Starting a Retail Clothing Store

This document is a guide prepared by the Canada-Saskatchewan Business Service Centre and is intended to provide you with general information and suggested resources to assist you in researching your project.  The extent to which this information will apply to you is dependent upon the circumstances related to your project.

For further information on individual topics identified herein, contact the respective governing body or the Canada-Saskatchewan Business Service Centre. Because this document is only meant as a guide, the Business Service Centre will not accept responsibility for business decisions made based on the information provided.

Before proceeding, reference should be made to the Business Start-up Info-Guide, which covers the basic steps involved in establishing a new business in Saskatchewan; as well as the document titled A Current Index of Business Fact Sheets.   These fact sheets cover a wide variety of business topics.  Be sure and also request the Sources of Information and Required Licenses for your area or view these on our Business Fact Sheets Web site.

TABLE OF CONTENTS

• Industry Overview
• Licenses and Regulations
• Managing Your Operation
• Associations and Contacts
• Education and Training
• Resources
• Recommended Books in Our Library
• Video Collection
• Recommended Internet Web Sites

INDUSTRY OVERVIEW

• To succeed in the retail clothing industry, you must enjoy meeting people, have selling and fashion savvy, adapt well to change and work long hours.
• Before starting your own store, gain experience and expertise in the industry and take related training and courses.
• The industry is very competitive -- 80% of retail clothing businesses fail within the first five years. This is often due to poor management, tough competition from department and discount stores, and poor evaluation of fashion trends.

SIC codes
Canadian 1980 standard industrial classification codes for various industries.

Sample SIC Codes:

• 6121 Men's Clothing Stores - establishments primarily engaged in retail dealing in men's and boys' clothing (except athletic) and accessories.
• 6131 Women's Clothing Stores - establishments primarily engaged in retail dealing in women's clothing (except athletic) and accessories.
• 6141 Clothing Stores - establishments primarily engaged in retail dealing in clothing not elsewhere classified or in a combination of men's, women's and children's clothing and accessories. Included in this industry are establishments primarily engaged in retailing fur goods.
• 6541 Sporting Goods Stores - establishments primarily engaged in retailing athletic clothing.

NAICS codes
A few years ago, the statistical bodies of Canada, the U.S. and Mexico got together to come up with a classification that was the same for all three countries, so that data collected in all three countries on a specific industry could be compared accurately across country boundaries. This system is called the "North American Industrial Classification System" or NAICS (pronounced "nakes").

Sample NAICS codes are :

• 44811 Men's Clothing Stores - establishments primarily engaged in retailing a general line of new, men's and boy's, ready-to-wear clothing.
• 44812 Women's Clothing Stores - establishments primarily engaged in retailing a general line of new, women's, ready-to-wear clothing, including maternity wear.
• 44813 Children's and Infants' Clothing Stores - establishments primarily engaged in retailing a general line of new, children's and infants', ready-to-wear clothing.
• 44814 Family Clothing Stores - establishments primarily engaged in retailing a general line of new, ready-to-wear clothing for men, women and children, without specializing in sales for an individual gender or age group.
• 448150 Clothing Accessories Stores - establishments primarily engaged in retailing a single or general line of new clothing accessories.
• 448199 All Other Clothing Stores - establishments, not classified to any other industry, primarily engaged in retailing specialized lines of new clothing. This category includes: athletic, bridal, jeans, leather, lingerie, maternity, swimwear, uniforms and work clothing.

Franchising
As a potential business owner, you may be considering buying an existing or opening a new franchised store. As a franchisee, you enjoy the benefits of "Good Will" that the name and reputation of the franchise already possesses. You also have, in many cases, the support of the parent company in issues such as location selection, management training, free advertising and support during the start up phase of your operation. Also you have the advantage of capitalizing on an already profitable concept. However, as a franchisee, you must pay the franchisor for the benefits provided, and these costs come off the top of your sales revenue and may add up to more than 10%. Also your freedom is somewhat restricted when you own a franchise. You must adhere to the standards set by the franchise.

For further information regarding Franchising, see the document Checklists For Franchisees .

Links and resources for Franchising

Canadian Franchise Association
The Canadian Franchise Association represents over 350 franchise companies and the professionals who support this way of doing business.
Publication: Franchise Canada Magazine

International Franchise Association
IFA provides information and resources on franchising and the Virtual Franchise Opportunities Mall--one-stop-shopping place for obtaining your franchised business.

Franchise Opportunities
Franchise Opportunities provides the Web's largest directory of franchises and franchise business services available on-line.

Location

• When choosing a location for your store, do your research. Check population statistics, demographics, neighbourhood characteristics, traffic counts and area development plans. See advice from retail experts.
• Find out where your market lives and shops.
• Find out where your competition is -- too many stores can lead to price-cutting, lower profits and difficulty in building customer loyalty.
• Create a distinct image. Set yourself apart.
• Make sure that people can see your store from many angles and that they can reach you by public transportation or park nearby.
• Shopping malls are prime locations but can have higher rental cost

For further information regarding Location, see the document Store Location - "Little Things" Mean A Lot

Buying an existing store

• Study all opportunities carefully. Find out why a store is being sold. Interview the previous tenants and neighbouring businesses.
• Audit the store's financial records for the last three years. Make sure there are no liens, back taxes or pending lawsuits.
• Have the present owner take back a loan (vendor take back mortgage - whether full or partial mortgage).
• Confirm the sales volume in the records. Count all stock items and check their value, condition and sale ability.
• Calculate any renovation costs.

For further information regarding buying a business, see the document Buying A Business .

Leasing space

• Consult with a lawyer to review a lease agreement to cover all aspects and protect your interests. Make sure you can sublet the site if you relocate or fail.
• Calculate renovation costs -- these are often under-estimated.
• Pay a monthly rental fee, a percentage of annual gross sales or a combination.
• Evaluate your use of space. Compare the actual floor space with annual gross sales by department. For information on ratios, check with Statistics Canada.

For further information regarding Location, see the document Questions To Ask Before You Sign A Lease

Design and layout
Combine the elements of design, layout, and displays to create your store's unique image, highlight your merchandise and make a lasting impression. You will also:

• Boost the demand for items in the introductory stage of the product life cycle.
• Educate customers about new items.
• Encourage customers to buy on impulse and to buy more than one item.

Window displays

• Shadow box windows are small eye-level windows for items such as jewellery.
• Straight front windows are glass-enclosed areas from floor to ceiling facing a street or mall. They can be open or closed to the inside of the store.
• Corner windows can be seen from two angles.

Interior displays

• Island displays are freestanding, low platforms with a theme and mannequins.
• Perimeter displays use walls, ceilings and shelves to display items.
• Showcases, wall cases, and glass-topped counters that house accessories.
     
  Complementary display aids

• Product posters and reprints of store advertisements.
• Small impulse items placed near cashier.
• Specialized racks and cardboard counter cards for items such as earrings.
• Fixtures which grab attention and highlight items.
• Large overhead canvasses and banners and small signs for sales racks.

Marketing/Advertising

• Advertising aims to inform, create interest and establish customer confidence. When opening a clothing store, you might spend up to 6% of your operating expenses on advertising, then lower the percentage when established.
• Consider promotions such as fashion shows/consultations, free alterations, fair returns/exchange policies, credit card purchases/lay away plans (instalment credit).
• Once you know your budget and target market, figure out the number and type of ads you need. Product ads focus on merchandise; institutional ads focus on your services and store image.

Three kinds of media can be especially cost-effective:

1. Direct mail, to send personalized information to those on a mailing list.
2. Newspapers, especially local papers, particularly for promoting special events.
3. Radio, to reach certain markets, such as country stations for western wear.

Visit the Advertising and Promotion section on our Business Fact Sheets Web site.

Internet
A Web site should have details to describe the location (your store's address, telephone and fax numbers, and directions on how to get to your store), hours of operation, menus, and anything else you think may be of interest to potential customers. However, once you launch a Web site, you must update it on a regular basis.

For further information regarding Advertising, see the document Signs And Your Business,  the document Plan Your Advertising Budget, the document  Advertising Do's And Don'ts or the document  Ways To Promote Your Product Or Service.

The Online Small Business Workshop   - Marketing Basics listed in Session 2, covers the basics from developing your customer profile to promoting your business.

The federal Competition Act governs misleading advertising and deceptive marketing practices for all businesses in Canada. The Act defines which marketing practices are illegal and the process of complaint investigation. For more information see the document Competition Act - Misleading Advertising and Deceptive Marketing Practices or refer to the pamphlet on this subject administered by Industry Canada - Misleading Representations and Deceptive Marketing Practices or visit the Competition Bureau Web site. 

Market Research
Successful businesses have extensive knowledge about their customers and their competitors. Acquiring accurate and specific information about your customers and competitors is a critical first step in market investigation and development of a marketing plan.

In developing a marketing plan, your primary functions are to understand the needs and desires of your customer, select or develop a product or service that will meet customer needs, develop promotional material that will make the customer aware and ensure product or service delivery.

For further information regarding marketing see the document Market Analysis ,  the document Guide To Market Research and Analysis,  the document Marketing Plan Outline, or the document Recommended Information - Demographics/Statistics.

For more information on marketing and advertising refer to our web site;  Links Sectors and Business Fact Sheets.

Pricing
The price of clothing items should allow for sufficient gross profit to cover overhead expenses and a reasonable net profit. Choose and understand one or two pricing methods -- mark-up (based on cost) or margin (based on selling price). Traditionally, retail clothing has had mark-ups of approximately 43 to 67%, margins of 30 to 40%.

Selecting Inventory
Select carefully to meet your market's needs, to keep up with fashion trends and to develop the right product mix. This process also depends on your plans, finances, space, type of clothing and the expected turnover rate. Tips:

• Buy specific items from within several product lines for wide selection and to protect you in case a line does not sell.
• Watch for unacceptable quality, or partial, inaccurate or late shipments.
• Most suppliers will ask you to pay cash until you are established. Limit the number of suppliers you deal with. Attend trade shows.

Controlling inventory
An inventory control system tells you what's selling and how much, what's not selling so it can be marked down and the current dollar amount you have in stock. The exact system you choose depends on the size of your store, type of clothing and competition. Three methods are used, often together:

• Dollar-control, based on selling price, and best used on a daily basis.
• Unit method, which confirms the results from the dollar-control method. It checks the actual units of merchandise according to size, colour and so on.
• Ticket counts, based on tickets removed from items as they are sold.

For further information regarding Inventory, see the document Departmentalizing And Inventory Management In A Retail Store .

LICENSES AND REGULATION

One area of rules and regulations that all new businesses must comply with is that of licenses and regulations. When creating a business, the entrepreneur must contact the municipality involved, along with the provincial/territorial and federal governments.

Each municipal government has the authority to issue its own business licenses within its jurisdiction. Since there is no uniformity throughout the country regarding municipal licenses for businesses, you should consult with the appropriate local officials to determine whether your business will be affected by local regulations and licensing requirements. Businesses (including home-based businesses) must also meet the zoning by-laws that control property uses in their municipalities.

MANAGING YOUR OPERATION

Insurance
Upon deciding to establish a retail-clothing store, you should obtain the expertise of an insurance agent regarding insurance coverage for your business. If you own, rather than lease your place of business, you will need insurance coverage for your property. Also, regardless of property ownership, you will require insurance protection for inventory and stock. Some of the other areas you should be concerned about is liability coverage against mishaps, damages or lawsuits resulting from business operations and business interruption insurance.

The following list is included to remind you not to overlook the complex areas of business insurance. It is best, however, to discuss your specific requirements with your insurance agent.

Basic insurance:

• fire insurance (extended coverage on buildings and contents);
• liability insurance;
• burglary protection (theft coverage);
• dishonesty insurance (covers thefts by employees).

Security

• Check employee histories when hiring to help keep internal theft to a minimum.
• Train staff to watch for shoplifters; apprehend and prosecute those caught.
• Use mirrors to see all areas of the store and electronic tags that trigger alarms.
• Lock expensive items in glass cases and chain expensive items to hangers.
• Check all identification and get authorization for cheques and credit cards

Accounting/Bookkeeping
A good record keeping system should be simple to use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.

Note: All staff working with cash should be trained to recognize counterfeit currency.

The legal requirement concerning financial records specify only that they be a permanent, accurate and complete record of your daily income and expenses. There are many types of record books and bookkeeping systems available. For example:

• double entry bookkeeping;
• commercial bookkeeping systems;
• one-write systems;
• computerized systems;
• single entry bookkeeping.
  For further information see the document Basic Bookkeeping , or the document Bad Cheque Control .

Selecting Professional Services
The use of professional services is essential to the success of a small business. Professionals can provide knowledge and expertise in the areas where you may have little. They can round out your management team to ensure your business is operating efficiently.

As an entrepreneur, there are four main areas of professional services with which you may consult:

1. lawyer (contact a lawyer about legal issues);
2. insurance broker;
3. accountant;
4. banker - for tips and pointers on dealing with your bank, see the document Dealing With Your Banker & Other Lenders .

Furnishings and Equipment
The type, size and kind of service will determine the type of equipment you will require. For assistance in this area, you may get the advice of a sales representative or consult trade publications and manufacturers' Web sites. List that equipment and its cost to you. An important factor to consider when choosing equipment is the after-sales service and repair and their affordability.

Used Equipment - Consider buying used equipment as a cost-saving measure. Sources of used equipment could be a business that is closing or dealers in second-hand equipment. The drawback to this approach is that, often, there are no guarantees with the purchase.

Leasing Equipment - Another alternative is to lease equipment to help keep start-up costs down. To obtain financing for capital leasing for new or used equipment for the creation of your business, see the document  Capital Leasing Pilot Project .

For more information on parts and materials, overhead, stock control and pricing, see the document  Business Plan For Retailers .

Setting Up A Pay System
Pay administration is a management tool that enables you to control personnel cost, increase employee morale, and reduce workforce turnover.

Ways To Promote Your Product Or Service
Making a profit is the most important -- some might say the only objective, of a business. Profit measures success. It can be defined simply: revenues - expenses = profit. So, to increase profits, you must raise revenues, lower expenses, or both. To make improvements, you must know what's really going on financially at all times.

For more information visit our website sections on Retail Management and General Management, Business Fact Sheets.

ASSOCIATIONS AND CONTACTS

Retail Council of Canada 1-888-373-8245 or 1-888-246-7705
Retail Council of Canada (RCC) has been the voice of retail in Canada since 1963. We speak for an industry that touches the daily lives of Canadians in every corner of the country - by providing jobs; consumer value; world-class product selection; and the colour, sizzle and entertainment of the marketplace. RCC is a not-for-profit, industry-funded association whose more than 8,500 members embrace all retail formats, including department, specialty, discount and independent stores, and online merchants. More than 90% of our members are independent storeowners. Collectively, RCC members account for two-thirds of Canada's general-merchandise retail market. 

Canadian Apparel Federation, 613-231-3220 
The Canadian Apparel Federation is the national industry association for apparel manufacturers and designers, as well as an important supplier of goods and services to the apparel industry. CAF actively sponsors export missions, hosts in- coming buyers and stages shows and mini-markets showcasing a full range of Canadian-made apparel.

For additional information see the document Selecting a Business Association .

EDUCATION AND TRAINING

Prospective managers in retail trade can study Commerce at University of Saskatchewan or Administration at University of Regina. Both universities grant diplomas or certificates and Bachelors and Masters degrees in these areas, with specialization in Marketing, Finance and Business Administration. Related training is offered at SIAST through the Business Administration, Financial Services and Marketing diploma programs.

The Saskatchewan Indian Institute of Technologies (SIIT) offers Indian Business Management and Business Administration diploma programs. Classes required for completion of these programs can be taken at the University of Saskatchewan.

Private vocational schools also offer certificate programs in entrepreneurship and small business. Education, however, is only part of the training necessary for a career in management. Work experience for management occupations in retail trade is obtained on the job in a related junior or clerical position.

Saskatchewan Tourism Education Council (STEC)
Skill specific training workshops and national professional certification are available for both Managers and staff. For a list of occupations available for certification visit the Certification List Web site.

For more information contact Saskatchewan Tourism Education Council (STEC), Division of Tourism Saskatchewan
101 - 230 - 22nd Street East
Saskatoon, Saskatchewan S7K 0E9
Telephone: 306-933-5900

Canadian Retail Institute's Retail Sales Associate Certification Program
The RSA Certification Program has six self-directed modules: professionalism, customer service and sales, inventory, store appearance, security and safety, communication. For more information about the program, visit the Canadian Retail Institute Web site or call toll-free 1-888-373-8245 .

RESOURCES

Financial Performance Indicators
The CSBSC subscribes to this licensed database, published by Statistics Canada, which is used to determine the relative profitability of a particular industry in Canada/Saskatchewan and to compare financial ratios and balance sheets of a particular company with the industry average. See description under Industry Overview in this document to determine which type of business you will operate.

Contact the Canada-Saskatchewan Business Service Centre to obtain these reports.

Small Business Profiles -  Performance Plus
Performance Plus provides detailed financial and employment data on small businesses by industry for Canada, the provinces and territories. The Profiles have been produced every two years since 1985, with 1997 being the most current reference year available. The data provide performance benchmarks for the financial planning of start-up and established small and medium sized businesses. See description under Industry Overview in this document to determine which type of business you will operate.

KOB Files
Saskatchewan Industry and Resources created "kinds of business (KOB's)" that include information on many different types of businesses. This information includes: product sources; fixture & equipment suppliers; trade shows; trade associations; trade journals; and other market data sources. Choose one of the Kinds of Business from our KOB Table of Contents Web site.

The CSBSC also has files started on various kinds of business topics such as restaurants, bars, coffee shops. Information located in these files includes possible suppliers, statistics, sample business plans, etc. To access the information in these files please come into the office and request the KOB file or speak to a Business Information Specialist.

RECOMMENDED BOOKS IN OUR LIBRARY

The Canada-Saskatchewan Business Service Centre resource library search engine can be found online - Saskatoon Reference Library.  Once you have located a particular resource you think might be useful, please contact us at the CSBSC office and we will discuss the material with you. Material is available to view in our Saskatoon office or regionalization site where available.

Below are some books that may be of interest along with their current shelf location:

Start and Run a Profitable Retail Business A step-by-step business plan
BUSINESS RETAIL .008S-1
International Self-Counsel Press Ltd., 1994

How to Start an Apparel Business
SECTOR CLOTHING .003S
Entrepreneur Media Inc., 2000

How to Start a Children's Apparel Store
SECTOR CLOTHING .008S
Entrepreneur Inc., 1992

Clothing Industry: Statistical Data
SECTOR CLOTHING .016S
Industry Canada - Fashion, Leisure and Household Products - Apparel, August 1997

How to Open Your Own Store
BUSINESS RETAIL .011S
Avon Books, 1994

So You Want to Own the Store
BUSINESS RETAIL .016S-2
Contemporary Books, 1997

Shoplifting, Security, Curtailing Crime - Inside & Out
BUSINESS RETAIL .021S
Productive Publications, 1993

VIDEO COLLECTION

Canada-Saskatchewan Business Service Centre resource library search engine can be viewed at the Saskatoon Reference Library Web site.

Once you have located a particular resource you think might be useful, please contact us at the CSBSC office and we will discuss the material with you. Material is available to view in our Saskatoon office or regionalization site where available. Videos and audio cassettes may be loaned out to residents in the Saskatoon area.

We have many videos available in the following categories: aboriginal, customer service, sales, marketing, training, entrepreneurship, business planning, financing, e-business, starting a business, business skills, home-based, management, intellectual property, trade, quality, computer skills, and miscellaneous. Search the A/V Library on our web site for descriptions.

Some videos of interest may include:

Because It's There, 29 mins, VIDEO MARKETING .009S
Show how a specialty retailer, West Ridge Mountaineering, can build a bridge to the consumer by selecting the right products and store location, setting reasonable prices, creating a favourable image for the store, and developing a sales force that makes sales and wins repeat customers.

Seminar on Marketing to Retailers #2, 1hour 30 mins, VIDEO MARKETING .024S
Need to become a marketer; organizing your sales force; promoting your product

Seminar on Marketing to Retailers #3, 1 hour 15 mins, VIDEO MARKETING .025S
Preparing your marketing plan; preparing your sell-in presentation

The 25 Best Customer Service Ideas You Can Use Today!, 39 mins, VIDEO CUSTOMER SERVICE .010S

RECOMMENDED INTERNET WEB SITES

More links available on our Links Sectors website - Under Business, Retail or Under Sector, Clothing

Retail Council of Canada
RCC is a not-for-profit, industry-funded association whose more than 8,500 members embrace all retail formats, including department, specialty, discount and independent stores, and online merchants. More than 90% of our members are independent storeowners. Collectively, RCC members account for two-thirds of Canada's general-merchandise retail market.

Strategis Abstract: Winning Retail - A Self Assessment and Instructional Guide for Independent Retailers

For further information regarding starting a business, contact the

Canada-Saskatchewan Business Service Centre
#2 - 345 3^rd Avenue South
Saskatoon, Saskatchewan
S7K 1M6
Phone: 306-956-2323
Toll-Free: 1-800-667-4374
E-mail: saskatchewan@cbsc.ic.gc.ca
Web site:http://www.cbsc.org/sask/

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DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

Links Policy
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