Description
The retail industry provides an exciting way of life for the more than 23 million people who earn their livelihood in this sector of the U.S. economy.
The retail industry provides an ex-
citing way of life for the more than
23 million people who earn their
livelihood in this sector of the U.S.
economy. Retailers provide the goods
and services you and I need—from
food, auto parts, apparel, home fur-
nishings, appliances, and electron-
ics to advice, home improvement,
and skilled labor. Let’s take a look
behind the scenes at the many facets
of this exciting business.
WELCOME TO THE
BIG LEAGUES
Retailing is one of the fastest growing
segments of the economy. As one of the
nation’s largest employers, the retail indus-
try provides excellent business opportuni-
ties. About 12 percent of the approximate-
ly 750,000 new enterprises launched be-
tween 2001 and 2002 (the latest years for
which data is available) were retail opera-
tions. The entrepreneurs behind these ven-
tures risk their capital, invest their time and
make a living by offering consumers some-
thing they need or want. You’ll meet sev-
eral of them in this guide and learn how
they created a niche for themselves.
Most retailing involves buying merchan-
dise or a service from a manufacturer, whole-
saler, agent, importer or other retailer and
selling it to consumers for their personal use.
The price charged for the goods or services
covers the retailer’s expenses and includes a
pro?t. Each year, this vital sector of our econ-
Entrepreneur Magazine’s
Retail Store
1.1
Chapter 1
Introduction To Retailing
omy accounts for approximately two-thirds
of all economic activity. In 2005, the Nation-
al Retail Federation (NRF)—the world’s largest
retail trade association—reported that retail
sales in America reached $4.1 trillion in 2004.
Storefront ventures run the gamut from
clothing boutiques and health-food stores
to hardware stores, coffee shops, bars, laun-
dromats, convenience stores and so on.
Among the more recent arrivals are shops,
day spas, and “pop-up” retailers, which set
up shop for only a few days or weeks at a
time—like Target’s recent short-term ven-
ture in the Hamptons, Vacant, which sets up
shop in various cities for a few weeks, or
the holiday stores you see at Christmas and
Halloween—but there are retail shops for
just about anything else you can imagine.
The NRF says there are more than 1.5 mil-
lion retail establishments in the United States.
Most are store retailers, though there are oth-
er types of enterprises—such as electronic
commerce (e-tailing), mail order, automatic-
merchandising (vending) machines, direct
retailing (door-to-door selling), and service
providers. The service and retail sectors of
the U.S. economy continue to report the
largest numbers of startup companies.
WHAT ABOUT JOBS?
The NRF reports more than 23 million
American workers—1 in 5—are in the retail
industry. At present, more jobs are provid-
ed in retailing than in the entire U.S. man-
ufacturing sector. Thirteen percent of all new
jobs are in the retail sector, says the NRF.
When issuing its 2006 industry forecast,
the NRF predicted 4.7 percent growth,
Chapter 1
Introduction To Retailing
1.2
Want to know where shoppers go? According to Chain Store Age maga-
zine, here’s how the top 100 retailers break down in sales by retail category:
Supermarkets 19.2%
Super centers 11.3%
Hard-lines stores 10.3%
Discount stores 10.1%
Home centers 8.9%
Drugstores 7.8%
Warehouse wholesale clubs 6%
Department stores 5.1%
Electronics retailers 3.5%
Apparel stores 3.3%
Sears, J.C. Penney 2.7%
Mail order catalogs 2.4%
Convenience stores 2.1%
Military exchanges .6%
Shoe stores .6%
Who Are Your Competitors?
Entrepreneur Magazine’s
Retail Store
1.3
which was softer than the previous year’s
6.1 percent forecast. It cited higher ener-
gy costs and rising interest rates as pri-
mary factors. “With the housing market
beginning to slow, consumers will be chal-
lenged to find new sources of spending
power,” says NRF chief economist Ros-
alind Wells. “The strong retail sales we
saw in the second half of 2005 will be re-
placed by more conservative spending in
[2006].” That could mean a slowdown in
job growth in the retail sector. However,
the overall U.S. economy still boasts low
unemployment figures, so experts like re-
tail consultant George Whalin, author of
Retail Success! How to Increase Sales, Max-
imize Pro?ts and Wow Your Customers in
the Most Competitive Marketplace in Histo-
ry (Willoughby Press), say retailers have
little to fear and that their job growth and
security should remain steady for the fore-
seeable future.
BASIC KINDS OF RETAILERS
Retailing is one of the most mature in-
dustries in our economy, and it’s constantly
being reinvented with the advent of new
technologies. Changes in buying behav-
ior, attitudes and buying patterns, and the
restructuring of the retail industry, have
had a significant impact on small busi-
nesses. While some predict the local re-
tailer may become a thing of the past,
there is a bright future for those who can
identify and respond to changing con-
sumer needs faster and better than their
larger competitors. With the internet, TV,
telephone, overnight delivery, and credit
and debit cards, any enterprising individ-
ual can find a niche and begin making
commercial transactions right away.
To give you an overview of the com-
petitive marketplace, we’ll take a brief look
at the various faces and configurations of
selling to the consumer. Keep in mind that
all of these enterprises began as a simple
concept and grew to various proportions
through popularity and perseverance. At
this point in your exploration, anything is
possible for you, too.
Store Retailing
The retail scene in America is a dazzling
array of independent shops, department
stores, discount and off-price enterprises,
convenience stores, membership warehouse
Retailers continue to rede?ne and plan new shopping environments to
provide customers with a variety of places, prices and merchandise. Nikki
Baird of Forrester Research Inc. says the most common physical store cate-
gories and recognizable examples are:
? Mass merchandisers: Kmart, Target
? Convenience stores: 7-Eleven, Circle K
? Membership warehouse clubs: Costco, BJ’s
? National and regional chains: Starbucks, Nordstrom
? Category-killer stores: Home Depot, Best Buy
? Conventional supermarkets: Safeway, Kroger Co.
? Specialty stores: Crabtree & Evelyn, Victoria’s Secret
? Service retailers: SuperCuts, AutoZone
Every Stripe And Shape
clubs, national and regional chains, cate-
gory-killer stores (superstores like Home
Depot and Staples), conventional super-
markets, and other large-scale enterprises
that seem to dominate the retail sector.
Store retailers operate fixed point-of-
sale locations designed to attract a high
volume of walk-in customers. In gener-
al, stores have extensive merchandise dis-
plays and use mass-media advertising to
attract customers. They typically sell mer-
chandise to the general public for personal
or household consumption, but some also
serve business and institutional clients.
These include establishments such as of-
fice supply stores, computer and software
stores, building materials dealers, and
plumbing and electrical supply stores. Cat-
alog showrooms, gasoline service stations,
automotive dealers and mobile home deal-
ers are treated as store retailers by the U.S.
Census Bureau.
To understand this diverse business sec-
tor, government reporting and other infor-
mation is broken down into several sectors
for easier digestion and fact-finding. The
sector groupings are based on one or more
of the following criteria:
? The merchandise line or lines carried by
the store: For example, specialty stores are
distinguished from general-line stores.
? The usual trade designation of the es-
tablishment: This applies in cases where a
store type is well-recognized by the indus-
try and the public but is dif?cult to de?ne
strictly in terms of commodities offered. Ex-
amples are pharmacies, hardware stores and
department stores.
? Capital requirements in terms of display
equipment: For example, food stores have
unique equipment requirements.
? Human resources requirements in terms
of expertise: For example, the staff of a
computer store requires knowledge that’s
not necessary in other retail operations.
Brick-And-Mortar Stores
While shopping on the internet is all the
buzz, independent brick-and-mortars (re-
tailers with physical stores) dominate con-
sumer sales and are expected to remain vi-
able for several reasons. Foremost is their
real-world presence, having a location that
people can drive by, call, and walk through
time and time again. A physical building
lends credibility as a solid and reliable en-
terprise. It also provides an outlet, a desti-
nation, and a gathering place for customers.
Shared experiences and one-on-one ex-
changes are valued by people of all ages.
The ability to look someone in the eye and
ask them questions or watch a demonstra-
tion appeals to human nature. Another ad-
Chapter 1
Introduction To Retailing
1.4
Smart Tip
Successful retailers do
not run their business to
suit themselves. Retail-
ers must cater to the tastes and re-
quirements of customers. This can
mean keeping the doors open on
holidays and weekends, and
opening early or staying late on
some weekdays. You marry the
store when you go into business
for yourself, so expect many com-
promises along the way to pro?ts.
Stat Fact
The National Retail
Federation reports that
California, Texas, New
York and Florida account for 29
percent of all retail workers and
make up approximately 30 per-
cent of all U.S. retail sales.
Entrepreneur Magazine’s
Retail Store
1.5
vantage is the ability to feel and smell the
merchandise, and to try it and compare it
side by side with other items. Shoppers ap-
preciate having a selection of items at their
fingertips. There’s instant gratification for
buyers in carrying their purchase home with
them. And there are no packing and ship-
ping charges. People feel more comfortable
paying in person than giving out credit in-
formation to disembodied entities. Return-
ing items to a store is more convenient than
mailing something back. Personal service,
community involvement and local em-
ployment are three additional aspects of
storefront retailers that will continue to ap-
peal to the public for decades to come.
David Vs. Goliath
You read a lot about the power retail-
ers—the Wal-Marts, Home Depots and Tar-
gets—with huge physical facilities hous-
ing a broad range of merchandise. Faced
with these price-oriented giants, won’t the
little guy get crushed? Not necessarily. Many
“Davids” are learning a thing or two about
ef?ciencies and customer focus from “Go-
liaths” like Wal-Mart, and they’re flexing
their own muscles. In fact, the United States
is primarily a nation of small, independ-
ent merchants: More stores are small, both
in size and sales volume.
The typical store is run by the owner alone
or by a husband-and-wife team. Such small
enterprises naturally lack the substantial re-
sources, purchasing muscle and sophisticat-
ed operations of the large-scale retailers. For
the small retailer, there may be a few em-
ployees, and one or two may be part-time
workers. The store’s size is, of course, relat-
ed to the type of establishment: Furniture out-
lets, for example, require much more space
than shoe stores and neighborhood groceries.
Fred Wilber and his childhood friend,
George Martin, often discussed what they
wanted to do when they grew up. While
still in college, they decided that music was
what they loved most and could do best,
so when they found an empty storefront off
the beaten path in Montpelier, Vermont,
in 1973, they decided to open a music store
called Buch Spieler Music.
“I’ve always been a musician,” Wilber re-
counts. “It’s an intuitive talent.” Wilber’s
brother and a friend ran the business for a
year or so while Wilber pursued a profes-
sional career as a composer in New York.
“I probably could have done all right, but
when my manager/financial backer was
murdered, I returned to Vermont and my
cabin in the woods and was glad I had my
store to go back to.”
Stephanie Bailiff decided to share her
love of dogs with fellow enthusiasts by
opening an all-natural pet bakery in New-
port Beach, California, in 2000. She sees the
market as strong and growing because peo-
ple are having children later and want more
affection and companionship in their dai-
ly lives. “Pet bakeries are popping up every
where in Southern California. There are
about 10 that I know of,” she says. “There
are a ton of wholesalers for this all-natural
industry. I’ve been cooking for my own
Stat Fact
“All-natural pet bak-
eries are an up-and-
coming trend in the
$35 billion pet industry,” says
Stephanie Bailiff, who re-
searched the industry before
leaving her law practice in 2000
to start The Barkery in Newport
Beach, California. “It’s develop-
ing into an industry of its own
with about 40 percent of the
larger pet retailing market. The
oldest [all-natural pet bakery]
I’ve heard of started in 1980.”
dogs for a long time. I love coming up with
new recipes—like the marinara morsels I
made the other day.”
Specialty Retailing
While power retailers tend to sell
“needs,” specialty retailers tend to sell
“wants.” They focus more on neighborhood
convenience, the richness of the shopping
experience, and inventory that meets the
needs of their target customer on a per-
sonalized basis. Small stores show surpris-
ing strength and resilience in the face of
competition from large-scale retailers and
internet retailers. They offer the consumer
a warmer atmosphere, and perhaps a broad-
er and deeper selection of merchandise.
Many stores can be owned and operated
by one person with minimal assistance. Com-
pared to manufacturing operations, special-
ty retail out?ts are relatively easy to start both
financially and operationally. However, a
number of failures are due to undercapital-
ization, poor location and insuf?cient mar-
ket analysis. This guide is intended to help
you avoid startup pitfalls by providing you
with tricks of the trade to help you succeed.
There is always room for the right kind
of store. Geographic shifts of large numbers
of consumers are characteristic of our mo-
bile population; stores need to be wherev-
er people live. Fashions, changing lifestyles,
increasing concern about health care and
technological advances all contribute to the
need for new variations on old retailing
themes. Finally, retail openings continue to
occur as established merchants retire, sell
their businesses, or close down because of
poor management practices or changes in
the local environment. Your small store
launched today may become the next
Lowe’s or Starbucks within the next decade.
Nonstore Retailing
When you look at the array of business
opportunities in retailing, be sure and include
the $172 billion nonstore retailing sector, as
reported by the U.S. Census Bureau. These
businesses are primarily engaged in the re-
tail sale of products through TV, electronic
shopping, paper and electronic catalogs,
door-to-door solicitation, in-home demon-
stration, portable stalls, vending machines,
and mail order. With the exception of vend-
ing, these businesses do not ordinarily main-
tain stock for sale on the premises. They deal
in books, coins, computers and peripherals,
food, fruit, jewelry, magazines, novelty mer-
chandise, CDs, audiotapes, stamps, and
home-shopping ventures, among others.
When exploring your options, consider
combining one or more retail opportunities.
For example, if having a store is the object
of your desire, think about adding a toy or
gumball machine as an extra revenue
stream. If you are thinking about setting up
a tax-preparation or insurance-billing serv-
ice in your home, perhaps you’ll want to
publish a mail order catalog of topical au-
diotapes, rubber stamps, forms and books
you can sell to augment your customer base.
There are many advantages to this type
of retailing—one being that the buying,
maintenance and protection of a large in-
ventory is not necessary, as you contract
Chapter 1
Introduction To Retailing
1.6
Bright Idea
Even if you’re working
full time, pick up some
part-time or seasonal
work in a retail store to get the
feel of a small business. Observe
how decisions are made, how
employees are trained, and what
kinds of customer attitudes you
encounter. How are resources al-
located? See how vendors and in-
ventory are handled. See what
works and what doesn’t.
Entrepreneur Magazine’s
Retail Store
1.7
with others to handle these matters. The U.S.
Census Bureau says there are nearly 55,000
nonstore retailers in the United States.
Temporary Locations
In your travels down remote roads and
through the countryside, you’ll find road-
side stands offering ripe tomatoes, fresh
corn by the bushel, avocados, freshly laid
eggs, and other agricultural and dairy prod-
ucts. You might also see handcrafted items,
artwork, souvenirs, holiday gifts, regional
tokens and novelties. Many of these busi-
nesses sell year-round, though some are
seasonal by nature. Carts in malls and by
roadways, swap meets, spontaneous garage
sales, holiday or summer retail operations,
and weekly farmers’ markets are addition-
al outlets for the ambitious retailer.
Direct Selling
Direct retailing means selling to the con-
sumer in his or her home using the tele-
phone, the internet or direct mail. Home-
shopping TV channels and infomercials have
boosted the popularity of shopping from the
privacy and comfort of home. TV-based
home shopping was originally touted as a
new era in retail, but today the sector is
dominated by two main players—HSN,
which reports worldwide sales of $2.4 bil-
lion, and QVC, with $5.7 billion in sales.
People have to watch a show in real time
to order items before they disappear from
the air, although both networks also have
ordering capability through their websites.
The convenience of ordering from home
amid high gasoline prices, crowded high-
ways and stores, time crunches, and phys-
ical and geographic barriers works to the
advantage of direct retailers. According to
the Direct Marketing Association, 2005 sales
for direct retailing through TV, including
home shopping networks, infomercials and
direct response TV commercials, were ap-
proximately $150 billion.
With phone marketing, in less than two
minutes you can complete a transaction—
speak with your customer, exchange in-
formation and take an order. For more
than a decade, there has been an increase
every year in the use of pay-per-call, toll-
free numbers and fax-on-demand for al-
most every application imaginable. Con-
sumers can purchase advice, news and
information, magazine subscriptions,
telecommunication programs, investments,
videotapes, health supplements, and ex-
ercise equipment over the phone. The
market is endless. Using telephone tech-
nology, you can inform, educate, solicit
and satisfy the consumer and your busi-
ness needs. Because sales are made to one
person by phone at a time, bulk orders,
higher-priced items and contract purchases
are the most cost-effective.
In this techno age, many consumers
like to be able to ask a real person ques-
tions before they buy and to feel like the
person cares about them. According to the
Direct Selling Association, approximate-
ly 32 percent of home and family-care
products, such as cleaning products, cook-
ware, cutlery, etc., and nearly 30 percent
of personal-care items, such as cosmetics,
jewelry, skin-care products and the like,
are sold through direct sales by compa-
nies such as Amway, Avon, Fuller Brush,
and Tupperware. House-to-house can-
vassing, party plans and network market-
ing are among the techniques used
to sell almost everything—clothing, per-
fume, toys, china and crystal, home fur-
nishings, health and beauty aids, and gen-
eral merchandise. The 2002 Economic
Census identified about 22,000 of these
firms nationwide, with a total sales vol-
ume of $22.4 billion.
Mail Order
From glossy wish books to basic bro-
chures, catalogs are popular with those
who live far from shopping areas, the eld-
erly, those seeking the unusual or the ob-
scure, and those who simply hate to shop.
What could be easier than calling a 24-
hour, toll-free phone number to order
clothing, gifts and gadgets? With direct
mail, sales materials can be sent to thou-
sands of potential customers at one time
to either make a sale or generate a sales
lead. According to the Direct Marketing As-
sociation, direct marketing, such as direct
mail and infomercials; interactive market-
ing, such as interactive websites and
kiosks; and database marketing, such as
direct mail and e-mail campaigns, gener-
ated more than $2.3 trillion in U.S. sales in
2004, including $143.3 billion in catalog
sales and $52.5 billion in internet-driven
sales. Selling products and services directly
to consumers by mail is a growing sector
because it offers entrepreneurs a high re-
turn on a low initial investment.
Mail order enterprises include general
merchandise businesses, companies that
sell specialty goods of all kinds, novelty
?rms, various types of clubs (CDs, DVDs,
books, audiotapes, gifts), and so on. In
most cases, catalogs are sent to consumers
in de?ned niches on a regular basis. Most
of the catalog companies offer some form
of expedited delivery so customers can re-
ceive merchandise quickly.
The extraordinarily versatile medium of
direct mail enables you to target people,
groups or organizations within your trad-
ing area, all of which may be likely
prospects for your retail business. And you
can work out of your home, a warehouse
or a brick-and-mortar store.
An up-to-date mailing list is the key to
direct-mail pro?ts with back-end ful?llment
and relational database support. Most peo-
ple selling things by mail need at least a 200
percent markup to make money. You
shouldn’t pay more than $10 for something
you sell for $30. If you think this is the re-
tail area for you, check out the mail order
chapters in Entrepreneur’s startup guide No.
1819, Online Business. Here, you will learn
where to find the best products, how to
save on advertising costs and select mail-
ing lists, and help you maximize your print
or online mail order operation.
The Internet
The internet has changed the retail land-
scape, connecting companies, markets and
individual consumers. Industry research ?rm
JupiterResearch says that while online sales
only account for 5 percent of all retail sales,
nearly one-fourth of all sales are impacted
by online retailing.
“Customers have researched a product,
compared prices or found a store online be-
Chapter 1
Introduction To Retailing
1.8
Mail order has evolved from general catalogs to specialty ones. Small en-
trepreneurs can compete with the large houses and sell at bargain-basement
prices because of low operating costs. Improvements in technology and deliv-
ery speed merchandise to customers. Specialty mail order appeals to busy
people, hobbyists, people located in remote areas, and collectors. Local mer-
chants and homebased entrepreneurs can ?ll niches and meet special needs
for one-of-a-kind and limited-production items, gifts, novelties, leather goods,
and personalized products. A recent accounting by the U.S. Census Bureau of
10,000 mail order houses reported nearly $95.7 billion in sales.
Specialty Catalogs Deliver
Entrepreneur Magazine’s
Retail Store
1.9
fore they bought it of?ine,” says Patti Free-
man Evans, an analyst with JupiterResearch.
“More and more, customers are using on-
line tools as a way to find out and make
their product and purchase decisions. It’s
important for all retailers, large and small
to be part of that conversation.”
Storefront retailers of all kinds are us-
ing the internet in increasingly creative and
pro?table ways, and you’ll hear from some
entrepreneurs in this book about how
they’re doing that. For more information
on setting up an e-commerce business,
read Entrepreneur’s startup guide No. 1819,
Online Business.
Vending Machines
Automatic merchandising—or vending
machine retailing—has been a proven busi-
ness concept for more than a century.
Vending Times, the industry’s trade mag-
azine, reports that snacks and soda sales
alone totaled more than $41 billion in 2002.
As with any other sales venture, having the
right product in the right place at the right
time is key. This business is highly ap-
pealing because of the low startup cost,
low working capital and low overhead.
This is a cash business, with you collect-
ing the money when you replenish sup-
plies. In Europe, shoppers can use their
cell phones to pay for items in vending
machines by debiting their checking ac-
counts online. This is the future for Amer-
ican vendors as well.
Once mostly restricted to gum, candy
bars and canned sodas, today’s vending
machines sell snack foods, fruit, hot
drinks, soups, milk, ice cream, fresh flow-
ers and an array of impulse goods and ne-
cessities. The machines are usually placed
in high-traffic locations, such as subway
stations, railroad and bus terminals, restau-
Fun Fact
According to the Na-
tional Automatic Mer-
chandising Association,
vending dates to 215 B.C.
in ancient Egypt. In his writings,
the mathematician Hero, of
Alexandria, described a device
found in places of worship that
would dispense holy water when
a coin was deposited.
Until the late 1990s, buyers and sellers conducted trade through three
channels: in person, by phone and by mail. The internet has become the fourth
way for consumers to get what they want. Here’s what experts say merchants
should prepare for:
? Doing business 24 hours a day, seven days a week
? Making price comparisons with sources around the world
? Consumers’ online research in?uencing billions of dollars in of?ine sales
? Consumers turning to the internet in record numbers to ful?ll their gift-giving
and other purchasing wants and needs
? Retail competitors conducting business online and building relationships with
customers through e-mail, forums and chat rooms
Reinventing Retailing
rants, office buildings, and bars. Entre-
preneur’s startup guide No. 1375, Vend-
ing Business, shows you how to capitalize
on the billions of dollars Americans feed
vending machines every year.
SERVICE RETAILERS
Some retailers offer after-sales services,
such as repair and installation. For exam-
ple, musical instrument stores, electronics
and appliance stores, pool and spa stores,
and computer stores often provide repair
services. Then there are stores that are ded-
icated to service, such as shoe repair, pool
and spa water treatment, and vacuum and
sewing machine service. Service organiza-
tions include those specializing in educa-
tion, travel, entertainment, health care,
home care, child care, physical training,
space planning/organization, coaching, in-
surance, and countless others.
A service ?rm is one that derives more
than 50 percent of its sales from providing
services that may involve a combination
of tangible and intangible offerings. Ser-
vice businesses are currently the most fre-
quently established operations. Since they
usually sell a specialty or skill, credibility
is very important. Startup costs are often
low, and many service businesses can be
operated from home.
Services provided by real estate brokers
and tax advisors require some knowledge
or skill. Selling a service to consumers is
usually more of a challenge than selling
merchandise. Consumers can touch, han-
dle and examine goods; this is something
they cannot do with most services. Services
must be experienced. For example, hair
styling and dating services have to be ex-
perienced to be evaluated.
You may need to tell the prospective cus-
tomer what you are going to do, do it, and
explain why you did it that way. For ex-
ample, a carpet-cleaning service that uses a
deodorizing process after cleaning the car-
pet should tell its customers about the spe-
cial care included in the price and why this
extra step is bene?cial. Service providers of-
ten spend more time with their customers
than do merchandise providers.
Many services are essentially perishable.
For example, event tickets are only good for
the day and time of the baseball game or
performance. And dentists, physicians, at-
torneys, consultants and accountants cannot
recover earnings lost because of an un?lled
or lost appointment. In contrast, tangible
goods can be held in inventory and sold over
several days or months. If a hotel room is
empty for an evening, the revenue is lost for-
ever, whereas a book or roll of wallpaper
can be pro?table for many seasons.
Most service ?rms are small, single-unit
operations, and small size limits service com-
panies’ ability to achieve economies of scale.
Changes are occurring, however, as tangi-
ble-goods firms have established major
stakes in service and have introduced tan-
gible-goods merchandising techniques in
the services area. The International Fran-
chise Association says that one of the newest
and fastest-growing sectors is high-tech med-
ical spas, offering noninvasive services like
laser hair removal and facial treatments. In
addition, meal-assembly stores, which only
began franchising in 2003, are hot franchise
opportunities and growing quickly. Fran-
chises that save people time and effort are
also big, such as franchised home repair
services, where employees perform simple
tasks, like installing a shelf or curtain rods,
for a fee. Service industries are typically char-
acterized by low barriers to entry. Conse-
quently, competitors can quickly enter a
market and challenge existing businesses.
Many service organizations are labor-in-
tensive. The output of an attorney, florist
or tax preparer cannot easily be increased.
These and other services must be person-
ally produced and tailored to the needs of
individual clients. This precludes the use of
Chapter 1
Introduction To Retailing
1.10
Entrepreneur Magazine’s
Retail Store
1.11
automation and other labor-saving strate-
gies. Because of this, and the fact that many
services are offered only at the point of sale,
standardization in the level of service and
quality is dif?cult to achieve.
The demand for services is often more
dif?cult to predict than the demand for tan-
gible goods. And demand for services can
?uctuate widely by the month, day of the
week or even the hour of the day.
Consumers also seem to feel that pur-
chasing services is a less pleasant experience
than buying goods, and consumers perceive
higher levels of risk in buying services than
in purchasing tangible goods. To bridge the
“information gap,” consumers are increasingly
doing their research on lawyers, mechanics,
banks, and a host of service providers on the
internet the same way they compare features
and prices for tangible goods.
Consuming Appetite For Services
Time is becoming increasingly scarce for
millions of people. The 24/7 pace technol-
ogy has brought us spells opportunity as
well as challenge for retailers. New busi-
nesses have sprung up to take care of many
of life’s chores. Personal shoppers, moth-
ers’ helpers, after-school programs, tutors,
handyworkers, maids, valets, insurance and
tax preparers, home grocers, pet walkers,
and reminder services are just a few ideas
entrepreneurs are cashing in on. The ma-
jority of couples are two-income families,
leaving little time for preparing meals, pick-
ing up the dry cleaning, reading a software
manual, remembering birthdays, standing
in bank lines, and waiting for the cable in-
staller to show up. People will pay dearly
for more time, so ?gure out what you can
sell or do to put people back in charge of
their days, and you’ll be a winner. Check
out Entrepreneur’s business service startup
guides No. 1306, Gift Basket Service; No.
1334, Home Inspection Service; No. 1058,
Child-Care Service; No. 1313, Event Plan-
ning Service; No. 1330, Wedding Consul-
tant; No. 1828, Personal Concierge/Shop-
per, and other startup guides for details on
how to ?ll consumers’ needs.
STEP UP
Whether you are interested in a store,
service or hybrid operation, the deciding
factor in your success or failure will be your
relationship with the consumer. Get to
know your prospects. Consider testing your
business concept from home to control
overhead costs. After gaining encouraging
sales from friends, relatives and neighbors,
you can extend your reach through cata-
log, fax and phone sales. From there, you
might want to sell from a cart in a local mall
or through a short rental in temporary space
to test walk-in traffic and promotional ef-
forts. Then you can determine if your sales
and management skills justify startup costs
and long-term commitments. With a realis-
tic view of what you’re getting into, you can
examine your options for location, size and
format—that is, can you sell more, and
more profitably, through one distribution
channel over another? Which form would
that be—catalog, physical or virtual store,
or TV and radio sales?
RETAILING’S IMAGE
Retail businesses exist to make people
happy. To the extent that you satisfy cus-
tomers, you ful?ll your company goal. Af-
ter that’s said and done, retailers are in the
business of customer satisfaction. This is the
Stat Fact
More than half of re-
tail failures are in oper-
ation for four years or
less, according to the SBA’s
Of?ce of Advocacy.
key to growth and pro?ts.
The industry continually strives to shift
its image from one that pro?ts from others
to one that serves people’s interests. Im-
age has many sides to it: friendliness of per-
sonnel, quality of merchandise, level of serv-
ice, and ease of access. You must be ever
conscious of the perceived risk the con-
sumer has of doing business with you. One
is social risk: What someone buys affects
how others view that person—fashionable
and smart, or behind the times and igno-
rant. The second risk is economic. This is
the possibility that a purchase decision will
greatly reduce the consumer’s budget and
not yield substantial satisfaction or value.
Social Responsibility
Retailers are improving their image by as-
suming greater social responsibility. In doing
so, they’re meeting the needs of society as
a whole, rather than just focusing on maxi-
mizing profits. They provide their facilities
for art exhibits, forums and community ac-
tivities. Executives lead fund-raising drives
that bene?t the community, underwrite pro-
grams, sponsor events, and mentor students.
Being a business owner provides opportu-
nities for you to be involved in issues that
matter to you and your customers.
Some retailers choose to locate in a
downtown area that has become blighted
over the years. They use some of their
profits to help supplement federal funds
for revitalizing the area. Locating in an in-
ner city has special challenges because of
the problems of vandalism, shoplifting and
other crimes. Nonetheless, some retail-
ers want to make a contribution to soci-
ety by upgrading the inner city while look-
ing for profits over time.
Long a leader in providing career op-
portunities for women, retailers have gen-
erally made an effort to match the cultural
mix of their employees to the community
that surrounds them. This is a combination
of social responsibility and good business
sense. Many retailers have also initiated in-
ternal affirmative action programs to pro-
vide minorities with equal opportunities for
upward mobility. Some retailers make a
special contribution by employing high
Chapter 1
Introduction To Retailing
1.12
To help ?ght the problem of so-called “sweatshops,” all members of the
National Retail Federation endorse the organization’s Statement of Principles
on Supplier Legal Compliance and pledge that they:
? are committed to legal compliance and ethical business practices
? choose suppliers who share that commitment
? include contractual language requiring their suppliers to comply with the law
? take appropriate action if a supplier has violated the law
? support and cooperate with law enforcement authorities in the proper execu-
tion of their responsibilities
“Retailers take their responsibilities to their customers very seriously, and we
have taken aggressive and proactive steps to help our suppliers obey the law,”
says Tracy Mullin, president of the trade association. “Retailers have answered
the call and are doing their part to ensure that the products they sell are made
legally, ethically and morally.”
Retailers’ Call To Action
Entrepreneur Magazine’s
Retail Store
1.13
school dropouts and prison parolees in an
attempt to train and retain them for the
good of society and the ?rm.
Retailers are also assuming greater re-
sponsibility for the products they sell. As a
retailer, you will have to be careful in buy-
ing products from resources. This involves
not only ownership and licensing issues
but also labor practices, environmental con-
cerns and research procedures. Growing
numbers of consumers prefer products
made with sustainable materials and will
not use certain kinds of animal or plant
products. They want to discourage the use
of chemicals and materials that are harm-
ful to people and the environment, are
wary of genetically engineered foods, and
expect disposable items to be recyclable.
Retailers should be aware of groups like
the Sierra Club, People for the Ethical
Treatment of Animals, and Greenpeace,
which often in?uence consumers’ percep-
tion of proper business conduct. The Fair
Trade Federation is an association of fair
trade retailers, wholesalers and produc-
ers whose members adhere to social cri-
teria and environmental principles to fos-
ter a more equitable and sustainable system
of production and trade.
Know that you may also be required to
have some products tested or review test doc-
umentation before selling a product. The rea-
sons are obvious: Government regulations
are making it mandatory, the increasing cost
of liability insurance is forcing retailers to
eliminate some items, and consumers are be-
coming better informed and more demand-
ing. You’ll need to do some homework to
stand behind your products.
Air and water pollution, accumulation of
toxic chemicals and wastes, and over?ow-
ing landfills are just some of the environ-
mental problems of the 21st century. Sev-
eral existing businesses and franchises are
providing opportunities for entrepreneurs
to operate and invest in. Selling organic pro-
duce and herbs, natural garden services,
natural products, products made from re-
cycled materials, and ecotourism are a few
of the ways retailers are making a living and
a life from their beliefs.
WINDOWS OF OPPORTUNITY
Today, finding the right goods or serv-
ices and creatively marketing them no
longer assures that a retail firm will grow
and prosper. You must run your business
with a constant eye on the consumer. You
must have a strategic view of your business
and focus on your positioning, changing
consumer lifestyles, technological advances
and competitive business concepts.
Of all the habits of highly successful busi-
nesses that sell directly to the consumer, the
ability to assess relationships with the mar-
ketplace is perhaps the most crucial. Be-
ing able to anticipate and adapt to constant
changes in the retail environment more
quickly and effectively than the competition
is every retailer’s goal. The ability to harness
the energy of change is what separates in-
novative, energetic, growing, pro?table com-
panies from obsolete, static failures.
Smart Tip
Retailers should be
people people. But hav-
ing the gift of gab and
being comfortable in diverse and
changing conditions are not the
only traits that contribute to suc-
cess. Whether you have a store,
vending machine, catalog or serv-
ice, organizational skills can make
or break you. Your ability to
schedule payments, people, pro-
motions and products requires a
remarkable amount of planning,
focus and perseverance.
Store retailing offers you the kind of
business in which you get to meet lots
of people. The retail store is a cash-and-
carry operation. The day you open your
store to the public, you begin taking in
money at your cash register. Capital re-
quirements are characteristically lower
than for either manufacturing or whole-
saling. This ease of entry is very attractive
and explains the large number of new
stores launched every year.
Consumers 40 and older are more famil-
iar with retail stores than with all other busi-
ness types because they have shopped in
stores all their lives. Younger consumers have
a broader perspective on shopping, which
incorporates various electronic outlets
(telecommunications devices, the internet and
TV) for purchasing goods and services.
WHAT NOW?
Take a look at the demographic trends.
Ask your chamber of commerce, local col-
lege or university business school, refer-
ence librarian, and newspaper market-
ing department for reports on
demographic trends in your city. How are
national trends reflected in your market
area? Are you ahead of or behind what’s
going on? Watch what the leaders are do-
ing. What are the master plans for major
educational institutions, governmental
agencies and businesses in your commu-
nity? Leverage their investments to get a
higher return on yours in the marketplace.
With a growing population over 50, busi-
nesses that sell walkers, jar openers, easy-
dressing clothing, large-print books and oth-
er useful items for the elderly are promising.
Another growing business caters to
teenagers. Tutor concepts like Sylvan Learn-
ing Systems Inc. in Baltimore and Hunt-
ington Learning Centers Inc. in Oradell,
New Jersey, are two examples of early en-
trants in this growing ?eld. Plato’s Closet,
a unit of Grow Biz International Inc. in Min-
neapolis, sells secondhand designer cloth-
ing—just the kind teens are looking for
DO YOU ACCEPT
THE CHALLENGE?
The best retailers are outgoing, verbal
people who like to live in the fast lane. Most
retail jobs present continual variety, meeting
and mixing with people, creating your own
opportunities, and generally engaging in self-
promoting activities. This is a dynamic ?eld
that places a high demand on responding
quickly to change, bringing diverse elements
and people together, working unscheduled
hours, taking rejection, negotiating deals, re-
solving confrontations, and adjusting to pe-
riods of high and low activity.
Is this the kind of atmosphere you want
to work in? Do you have the personality for
retailing? If you answer yes, read on. The
more you learn about retailing, the better
prepared you are to make the right choic-
es when starting your business.
In the next chapter, we’ll cover more
about the personality of a successful retail-
er and help you decide, based on your
strengths and interests, what type of retail
business is right for you.
Chapter 1
Introduction To Retailing
1.14
doc_816820314.pdf
The retail industry provides an exciting way of life for the more than 23 million people who earn their livelihood in this sector of the U.S. economy.
The retail industry provides an ex-
citing way of life for the more than
23 million people who earn their
livelihood in this sector of the U.S.
economy. Retailers provide the goods
and services you and I need—from
food, auto parts, apparel, home fur-
nishings, appliances, and electron-
ics to advice, home improvement,
and skilled labor. Let’s take a look
behind the scenes at the many facets
of this exciting business.
WELCOME TO THE
BIG LEAGUES
Retailing is one of the fastest growing
segments of the economy. As one of the
nation’s largest employers, the retail indus-
try provides excellent business opportuni-
ties. About 12 percent of the approximate-
ly 750,000 new enterprises launched be-
tween 2001 and 2002 (the latest years for
which data is available) were retail opera-
tions. The entrepreneurs behind these ven-
tures risk their capital, invest their time and
make a living by offering consumers some-
thing they need or want. You’ll meet sev-
eral of them in this guide and learn how
they created a niche for themselves.
Most retailing involves buying merchan-
dise or a service from a manufacturer, whole-
saler, agent, importer or other retailer and
selling it to consumers for their personal use.
The price charged for the goods or services
covers the retailer’s expenses and includes a
pro?t. Each year, this vital sector of our econ-
Entrepreneur Magazine’s
Retail Store
1.1
Chapter 1
Introduction To Retailing
omy accounts for approximately two-thirds
of all economic activity. In 2005, the Nation-
al Retail Federation (NRF)—the world’s largest
retail trade association—reported that retail
sales in America reached $4.1 trillion in 2004.
Storefront ventures run the gamut from
clothing boutiques and health-food stores
to hardware stores, coffee shops, bars, laun-
dromats, convenience stores and so on.
Among the more recent arrivals are shops,
day spas, and “pop-up” retailers, which set
up shop for only a few days or weeks at a
time—like Target’s recent short-term ven-
ture in the Hamptons, Vacant, which sets up
shop in various cities for a few weeks, or
the holiday stores you see at Christmas and
Halloween—but there are retail shops for
just about anything else you can imagine.
The NRF says there are more than 1.5 mil-
lion retail establishments in the United States.
Most are store retailers, though there are oth-
er types of enterprises—such as electronic
commerce (e-tailing), mail order, automatic-
merchandising (vending) machines, direct
retailing (door-to-door selling), and service
providers. The service and retail sectors of
the U.S. economy continue to report the
largest numbers of startup companies.
WHAT ABOUT JOBS?
The NRF reports more than 23 million
American workers—1 in 5—are in the retail
industry. At present, more jobs are provid-
ed in retailing than in the entire U.S. man-
ufacturing sector. Thirteen percent of all new
jobs are in the retail sector, says the NRF.
When issuing its 2006 industry forecast,
the NRF predicted 4.7 percent growth,
Chapter 1
Introduction To Retailing
1.2
Want to know where shoppers go? According to Chain Store Age maga-
zine, here’s how the top 100 retailers break down in sales by retail category:
Supermarkets 19.2%
Super centers 11.3%
Hard-lines stores 10.3%
Discount stores 10.1%
Home centers 8.9%
Drugstores 7.8%
Warehouse wholesale clubs 6%
Department stores 5.1%
Electronics retailers 3.5%
Apparel stores 3.3%
Sears, J.C. Penney 2.7%
Mail order catalogs 2.4%
Convenience stores 2.1%
Military exchanges .6%
Shoe stores .6%
Who Are Your Competitors?
Entrepreneur Magazine’s
Retail Store
1.3
which was softer than the previous year’s
6.1 percent forecast. It cited higher ener-
gy costs and rising interest rates as pri-
mary factors. “With the housing market
beginning to slow, consumers will be chal-
lenged to find new sources of spending
power,” says NRF chief economist Ros-
alind Wells. “The strong retail sales we
saw in the second half of 2005 will be re-
placed by more conservative spending in
[2006].” That could mean a slowdown in
job growth in the retail sector. However,
the overall U.S. economy still boasts low
unemployment figures, so experts like re-
tail consultant George Whalin, author of
Retail Success! How to Increase Sales, Max-
imize Pro?ts and Wow Your Customers in
the Most Competitive Marketplace in Histo-
ry (Willoughby Press), say retailers have
little to fear and that their job growth and
security should remain steady for the fore-
seeable future.
BASIC KINDS OF RETAILERS
Retailing is one of the most mature in-
dustries in our economy, and it’s constantly
being reinvented with the advent of new
technologies. Changes in buying behav-
ior, attitudes and buying patterns, and the
restructuring of the retail industry, have
had a significant impact on small busi-
nesses. While some predict the local re-
tailer may become a thing of the past,
there is a bright future for those who can
identify and respond to changing con-
sumer needs faster and better than their
larger competitors. With the internet, TV,
telephone, overnight delivery, and credit
and debit cards, any enterprising individ-
ual can find a niche and begin making
commercial transactions right away.
To give you an overview of the com-
petitive marketplace, we’ll take a brief look
at the various faces and configurations of
selling to the consumer. Keep in mind that
all of these enterprises began as a simple
concept and grew to various proportions
through popularity and perseverance. At
this point in your exploration, anything is
possible for you, too.
Store Retailing
The retail scene in America is a dazzling
array of independent shops, department
stores, discount and off-price enterprises,
convenience stores, membership warehouse
Retailers continue to rede?ne and plan new shopping environments to
provide customers with a variety of places, prices and merchandise. Nikki
Baird of Forrester Research Inc. says the most common physical store cate-
gories and recognizable examples are:
? Mass merchandisers: Kmart, Target
? Convenience stores: 7-Eleven, Circle K
? Membership warehouse clubs: Costco, BJ’s
? National and regional chains: Starbucks, Nordstrom
? Category-killer stores: Home Depot, Best Buy
? Conventional supermarkets: Safeway, Kroger Co.
? Specialty stores: Crabtree & Evelyn, Victoria’s Secret
? Service retailers: SuperCuts, AutoZone
Every Stripe And Shape
clubs, national and regional chains, cate-
gory-killer stores (superstores like Home
Depot and Staples), conventional super-
markets, and other large-scale enterprises
that seem to dominate the retail sector.
Store retailers operate fixed point-of-
sale locations designed to attract a high
volume of walk-in customers. In gener-
al, stores have extensive merchandise dis-
plays and use mass-media advertising to
attract customers. They typically sell mer-
chandise to the general public for personal
or household consumption, but some also
serve business and institutional clients.
These include establishments such as of-
fice supply stores, computer and software
stores, building materials dealers, and
plumbing and electrical supply stores. Cat-
alog showrooms, gasoline service stations,
automotive dealers and mobile home deal-
ers are treated as store retailers by the U.S.
Census Bureau.
To understand this diverse business sec-
tor, government reporting and other infor-
mation is broken down into several sectors
for easier digestion and fact-finding. The
sector groupings are based on one or more
of the following criteria:
? The merchandise line or lines carried by
the store: For example, specialty stores are
distinguished from general-line stores.
? The usual trade designation of the es-
tablishment: This applies in cases where a
store type is well-recognized by the indus-
try and the public but is dif?cult to de?ne
strictly in terms of commodities offered. Ex-
amples are pharmacies, hardware stores and
department stores.
? Capital requirements in terms of display
equipment: For example, food stores have
unique equipment requirements.
? Human resources requirements in terms
of expertise: For example, the staff of a
computer store requires knowledge that’s
not necessary in other retail operations.
Brick-And-Mortar Stores
While shopping on the internet is all the
buzz, independent brick-and-mortars (re-
tailers with physical stores) dominate con-
sumer sales and are expected to remain vi-
able for several reasons. Foremost is their
real-world presence, having a location that
people can drive by, call, and walk through
time and time again. A physical building
lends credibility as a solid and reliable en-
terprise. It also provides an outlet, a desti-
nation, and a gathering place for customers.
Shared experiences and one-on-one ex-
changes are valued by people of all ages.
The ability to look someone in the eye and
ask them questions or watch a demonstra-
tion appeals to human nature. Another ad-
Chapter 1
Introduction To Retailing
1.4
Smart Tip
Successful retailers do
not run their business to
suit themselves. Retail-
ers must cater to the tastes and re-
quirements of customers. This can
mean keeping the doors open on
holidays and weekends, and
opening early or staying late on
some weekdays. You marry the
store when you go into business
for yourself, so expect many com-
promises along the way to pro?ts.
Stat Fact
The National Retail
Federation reports that
California, Texas, New
York and Florida account for 29
percent of all retail workers and
make up approximately 30 per-
cent of all U.S. retail sales.
Entrepreneur Magazine’s
Retail Store
1.5
vantage is the ability to feel and smell the
merchandise, and to try it and compare it
side by side with other items. Shoppers ap-
preciate having a selection of items at their
fingertips. There’s instant gratification for
buyers in carrying their purchase home with
them. And there are no packing and ship-
ping charges. People feel more comfortable
paying in person than giving out credit in-
formation to disembodied entities. Return-
ing items to a store is more convenient than
mailing something back. Personal service,
community involvement and local em-
ployment are three additional aspects of
storefront retailers that will continue to ap-
peal to the public for decades to come.
David Vs. Goliath
You read a lot about the power retail-
ers—the Wal-Marts, Home Depots and Tar-
gets—with huge physical facilities hous-
ing a broad range of merchandise. Faced
with these price-oriented giants, won’t the
little guy get crushed? Not necessarily. Many
“Davids” are learning a thing or two about
ef?ciencies and customer focus from “Go-
liaths” like Wal-Mart, and they’re flexing
their own muscles. In fact, the United States
is primarily a nation of small, independ-
ent merchants: More stores are small, both
in size and sales volume.
The typical store is run by the owner alone
or by a husband-and-wife team. Such small
enterprises naturally lack the substantial re-
sources, purchasing muscle and sophisticat-
ed operations of the large-scale retailers. For
the small retailer, there may be a few em-
ployees, and one or two may be part-time
workers. The store’s size is, of course, relat-
ed to the type of establishment: Furniture out-
lets, for example, require much more space
than shoe stores and neighborhood groceries.
Fred Wilber and his childhood friend,
George Martin, often discussed what they
wanted to do when they grew up. While
still in college, they decided that music was
what they loved most and could do best,
so when they found an empty storefront off
the beaten path in Montpelier, Vermont,
in 1973, they decided to open a music store
called Buch Spieler Music.
“I’ve always been a musician,” Wilber re-
counts. “It’s an intuitive talent.” Wilber’s
brother and a friend ran the business for a
year or so while Wilber pursued a profes-
sional career as a composer in New York.
“I probably could have done all right, but
when my manager/financial backer was
murdered, I returned to Vermont and my
cabin in the woods and was glad I had my
store to go back to.”
Stephanie Bailiff decided to share her
love of dogs with fellow enthusiasts by
opening an all-natural pet bakery in New-
port Beach, California, in 2000. She sees the
market as strong and growing because peo-
ple are having children later and want more
affection and companionship in their dai-
ly lives. “Pet bakeries are popping up every
where in Southern California. There are
about 10 that I know of,” she says. “There
are a ton of wholesalers for this all-natural
industry. I’ve been cooking for my own
Stat Fact
“All-natural pet bak-
eries are an up-and-
coming trend in the
$35 billion pet industry,” says
Stephanie Bailiff, who re-
searched the industry before
leaving her law practice in 2000
to start The Barkery in Newport
Beach, California. “It’s develop-
ing into an industry of its own
with about 40 percent of the
larger pet retailing market. The
oldest [all-natural pet bakery]
I’ve heard of started in 1980.”
dogs for a long time. I love coming up with
new recipes—like the marinara morsels I
made the other day.”
Specialty Retailing
While power retailers tend to sell
“needs,” specialty retailers tend to sell
“wants.” They focus more on neighborhood
convenience, the richness of the shopping
experience, and inventory that meets the
needs of their target customer on a per-
sonalized basis. Small stores show surpris-
ing strength and resilience in the face of
competition from large-scale retailers and
internet retailers. They offer the consumer
a warmer atmosphere, and perhaps a broad-
er and deeper selection of merchandise.
Many stores can be owned and operated
by one person with minimal assistance. Com-
pared to manufacturing operations, special-
ty retail out?ts are relatively easy to start both
financially and operationally. However, a
number of failures are due to undercapital-
ization, poor location and insuf?cient mar-
ket analysis. This guide is intended to help
you avoid startup pitfalls by providing you
with tricks of the trade to help you succeed.
There is always room for the right kind
of store. Geographic shifts of large numbers
of consumers are characteristic of our mo-
bile population; stores need to be wherev-
er people live. Fashions, changing lifestyles,
increasing concern about health care and
technological advances all contribute to the
need for new variations on old retailing
themes. Finally, retail openings continue to
occur as established merchants retire, sell
their businesses, or close down because of
poor management practices or changes in
the local environment. Your small store
launched today may become the next
Lowe’s or Starbucks within the next decade.
Nonstore Retailing
When you look at the array of business
opportunities in retailing, be sure and include
the $172 billion nonstore retailing sector, as
reported by the U.S. Census Bureau. These
businesses are primarily engaged in the re-
tail sale of products through TV, electronic
shopping, paper and electronic catalogs,
door-to-door solicitation, in-home demon-
stration, portable stalls, vending machines,
and mail order. With the exception of vend-
ing, these businesses do not ordinarily main-
tain stock for sale on the premises. They deal
in books, coins, computers and peripherals,
food, fruit, jewelry, magazines, novelty mer-
chandise, CDs, audiotapes, stamps, and
home-shopping ventures, among others.
When exploring your options, consider
combining one or more retail opportunities.
For example, if having a store is the object
of your desire, think about adding a toy or
gumball machine as an extra revenue
stream. If you are thinking about setting up
a tax-preparation or insurance-billing serv-
ice in your home, perhaps you’ll want to
publish a mail order catalog of topical au-
diotapes, rubber stamps, forms and books
you can sell to augment your customer base.
There are many advantages to this type
of retailing—one being that the buying,
maintenance and protection of a large in-
ventory is not necessary, as you contract
Chapter 1
Introduction To Retailing
1.6
Bright Idea
Even if you’re working
full time, pick up some
part-time or seasonal
work in a retail store to get the
feel of a small business. Observe
how decisions are made, how
employees are trained, and what
kinds of customer attitudes you
encounter. How are resources al-
located? See how vendors and in-
ventory are handled. See what
works and what doesn’t.
Entrepreneur Magazine’s
Retail Store
1.7
with others to handle these matters. The U.S.
Census Bureau says there are nearly 55,000
nonstore retailers in the United States.
Temporary Locations
In your travels down remote roads and
through the countryside, you’ll find road-
side stands offering ripe tomatoes, fresh
corn by the bushel, avocados, freshly laid
eggs, and other agricultural and dairy prod-
ucts. You might also see handcrafted items,
artwork, souvenirs, holiday gifts, regional
tokens and novelties. Many of these busi-
nesses sell year-round, though some are
seasonal by nature. Carts in malls and by
roadways, swap meets, spontaneous garage
sales, holiday or summer retail operations,
and weekly farmers’ markets are addition-
al outlets for the ambitious retailer.
Direct Selling
Direct retailing means selling to the con-
sumer in his or her home using the tele-
phone, the internet or direct mail. Home-
shopping TV channels and infomercials have
boosted the popularity of shopping from the
privacy and comfort of home. TV-based
home shopping was originally touted as a
new era in retail, but today the sector is
dominated by two main players—HSN,
which reports worldwide sales of $2.4 bil-
lion, and QVC, with $5.7 billion in sales.
People have to watch a show in real time
to order items before they disappear from
the air, although both networks also have
ordering capability through their websites.
The convenience of ordering from home
amid high gasoline prices, crowded high-
ways and stores, time crunches, and phys-
ical and geographic barriers works to the
advantage of direct retailers. According to
the Direct Marketing Association, 2005 sales
for direct retailing through TV, including
home shopping networks, infomercials and
direct response TV commercials, were ap-
proximately $150 billion.
With phone marketing, in less than two
minutes you can complete a transaction—
speak with your customer, exchange in-
formation and take an order. For more
than a decade, there has been an increase
every year in the use of pay-per-call, toll-
free numbers and fax-on-demand for al-
most every application imaginable. Con-
sumers can purchase advice, news and
information, magazine subscriptions,
telecommunication programs, investments,
videotapes, health supplements, and ex-
ercise equipment over the phone. The
market is endless. Using telephone tech-
nology, you can inform, educate, solicit
and satisfy the consumer and your busi-
ness needs. Because sales are made to one
person by phone at a time, bulk orders,
higher-priced items and contract purchases
are the most cost-effective.
In this techno age, many consumers
like to be able to ask a real person ques-
tions before they buy and to feel like the
person cares about them. According to the
Direct Selling Association, approximate-
ly 32 percent of home and family-care
products, such as cleaning products, cook-
ware, cutlery, etc., and nearly 30 percent
of personal-care items, such as cosmetics,
jewelry, skin-care products and the like,
are sold through direct sales by compa-
nies such as Amway, Avon, Fuller Brush,
and Tupperware. House-to-house can-
vassing, party plans and network market-
ing are among the techniques used
to sell almost everything—clothing, per-
fume, toys, china and crystal, home fur-
nishings, health and beauty aids, and gen-
eral merchandise. The 2002 Economic
Census identified about 22,000 of these
firms nationwide, with a total sales vol-
ume of $22.4 billion.
Mail Order
From glossy wish books to basic bro-
chures, catalogs are popular with those
who live far from shopping areas, the eld-
erly, those seeking the unusual or the ob-
scure, and those who simply hate to shop.
What could be easier than calling a 24-
hour, toll-free phone number to order
clothing, gifts and gadgets? With direct
mail, sales materials can be sent to thou-
sands of potential customers at one time
to either make a sale or generate a sales
lead. According to the Direct Marketing As-
sociation, direct marketing, such as direct
mail and infomercials; interactive market-
ing, such as interactive websites and
kiosks; and database marketing, such as
direct mail and e-mail campaigns, gener-
ated more than $2.3 trillion in U.S. sales in
2004, including $143.3 billion in catalog
sales and $52.5 billion in internet-driven
sales. Selling products and services directly
to consumers by mail is a growing sector
because it offers entrepreneurs a high re-
turn on a low initial investment.
Mail order enterprises include general
merchandise businesses, companies that
sell specialty goods of all kinds, novelty
?rms, various types of clubs (CDs, DVDs,
books, audiotapes, gifts), and so on. In
most cases, catalogs are sent to consumers
in de?ned niches on a regular basis. Most
of the catalog companies offer some form
of expedited delivery so customers can re-
ceive merchandise quickly.
The extraordinarily versatile medium of
direct mail enables you to target people,
groups or organizations within your trad-
ing area, all of which may be likely
prospects for your retail business. And you
can work out of your home, a warehouse
or a brick-and-mortar store.
An up-to-date mailing list is the key to
direct-mail pro?ts with back-end ful?llment
and relational database support. Most peo-
ple selling things by mail need at least a 200
percent markup to make money. You
shouldn’t pay more than $10 for something
you sell for $30. If you think this is the re-
tail area for you, check out the mail order
chapters in Entrepreneur’s startup guide No.
1819, Online Business. Here, you will learn
where to find the best products, how to
save on advertising costs and select mail-
ing lists, and help you maximize your print
or online mail order operation.
The Internet
The internet has changed the retail land-
scape, connecting companies, markets and
individual consumers. Industry research ?rm
JupiterResearch says that while online sales
only account for 5 percent of all retail sales,
nearly one-fourth of all sales are impacted
by online retailing.
“Customers have researched a product,
compared prices or found a store online be-
Chapter 1
Introduction To Retailing
1.8
Mail order has evolved from general catalogs to specialty ones. Small en-
trepreneurs can compete with the large houses and sell at bargain-basement
prices because of low operating costs. Improvements in technology and deliv-
ery speed merchandise to customers. Specialty mail order appeals to busy
people, hobbyists, people located in remote areas, and collectors. Local mer-
chants and homebased entrepreneurs can ?ll niches and meet special needs
for one-of-a-kind and limited-production items, gifts, novelties, leather goods,
and personalized products. A recent accounting by the U.S. Census Bureau of
10,000 mail order houses reported nearly $95.7 billion in sales.
Specialty Catalogs Deliver
Entrepreneur Magazine’s
Retail Store
1.9
fore they bought it of?ine,” says Patti Free-
man Evans, an analyst with JupiterResearch.
“More and more, customers are using on-
line tools as a way to find out and make
their product and purchase decisions. It’s
important for all retailers, large and small
to be part of that conversation.”
Storefront retailers of all kinds are us-
ing the internet in increasingly creative and
pro?table ways, and you’ll hear from some
entrepreneurs in this book about how
they’re doing that. For more information
on setting up an e-commerce business,
read Entrepreneur’s startup guide No. 1819,
Online Business.
Vending Machines
Automatic merchandising—or vending
machine retailing—has been a proven busi-
ness concept for more than a century.
Vending Times, the industry’s trade mag-
azine, reports that snacks and soda sales
alone totaled more than $41 billion in 2002.
As with any other sales venture, having the
right product in the right place at the right
time is key. This business is highly ap-
pealing because of the low startup cost,
low working capital and low overhead.
This is a cash business, with you collect-
ing the money when you replenish sup-
plies. In Europe, shoppers can use their
cell phones to pay for items in vending
machines by debiting their checking ac-
counts online. This is the future for Amer-
ican vendors as well.
Once mostly restricted to gum, candy
bars and canned sodas, today’s vending
machines sell snack foods, fruit, hot
drinks, soups, milk, ice cream, fresh flow-
ers and an array of impulse goods and ne-
cessities. The machines are usually placed
in high-traffic locations, such as subway
stations, railroad and bus terminals, restau-
Fun Fact
According to the Na-
tional Automatic Mer-
chandising Association,
vending dates to 215 B.C.
in ancient Egypt. In his writings,
the mathematician Hero, of
Alexandria, described a device
found in places of worship that
would dispense holy water when
a coin was deposited.
Until the late 1990s, buyers and sellers conducted trade through three
channels: in person, by phone and by mail. The internet has become the fourth
way for consumers to get what they want. Here’s what experts say merchants
should prepare for:
? Doing business 24 hours a day, seven days a week
? Making price comparisons with sources around the world
? Consumers’ online research in?uencing billions of dollars in of?ine sales
? Consumers turning to the internet in record numbers to ful?ll their gift-giving
and other purchasing wants and needs
? Retail competitors conducting business online and building relationships with
customers through e-mail, forums and chat rooms
Reinventing Retailing
rants, office buildings, and bars. Entre-
preneur’s startup guide No. 1375, Vend-
ing Business, shows you how to capitalize
on the billions of dollars Americans feed
vending machines every year.
SERVICE RETAILERS
Some retailers offer after-sales services,
such as repair and installation. For exam-
ple, musical instrument stores, electronics
and appliance stores, pool and spa stores,
and computer stores often provide repair
services. Then there are stores that are ded-
icated to service, such as shoe repair, pool
and spa water treatment, and vacuum and
sewing machine service. Service organiza-
tions include those specializing in educa-
tion, travel, entertainment, health care,
home care, child care, physical training,
space planning/organization, coaching, in-
surance, and countless others.
A service ?rm is one that derives more
than 50 percent of its sales from providing
services that may involve a combination
of tangible and intangible offerings. Ser-
vice businesses are currently the most fre-
quently established operations. Since they
usually sell a specialty or skill, credibility
is very important. Startup costs are often
low, and many service businesses can be
operated from home.
Services provided by real estate brokers
and tax advisors require some knowledge
or skill. Selling a service to consumers is
usually more of a challenge than selling
merchandise. Consumers can touch, han-
dle and examine goods; this is something
they cannot do with most services. Services
must be experienced. For example, hair
styling and dating services have to be ex-
perienced to be evaluated.
You may need to tell the prospective cus-
tomer what you are going to do, do it, and
explain why you did it that way. For ex-
ample, a carpet-cleaning service that uses a
deodorizing process after cleaning the car-
pet should tell its customers about the spe-
cial care included in the price and why this
extra step is bene?cial. Service providers of-
ten spend more time with their customers
than do merchandise providers.
Many services are essentially perishable.
For example, event tickets are only good for
the day and time of the baseball game or
performance. And dentists, physicians, at-
torneys, consultants and accountants cannot
recover earnings lost because of an un?lled
or lost appointment. In contrast, tangible
goods can be held in inventory and sold over
several days or months. If a hotel room is
empty for an evening, the revenue is lost for-
ever, whereas a book or roll of wallpaper
can be pro?table for many seasons.
Most service ?rms are small, single-unit
operations, and small size limits service com-
panies’ ability to achieve economies of scale.
Changes are occurring, however, as tangi-
ble-goods firms have established major
stakes in service and have introduced tan-
gible-goods merchandising techniques in
the services area. The International Fran-
chise Association says that one of the newest
and fastest-growing sectors is high-tech med-
ical spas, offering noninvasive services like
laser hair removal and facial treatments. In
addition, meal-assembly stores, which only
began franchising in 2003, are hot franchise
opportunities and growing quickly. Fran-
chises that save people time and effort are
also big, such as franchised home repair
services, where employees perform simple
tasks, like installing a shelf or curtain rods,
for a fee. Service industries are typically char-
acterized by low barriers to entry. Conse-
quently, competitors can quickly enter a
market and challenge existing businesses.
Many service organizations are labor-in-
tensive. The output of an attorney, florist
or tax preparer cannot easily be increased.
These and other services must be person-
ally produced and tailored to the needs of
individual clients. This precludes the use of
Chapter 1
Introduction To Retailing
1.10
Entrepreneur Magazine’s
Retail Store
1.11
automation and other labor-saving strate-
gies. Because of this, and the fact that many
services are offered only at the point of sale,
standardization in the level of service and
quality is dif?cult to achieve.
The demand for services is often more
dif?cult to predict than the demand for tan-
gible goods. And demand for services can
?uctuate widely by the month, day of the
week or even the hour of the day.
Consumers also seem to feel that pur-
chasing services is a less pleasant experience
than buying goods, and consumers perceive
higher levels of risk in buying services than
in purchasing tangible goods. To bridge the
“information gap,” consumers are increasingly
doing their research on lawyers, mechanics,
banks, and a host of service providers on the
internet the same way they compare features
and prices for tangible goods.
Consuming Appetite For Services
Time is becoming increasingly scarce for
millions of people. The 24/7 pace technol-
ogy has brought us spells opportunity as
well as challenge for retailers. New busi-
nesses have sprung up to take care of many
of life’s chores. Personal shoppers, moth-
ers’ helpers, after-school programs, tutors,
handyworkers, maids, valets, insurance and
tax preparers, home grocers, pet walkers,
and reminder services are just a few ideas
entrepreneurs are cashing in on. The ma-
jority of couples are two-income families,
leaving little time for preparing meals, pick-
ing up the dry cleaning, reading a software
manual, remembering birthdays, standing
in bank lines, and waiting for the cable in-
staller to show up. People will pay dearly
for more time, so ?gure out what you can
sell or do to put people back in charge of
their days, and you’ll be a winner. Check
out Entrepreneur’s business service startup
guides No. 1306, Gift Basket Service; No.
1334, Home Inspection Service; No. 1058,
Child-Care Service; No. 1313, Event Plan-
ning Service; No. 1330, Wedding Consul-
tant; No. 1828, Personal Concierge/Shop-
per, and other startup guides for details on
how to ?ll consumers’ needs.
STEP UP
Whether you are interested in a store,
service or hybrid operation, the deciding
factor in your success or failure will be your
relationship with the consumer. Get to
know your prospects. Consider testing your
business concept from home to control
overhead costs. After gaining encouraging
sales from friends, relatives and neighbors,
you can extend your reach through cata-
log, fax and phone sales. From there, you
might want to sell from a cart in a local mall
or through a short rental in temporary space
to test walk-in traffic and promotional ef-
forts. Then you can determine if your sales
and management skills justify startup costs
and long-term commitments. With a realis-
tic view of what you’re getting into, you can
examine your options for location, size and
format—that is, can you sell more, and
more profitably, through one distribution
channel over another? Which form would
that be—catalog, physical or virtual store,
or TV and radio sales?
RETAILING’S IMAGE
Retail businesses exist to make people
happy. To the extent that you satisfy cus-
tomers, you ful?ll your company goal. Af-
ter that’s said and done, retailers are in the
business of customer satisfaction. This is the
Stat Fact
More than half of re-
tail failures are in oper-
ation for four years or
less, according to the SBA’s
Of?ce of Advocacy.
key to growth and pro?ts.
The industry continually strives to shift
its image from one that pro?ts from others
to one that serves people’s interests. Im-
age has many sides to it: friendliness of per-
sonnel, quality of merchandise, level of serv-
ice, and ease of access. You must be ever
conscious of the perceived risk the con-
sumer has of doing business with you. One
is social risk: What someone buys affects
how others view that person—fashionable
and smart, or behind the times and igno-
rant. The second risk is economic. This is
the possibility that a purchase decision will
greatly reduce the consumer’s budget and
not yield substantial satisfaction or value.
Social Responsibility
Retailers are improving their image by as-
suming greater social responsibility. In doing
so, they’re meeting the needs of society as
a whole, rather than just focusing on maxi-
mizing profits. They provide their facilities
for art exhibits, forums and community ac-
tivities. Executives lead fund-raising drives
that bene?t the community, underwrite pro-
grams, sponsor events, and mentor students.
Being a business owner provides opportu-
nities for you to be involved in issues that
matter to you and your customers.
Some retailers choose to locate in a
downtown area that has become blighted
over the years. They use some of their
profits to help supplement federal funds
for revitalizing the area. Locating in an in-
ner city has special challenges because of
the problems of vandalism, shoplifting and
other crimes. Nonetheless, some retail-
ers want to make a contribution to soci-
ety by upgrading the inner city while look-
ing for profits over time.
Long a leader in providing career op-
portunities for women, retailers have gen-
erally made an effort to match the cultural
mix of their employees to the community
that surrounds them. This is a combination
of social responsibility and good business
sense. Many retailers have also initiated in-
ternal affirmative action programs to pro-
vide minorities with equal opportunities for
upward mobility. Some retailers make a
special contribution by employing high
Chapter 1
Introduction To Retailing
1.12
To help ?ght the problem of so-called “sweatshops,” all members of the
National Retail Federation endorse the organization’s Statement of Principles
on Supplier Legal Compliance and pledge that they:
? are committed to legal compliance and ethical business practices
? choose suppliers who share that commitment
? include contractual language requiring their suppliers to comply with the law
? take appropriate action if a supplier has violated the law
? support and cooperate with law enforcement authorities in the proper execu-
tion of their responsibilities
“Retailers take their responsibilities to their customers very seriously, and we
have taken aggressive and proactive steps to help our suppliers obey the law,”
says Tracy Mullin, president of the trade association. “Retailers have answered
the call and are doing their part to ensure that the products they sell are made
legally, ethically and morally.”
Retailers’ Call To Action
Entrepreneur Magazine’s
Retail Store
1.13
school dropouts and prison parolees in an
attempt to train and retain them for the
good of society and the ?rm.
Retailers are also assuming greater re-
sponsibility for the products they sell. As a
retailer, you will have to be careful in buy-
ing products from resources. This involves
not only ownership and licensing issues
but also labor practices, environmental con-
cerns and research procedures. Growing
numbers of consumers prefer products
made with sustainable materials and will
not use certain kinds of animal or plant
products. They want to discourage the use
of chemicals and materials that are harm-
ful to people and the environment, are
wary of genetically engineered foods, and
expect disposable items to be recyclable.
Retailers should be aware of groups like
the Sierra Club, People for the Ethical
Treatment of Animals, and Greenpeace,
which often in?uence consumers’ percep-
tion of proper business conduct. The Fair
Trade Federation is an association of fair
trade retailers, wholesalers and produc-
ers whose members adhere to social cri-
teria and environmental principles to fos-
ter a more equitable and sustainable system
of production and trade.
Know that you may also be required to
have some products tested or review test doc-
umentation before selling a product. The rea-
sons are obvious: Government regulations
are making it mandatory, the increasing cost
of liability insurance is forcing retailers to
eliminate some items, and consumers are be-
coming better informed and more demand-
ing. You’ll need to do some homework to
stand behind your products.
Air and water pollution, accumulation of
toxic chemicals and wastes, and over?ow-
ing landfills are just some of the environ-
mental problems of the 21st century. Sev-
eral existing businesses and franchises are
providing opportunities for entrepreneurs
to operate and invest in. Selling organic pro-
duce and herbs, natural garden services,
natural products, products made from re-
cycled materials, and ecotourism are a few
of the ways retailers are making a living and
a life from their beliefs.
WINDOWS OF OPPORTUNITY
Today, finding the right goods or serv-
ices and creatively marketing them no
longer assures that a retail firm will grow
and prosper. You must run your business
with a constant eye on the consumer. You
must have a strategic view of your business
and focus on your positioning, changing
consumer lifestyles, technological advances
and competitive business concepts.
Of all the habits of highly successful busi-
nesses that sell directly to the consumer, the
ability to assess relationships with the mar-
ketplace is perhaps the most crucial. Be-
ing able to anticipate and adapt to constant
changes in the retail environment more
quickly and effectively than the competition
is every retailer’s goal. The ability to harness
the energy of change is what separates in-
novative, energetic, growing, pro?table com-
panies from obsolete, static failures.
Smart Tip
Retailers should be
people people. But hav-
ing the gift of gab and
being comfortable in diverse and
changing conditions are not the
only traits that contribute to suc-
cess. Whether you have a store,
vending machine, catalog or serv-
ice, organizational skills can make
or break you. Your ability to
schedule payments, people, pro-
motions and products requires a
remarkable amount of planning,
focus and perseverance.
Store retailing offers you the kind of
business in which you get to meet lots
of people. The retail store is a cash-and-
carry operation. The day you open your
store to the public, you begin taking in
money at your cash register. Capital re-
quirements are characteristically lower
than for either manufacturing or whole-
saling. This ease of entry is very attractive
and explains the large number of new
stores launched every year.
Consumers 40 and older are more famil-
iar with retail stores than with all other busi-
ness types because they have shopped in
stores all their lives. Younger consumers have
a broader perspective on shopping, which
incorporates various electronic outlets
(telecommunications devices, the internet and
TV) for purchasing goods and services.
WHAT NOW?
Take a look at the demographic trends.
Ask your chamber of commerce, local col-
lege or university business school, refer-
ence librarian, and newspaper market-
ing department for reports on
demographic trends in your city. How are
national trends reflected in your market
area? Are you ahead of or behind what’s
going on? Watch what the leaders are do-
ing. What are the master plans for major
educational institutions, governmental
agencies and businesses in your commu-
nity? Leverage their investments to get a
higher return on yours in the marketplace.
With a growing population over 50, busi-
nesses that sell walkers, jar openers, easy-
dressing clothing, large-print books and oth-
er useful items for the elderly are promising.
Another growing business caters to
teenagers. Tutor concepts like Sylvan Learn-
ing Systems Inc. in Baltimore and Hunt-
ington Learning Centers Inc. in Oradell,
New Jersey, are two examples of early en-
trants in this growing ?eld. Plato’s Closet,
a unit of Grow Biz International Inc. in Min-
neapolis, sells secondhand designer cloth-
ing—just the kind teens are looking for
DO YOU ACCEPT
THE CHALLENGE?
The best retailers are outgoing, verbal
people who like to live in the fast lane. Most
retail jobs present continual variety, meeting
and mixing with people, creating your own
opportunities, and generally engaging in self-
promoting activities. This is a dynamic ?eld
that places a high demand on responding
quickly to change, bringing diverse elements
and people together, working unscheduled
hours, taking rejection, negotiating deals, re-
solving confrontations, and adjusting to pe-
riods of high and low activity.
Is this the kind of atmosphere you want
to work in? Do you have the personality for
retailing? If you answer yes, read on. The
more you learn about retailing, the better
prepared you are to make the right choic-
es when starting your business.
In the next chapter, we’ll cover more
about the personality of a successful retail-
er and help you decide, based on your
strengths and interests, what type of retail
business is right for you.
Chapter 1
Introduction To Retailing
1.14
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