A brick and mortar store has a relatively high cost structure. Your ongoing costs include inventory, labor, property taxes, insurance and security which tend to shave profit margins razor thin – particularly when compared to online retailers.
Beyond your own business expenses, you must pay attention to the overall economy. When the economy is down, customers may turn to budget retailers in an effort to stretch their dollars. During boom times, spending on luxury items such as jewelry, designer handbags and high fashion brands can go up. The hard part for you is the unpredictable nature of the economy and how the ebbs and flows may affect your specific business model. For example, if you’ve purposely stayed away from lower-cost lines as part of your brand strategy, your profits might get pinched if sales slow during economic downturns.
Mitigation Measures
- Manage and minimize your expenses. Your operating budget is specific to how you run your store and is also affected by your location. Retail operates on thin margins so it’s important to track money and prioritize what you spend on. Keep a close watch on margins during good times and bad.
- Consider online selling. Maintaining an online business in addition to your physical store can bring in higher-profit income and diversify your revenue stream. You may find it easier to expand your product lines across a wider price range as a way to appeal to a broader customer base.
- Know your industry. For resources and online tools that can help you with cash flow, profitability, inventory, debt, and other retail financial issues, visit The Retail Owners Institute.
- Invest in security. Theft is an ever-present concern for retailers, both from the outside (burglaries and shoplifting) and inside (employee theft). Burglar alarms and security cameras can help deter theft and support insurance claims after a theft has taken place. Consider placing electronic tracking devices on merchandise.
- Carry sufficient insurance. At a minimum, consider a Business Owner’s Policy which combines what are arguably two of the most critical business insurance coverages: business property and business liability.
