Starting a Retail Clothing Store

Industry Notes
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.

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

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 saleability.
• Calculate any renovation costs.

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.

Advertising and promotion

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.

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:

• Direct mail, to send personalized information to those on a mailing list.
• Newspapers, especially local papers, particularly for promoting special events.
• Radio, to reach certain markets, such as country stations for western wear.
• Consider promotions such as fashion shows/consultations, free alterations, fair returns/exchange policies, credit card purchases/lay away plans (instalment credit).

Human Resources

Hire well-informed staff on referral with strong selling skills, people skills and sense of fashion. Give discounts so staff can set examples. Pay by the hour (part-time staff), commission (experienced staff in a busy store) or a combination of both. Educate yourself in all areas of human resources. Promote continuous training and upgrading through related courses and programs. Refer to the Human Resources info sheet for more information.

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 free-standing, 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.

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:

1. Dollar-control, based on selling price, and best used on a daily basis.
2. 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.
3. Ticket counts, based on tickets removed from items as they are sold.

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.

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Canada
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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.

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