What's the Total Cost of Running a Retail Franchise?

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cost start a retail business

Whether you dream of opening a food shop, clothing store, car dealership, pharmacy, second-hand technology trader or online business, retail franchises hold huge potential for keen entrepreneurs. If you enjoy interacting with the public and feel a sense of satisfaction when customers find a product they love, the retail industry could be for you.

It’s certainly a highly profitable sector. In 2018, the total of all retail sales in the UK reached £381 billion and grew by four percent. What’s more, there are 2.9 million retail workers and 299,415 retail stores in the UK. As you can see, it’s a huge industry, and it holds plenty of potential for budding businessowners. But how much does it cost to get started? Let’s take a look.

The retail industry

While shopping is often fun and effortless, creating that incredible retail experience everyone enjoys is no easy task. It’s worth noting that starting a business in the retail industry is likely to involve working late nights and weekends. But you’ll also need to make investments in two categories: financial and personal.

Not only will you need capital to get a successful business off the ground, but you should also have the right character and soft skills to make sure you can develop it effectively. But, if you’ve got both, there’s no reason why you shouldn’t be able to build a popular and profitable business in this sector.

The franchisee’s financial investment

On average, UK retail businesses cost around £172,000 to set up (quotemyenergy.co.uk). There’s no getting away from the fact that this is a significant amount of money, mainly because retail units require business premises in an area of high public footfall. While you may be able to access extra financial support from your franchisor, much of your costs will be the same as those faced by independent business owners.

Let’s take a look at some of the aspects you should expect to spend money on when you set up a retail franchise.

  • Rent – A huge chunk of your capital will go towards renting your retail space, and this cost will, of course, continue for as long as your business is in operation. Bear in mind that you will probably have to pay more at the start of the tenancy, as your landlord may request a security deposit and one month’s rent in advance. It’s difficult to say exactly how much you should budget for rental costs, as it will depend on your location. To give you an idea, per square metre, retailers should expect to incur annual costs of £1,898 in London, £1,545 in Manchester and £1,030 in Cardiff.
  • Renovation – Once you’ve secured your business premises, you’ll need to renovate the space and give it the look you want for your retail store. Expect to spend money on wallpaper, paint, display cabinets or shelves and fixtures such as lighting. Of course, costs vary depending on where you get your tools and products from, but your franchisor may point you in the direction of specific suppliers.
  • Utilities – If you don’t want your store to be dark and cold, you’ll need to sort your utilities. You will need to get an internet and telephone connection, as well as heating and electricity.
  • Licences and insurance – Depending on the type of business you set up and where you’re based, you’ll need to secure the relevant licences from your local authority. You should also make sure you have the right insurance, such as property insurance and Employers’ Liability Insurance. Of course, the more permits, licences and insurance you need, the higher your costs will be.
  • Stock – This will be one of the most important investments. You must not only pay for your initial inventory, but also the shipping costs they incur. It’s likely your franchisor will specify which suppliers you can use in order to maintain consistency and quality standards across the retail franchise. However, this isn’t always a disadvantage; by joining a franchise, you should benefit from its significant buying power, gaining access to discounts on your inventory. You can find out how much it will cost you when you meet with the franchisor to discuss the opportunity.
  • Staff pay and pensions – You should enrol all your employees onto a pension scheme, but you can decide how much you pay your staff – as long as it’s reasonable and above the national minimum wage, of course.
  • Financial and legal services – Some business owners enlist the help of an accountant when it comes to organising and keeping track of their finances. When you first launch your retail franchise, you may also want to discuss your franchise agreement and any other documentation with a solicitor or legal professional. This step is recommended, as it’ll ensure you know what you’re signing up for, but it can cost between £1,700 and £2,500.
  • Cleaning services – You might opt to hire a professional cleaner to keep your premises looking smart if you don’t have the time or the inclination to do it yourself. Competitive cleaning businesses market their services at around £15-£20 per hour. Work out how often you need the cleaners to visit and what tasks they’ll need to carry out, as this will affect the price you’ll have to pay.
  • Marketing – You should set some of your income aside for marketing activity. This includes maintaining your signage and running a professional-looking website, but you might also want to spread the word through radio adverts, social media accounts or appearances at local events. If you’re part of a franchise, it’s likely the franchisor will take care of national marketing. Usually, you’ll have to make payments into a marketing fund, contributing up to five percent of your gross sales income.
  • Grand opening – Don’t forget, you’ll need to organise an exciting launch day. Entrepreneurs usually spend up to 20 percent of their marketing budget for the first year on their first day, which demonstrates how important first impressions are.

Because all these costs can vary significantly, it’s impossible to say exactly how much it would cost you to run a retail franchise. To get an idea of the expenses you can expect to incur, write a business plan, taking all your potential outgoings into account.

The franchisee’s personal investment

What knowledge, personality traits and soft skills do you need to run a retail business? Well, here are some of the most important ones:

  • Knowledge of the retail industry – This is a sector that is evolving all the time. Whether it’s the emergence of new trends, the rising popularity of ‘slow fashion’ or new competitors in the market, there is always at least one change taking place. You need to know exactly what is happening in the industry if you’re to make sure your business stays relevant. While you may not be authorised to make significant changes to your franchise unit, you may be able to make small changes to your store to maximise profitability, such as placing on-trend or popular pieces near the entrance.
  • An understanding of your target audience – It’s likely that your franchisor will have already developed a brand identity and strategies that are geared towards the business’ target market. However, you won’t get very far if your approach in your own store is completely incompatible with the brand. No matter who your products are aimed at, make sure you know how your target market shop and what they value.
  • Great customer service skills – If you work in retail, it’s likely you’ll need to perfect your customer service skills. Even though you will be the franchisee in charge of the retail unit, you will come into contact with the public, and you may even choose to complete a shift or two every now and then to make sure everything is running smoothly. So, a friendly and cooperative attitude will serve you well and keep customers coming back again and again.
  • Determination, motivation and leadership skills – This point is relevant for any business. It goes without saying that you’ll need to be determined, self-motivated and able to lead a team of employees if you’re to succeed as a businessowner. Running a franchise in the retail sector can involve a lot of hard work, and you’ll probably need to work during evenings and weekends in the early stages. As a result, you must be committed to your business and able to inspire a workforce to ensure your unit runs efficiently.

Running your own business in the retail sector

Retail businesses require a significant investment, but if you have the capital – and the acumen to spend it wisely – there is potential to launch and run a profitable and rewarding business in this sector.

We have a number of retail franchises in our directory that you can get involved in; click here to discover the brands on offer. On each franchise’s main profile, you can read more about the business opportunity and its investment requirements.

>> Read more articles on the Retail sector

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