfittings, for example, provide bespoke fittings, mannequins, point of sale equipment, carrier bags, cash registers, tagging guns, and more.

Alternatively, to save a little money, you could try buying your equipment second-hand. Doing this can work out a lot cheaper, but doesn’t always equate to scrimping on quality. Websites like eBay, preloved.co.uk, and Gumtree have been known to post listings for used retail equipment, such as till systems.

Utilities for retail businesses

New business owners have to consider utilities such as water, gas, electricity, internet, phone, insurance, and council services such as waste collection.

You may find it useful to bookmark resources Startups has created to help you in this respect, such as our business energy comparison page, and our guide to choosing commercial boilers for heating.

It’s vital that you shop around and find suppliers that are right for you. The atmosphere you create in your shop is important, from lighting and temperature to the music you might choose to play. Equally so are the utilities you need to run the business, which may include the internet, telephones, and water in the staff room, so be sure to find a supplier that’s affordable and reliable.

Software to keep you on track (and give you peace of mind)

Make sure you are set up to succeed with the software that can make organising your tasks, keeping track of your customer base, and taking payment so much easier. Using these software tools, which are now readily available to the smallest businesses, can save you quite literally hours of time each week, and can even help you offer better customer service.

Consider our top recommended software tools for task and team management, managing customer information, and taking payment in-store:

Shop regulations

There are a number of regulations that shop owners have to comply with when selling products.

These are:

The main requirement of these regulations is that the products you sell are exactly as described and of satisfactory quality. Examine your stock before setting it out on your shelves, because it’s the seller – not the manufacturer – who is considered responsible if goods do not conform to these contracts.

All of these acts are subject to amendments and specific guidelines, so you’ll need to keep up to date with them once you’ve started the business.

VAT regulations for shops

The current VAT rate for most goods is 20%. Some goods, such as children’s car seats, have a reduced VAT rate of 5%. Then there are goods that have a 0% VAT rate, which includes most food, and children’s clothes.

VAT registration is compulsory for businesses that have a taxable turnover of £85,000 or more over a consecutive 12 month period. However, this threshold can change yearly.

In order to pay VAT, there are a number of schemes that retail businesses can use.

These are:

• Point of Sale Scheme – you identify and record the VAT at the time of sale
• Apportionment Scheme – you buy goods for resale
• Direct Calculation Scheme – you make a small proportion of sales at one VAT rate, and the majority at another rate

The majority of retail shops will use the Point of Sale scheme to calculate VAT. Head on over to the government website to find out which calculations to use when working out your VAT return.

Retail health and safety

Your shop premises must adhere to health and safety regulations in order to avoid accidents or injuries to staff or customers.

Market and promote your retail business

Before you set up any marketing campaigns, make sure you refer back to your market research. This is because successful marketing is all about knowing which channels will reach your audience.

There’s no point paying thousands of pounds in regional newspaper advertising if your core customer is male and aged 18-24, as they probably won’t engage with this medium.

So what are the different marketing channels you could use?

• Get online – set up your own website, and get active on social media
• Send freebies to local Instagram influencers – have people advertise your products to their followers
• Hold exclusive events, such as product launches and new line celebrations
• Advertise in local papers, or drop flyers into local cafés and pubs

Why not check out our guide to retail marketing, and find out more about how you can use these different channels to get people through your door?

Another important consideration when marketing your business is to have a good, strong brand story.

A brand story is a cohesive narrative that encompasses the facts and feelings that are created by your brand – it essentially explains your motivations behind starting your business.

This is particularly crucial for retail startups. As you are attempting to enter a competitive market, it’s important to have something that can make you stand out.

It might be more difficult to communicate your USP to audiences, depending on your product. But no matter what your business is or does, communicating who you are as a brand is key.

Deciding on an exit plan

While this may seem like a long way off, in the future, you may find yourself ready to consider an exit strategy.

Selling your shop

If you decide to sell the business, you’ll need to take the following steps to prepare yourself, your staff, and the shop beforehand:

• Find a broker or consultant who will represent you and your business well. Take the time to meet with several before signing a deal with your favourite
• When it comes to choosing an asking price, research the sales of similar businesses for inspiration. Your price has to be fair, realistic, and reflective of market conditions, but don’t under-price it (tempting as this may be if you’re keen to move on)
• Review the conditions of your lease, both for your property and any equipment you may be renting. Will your buyer be able to simply take it over?
• Ensure that your finances are up to date. Buyers may want to see these before they commit to purchasing the business, as they’ll want evidence that it’s a worthwhile investment to them (or has the potential to be)
• Have a frank discussion with your employees (if you have any) about why you’re selling the business. Be clear on when it will happen, and what they can expect as a result. Be wary of your employees’ rights – it’s important that you don’t breach them
• Consider a special sale to entice customers. This is an excellent opportunity to sell off as many of your products as possible at discounted prices

While you may no longer feel invested in what happens to your business, you should consider it your responsibility to make sure it’s sold to the right person. Ensure they have enough experience and acumen to run and grow the business well. Remember, you’re not required to accept the first offer you get!

Franchising your business

Alternatively, you might decide to turn your brand into a franchise, which effectively means selling instructions on how to open a copy of your shop to entrepreneurs to run themselves.

You’ll find great examples of successful retail franchises across the country and in a range of sectors, with famous franchises including Spar, WH Smith, CEX, and Build-a-Bear.

Franchising is a great way to expand the business without having to dedicate time, effort, and money to opening another shop in a new location yourself, with the business owners who launch the new shop footing the bill.

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Summary: opening a shop

There’s no doubt that opening a shop is going to take a lot of hard work and commitment.

Don’t jump right in. Make sure you thoroughly investigate your target market, as you’ll need to refer to that research when you’re coming up with branding concepts, deciding on your shop location, and planning marketing strategies.

And think about what you can do to ensure that your shop is different to everyone else’s. In an age where people are searching for retail experiences, make sure people think it’s worth their time travelling to your shop over another.

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