How can small retailers avoid the seven reasons most fail?

May 01, 2017
Bob Phibbs

Through a special arrangement, presented here for discussion is a summary of a current article from the Retail Doctor’s blog.

While the economy and online competition often take the blame when neighborhood boutiques close, the owners in most instances were in over their heads. Yes, barriers to starting a business have lowered, but the causes of failure are still the same.

Here are the seven biggest problems small retail businesses face:

Going it alone. You can do the jobs of two or three people, but you can’t be two or three people. You need someone who can help you do the multiple jobs so you don’t burn out.

Wrong partner. You need to know what each brings to the table, what you’ll do with disagreements, and exactly who will do what. Opening a new business is a rush, but when that rush fades in a few months, you both need to be bound to each other in order to succeed. Your partner isn’t an employee you can fire easily — especially if you’re married to them.

Wrong location. Few of us know about correct egress and ingress to a center, traffic patterns, and demographics.

Enamored with your products. It’s wonderful to curate a great assortment of products from all over the world, but museums are non-profits. You need to be able to sell the merchandise.

Not focusing on the fundamentals. If you don’t want to learn those basics (Profit and loss, breakeven analyses, cash flow, etc.) that’s OK, but you’ll have to pay someone to do them for you.

Not managing the people. Your job isn’t to be the owner. Your job is to manage and train your people so they sell better than you, consistently delighting and surprising your customers.

Not leading by good example. No long lunches, no bringing your three-year old to work, no extended texting with the friend/family, no going home early — employees will see you and do likewise.

If you’re serious enough about competing, you’ll run your store like a business and not like a hobby.

DISCUSSION QUESTIONS:  What do beginner entrepreneurs most underestimate when opening a store? Beyond the seven listed in the article, what other surprises wait in store for new business owners?

"In entrepreneurship, execution eats great ideas for breakfast, lunch and dinner."
"In many cases new business owners, especially B2C retail verticals, fail to estimate the cost of generating traffic to their locations "
"One of the biggest issues we see is undercapitalization ... Many assume that there will be sufficient cash flow from the day they open..."

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17 Comments on "How can small retailers avoid the seven reasons most fail?"

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Mark Ryski

Bob covered many of the most important bases and beginner entrepreneurs are well advised to review them carefully. One big surprise that seems to continue to catch new business owners is the time it takes to gain traction and achieve sustainability. Business is often referred to as a marathon for good reason. This is a long-term commitment. Overnight successes are hard to come by and every entrepreneur looking to start a business — retail or otherwise — needs to be prepared for many years of hard work, ups and downs and the occasional existential risk. This is not for the faint of heart, but it is profoundly rewarding to build and operate your own, successful enterprise.

Steve Montgomery

One of the biggest issues we see is undercapitalization. New business owners generally have a lot of hope and enthusiasm for what they are doing, but often don’t understand that to build a business takes time. Many assume that there will be sufficient cash flow from the day they open to not only cover the business expenses, but allow them to take the same income from it that they were used to in their former position.

Another is not having a sound business plan. When we are working with a startup one of the first things we ask them is to provide a copy of their business plan. Many don’t have a formal plan or if they do it is not sufficiently detailed.

While there are numerous other issues, my last observation is that marketplace sellers don’t realize that to be successful you have to sell what the customer wants to buy and not what you want to sell.

Lyle Bunn (Ph.D. Hon)

The accounting, paperwork and filings can frustrate entrepreneurs who see these as taking valuable time from business-building. But truth lies in the numbers, so increasing the appreciation of this is of growing importance, in particular as business becomes more dynamic and influenced by so many factors. Regarding location, retailers often also overlook marketing in a way that assures a second visit. Communicating a reason to return can be as simple as promoting in-store specials.

Ed Dunn
7 months 14 days ago

I have to agree with this overlooked aspect. The major reason retailers fail is because of the numbers.

A small retailer can follow all the advice in the article above but if the inventory, cash on-hand, end-of-day register count and strategic location are not managed correctly, that retail operation will fail.

Gene Detroyer

Starting any business, retail or otherwise, is a commitment beyond initial expectations. It isn’t easy. If you are starting a bodega on a street corner in a city or starting what is to become Walmart it is a 24/7 proposition. It is a matter of waking up at 2 a.m. in a cold sweat. It is a matter of your family life changing. It is not living as usual. It will take longer and cost more than you imagined and your chance of success is only about 20 percent.

Your great and unique idea is not in fact unique. It is the idea of thousands of other people. The one thing that will make you successful is your execution. In entrepreneurship, execution eats great ideas for breakfast, lunch and dinner.

Adrian Weidmann

Time. Underestimating the time and cash flow that is necessary for the business to reach positive cash flow. It takes far more time to attract and cultivate enough shoppers that become customers to sustain a viable business. Based on many shopping experiences, and personal stories, I would imagine staffing and employee challenges can rob a business of energy and resources that should be used for customers. Finding a staff that is professional, takes pride in their work and your business, and works well together is an extremely rare occurrence. When you find it, cherish and protect the team! It’s priceless!

Nir Manor

in many cases new business owners, especially B2C retail verticals, fail to estimate the cost of generating traffic to their locations (whether physical or digital) assuming they do not enjoy naturally high traffic (e.g., inside a shopping center or a shop in eBay/Amazon).
New business owners should understand the full conversion chain costs — cost of generating traffic, of converting the customer into a shopper, then to a buyer and then to “loyal” customer. Then they need to understand how much it is worth to invest in existing clients to make them more loyal — hence the notion of LTV (lifetime value).

Al McClain

Beyond the seven issues outlined by Bob, and those from other commentators, there is the need to be unique. You have to have a reason for being. It is almost certainly not price if you are a new retailer, and probably not a broad assortment. So, what do you carry, where are you located, what is your value proposition, and what unique customer experience do you offer? If you don’t do at least one or two things much better than your competition, it’s going to be very hard to get a new retail business off the ground.

Mohamed Amer

Great question and a solid set of pitfalls to avoid!

I would also add the pitfall of “if you build it, they will come,” which is somewhat related to Bob’s “wrong location” category. It’s really about how to create sustained visibility for your new store and forces the entrepreneur to have a concrete plan for attracting their early set of customers.

Will you depend strictly on footfall or drive-by traffic at a local mall? Can your immediate catchment area support your projected sales? How easy and appealing is your website? Are you set up to handle online orders/payments and have a shipping strategy in place? How will you get your initial customers to come back again and again and to spread the word about your store?

Tom Redd

Simple. Focus on the shop. You have done well. Keep it up. For new shops, listen to Bob and get pros like him in to help you start out.

Ricardo Belmar

Bob covered all the important points, but perhaps one thing to add is focusing on the financials, particularly the investment level. It’s very tempting to try and take a Jeff Bezos “get big fast” approach and hope for the best — but we all know hope itself is not a strategy. It takes proper planning and monitoring of your business to make it work. You have to not only know the fundamentals of business, as Bob points out, but also need to understand where your investment is coming from and what that means to your business.

And of course it really does come down to proper execution. All the planning in the world won’t make you successful if you don’t execute well!

Ralph Jacobson

Actually, all seven of these points continually threaten the largest of retailers, too. But that’s another topic. The first challenge any entrepreneur faces is separating their passion or hobby from the running of the business. How many boutiques have you seen open up and then shut down because they missed the mark on many if not all of these seven points? However, I’d add another and that is “awareness.” Plain and simple awareness of the existence of their store. Do people know they are there? Do shoppers know what they sell? What are the compelling reasons to shop that store? You have got to get that awareness out there in the marketplace.

Art Suriano
I agree with all the points that Bob made and would like to add a few. Before opening the business, the new entrepreneur must be able to answer these two questions: Is there a big enough market for what I am selling? What will make my business different and better than my competitors? Then when looking for the “right” location, make sure there is ample parking. In addition, make sure that your funds aren’t dry the day after you open. A new retail business must have enough capital to survive several months with little or no sales to give the business time to build an audience. Begin your grand opening campaign weeks before you open with a countdown and several reminders, and look for local opportunities to promote your business. Then once opened, find ways to feed off neighboring retailers’ traffic through cross-promoting. Network, network, and network! When a customer comes in, go out of your way to make them feel special and invite them back. Ask them to join your email club, rewards club… Read more »
Craig Sundstrom

A useful collection of points, though I have a feeling that people often try to avoid all the personnel issues by not having any (which is of course leads to problem #1).

My own experience — albeit somewhat indirectly — tells me the biggest problem is overestimating demand, either in general or in the fluctuations that can occur throughout the year. I can remember in grad school critiquing business plans, and a more creative lot of fiction was seldom assembled.

Carlos Arambula

Marketing is critical. Most boutique retailers don’t conduct pre and post launch marketing. They don’t recognize if the location (the RTA) actually makes sense, if there is a large enough need to sustain a bricks & mortar location and which are the core products consumers seek.

Once the doors are opened, some retailers expect customers to find them without any promotions, they expect traffic via serendipity.

In contemporary times, it’s not difficult, or expensive to communicate with target consumers — especially if you are a niche product. Failure to know and communicate with your RTA consumers will only lead to your demise.

Christopher P. Ramey

So many failures, so little time. So many places to point the blame.

I’ll add “lack of vision” and “inability to execute” a business plan; assuming they have a business plan.

I’m happy to read that Bob has included “Enamored with your products.” I see this faux passion as killing entire categories. It’s a dangerous offshoot of misguided cognitive bias and talking to yourself, colleagues and reps.

The key metric is revenue. Few companies fail because they sold too much product. Many fail because they lack the discipline to keep margins on plan. As the old saying goes “I sell below cost, but make it up on volume.”

I’d also like to reinforce those Al and Carlos’ comments about marketing. It’s often an afterthought when it should be the first thought.

The reality is for most small businesses, anticipated demand for their product isn’t high enough at the necessary margins for the company to ever have a fighting chance.

Cristian Grossmann
Cristian Grossmann
CEO, Beekeeper
6 months 27 days ago

Investment in proper training is often undervalued when first opening a store, as well as having an effective internal communication infrastructure in place. These are both crucial components in keeping the entire staff aligned with business goals and being on the same page about things like inventory and sales promotions. If employees have the tools to work more efficiently, customers will walk away much more satisfied and keep coming back.

"In entrepreneurship, execution eats great ideas for breakfast, lunch and dinner."
"In many cases new business owners, especially B2C retail verticals, fail to estimate the cost of generating traffic to their locations "
"One of the biggest issues we see is undercapitalization ... Many assume that there will be sufficient cash flow from the day they open..."

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