Understanding Different Business Models In Retail And Which Is Best For You

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The retail industry has changed a lot in the last decade but it still remains a very lucrative business sector. If you are looking to start a business of your own, you might be thinking about retail. The thing is, it’s a very broad term that covers a number of different kinds of business. Each business model and specific area of the industry has its own benefits and drawbacks, so there is no simple answer when deciding what type of retail company to start. 

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This article will outline some of the different types of retail business and the pros and cons of each, so you can make an informed decision. 

Brick-and-Mortar Stores 

Stores are the traditional model for retail, but they can be broken down into smaller categories. The first is the brick-and-mortar store. This is a physical store that you visit in person. Customers come to your location, browse through your stock and purchase things they want or need. People who run brick-and-mortar stores will have to deal with things like paying rent, committing to long opening hours and hiring staff members for customer service roles. 

There are a lot of people out there that think the traditional brick-and-mortar store is dying out and it’s all about online retail. However, that isn’t the case and there are still plenty of traditional stores that are successful. If you can find a good location with a lot of foot traffic and build a loyal customer base, you can build a strong business. 

On the other hand, the startup costs and overheads are relatively high. Rents are increasing and this is causing a big problem for a lot of small retailers. You also have to pay staffing costs and marketing costs on top of your rent and maintenance, so overheads can be difficult to manage. That doesn’t mean you should avoid this option, but you do need to be prepared for the higher costs involved. 

Franchises 

Franchises offer a simple and proven business model that you can buy into and run. There are some brilliant established businesses offering excellent ready-made retail opportunities for investors. The franchise company is the one who develops the product or service, distributes it to their franchises and provides support. You will have to pay a franchise fee as well as ongoing royalties, but there’s support from the head office for marketing, finance, operations and staff matters as well as access to their brand name. 

Although this is a good option if you don’t have any experience in retail or want to start with a small investment, not everyone likes running under a franchise system. Some think they’re inflexible and lack creativity because it’s designed to standardize things like store layouts and advertising campaigns across all of its stores. But if you’re looking for a simple option that is easy to get off the ground right away, franchising is a good option. However, if you are more invested in the creative side of starting a business and you have a clear vision that you want to realise, you should consider starting your own business from scratch instead.

Pop-Ups

Pop-up shops are another growing trend in retail, where a physical store is only open temporarily. Businesses use pop-ups for short runs of time to test out different locations before committing to a permanent business. They are also great for building your brand, because you can attract new customers and develop an online following that will be excited about the launch of your brick-and-mortar store. However, you could also operate a pop-up model on a more permanent basis, moving around when it suits you. 

The biggest benefit of pop-ups is that they offer lower startup costs. You don’t have to pay rent on a long term basis or hire staff members, which helps minimize risk if you aren’t sure how successful the shop will be yet. It’s easier to close down quickly too if it doesn’t work out or it’s not profitable. However, there are also downsides to the temporary nature of pop-ups. Customers who come to your shop might not develop a loyalty to your brand so they don’t visit when you move on. You can’t offer repeat orders either, so it’s more difficult to build longer term ties with customers this way.

Pop-ups can be a great option, but you need to put a lot of investment into marketing to make sure that you generate a buzz and get plenty of customers whenever you move. 

Ecommerce Businesses 

An ecommerce business can help you build up your brand and create a loyal following online. You don’t have to worry about the costs of maintaining a physical store, because it’s all done through your website. However, you do need to invest in product photography, customer service staff and shipping facilities.

To be successful with an ecommerce business, you must set up an efficient warehouse system so that orders are picked quickly and shipped out without delay. Customers will also expect free shipping these days after hearing about competitors offering this as standard. 

This is probably the best option for those who like building their own brands or want ultimate flexibility with location because everything can be done online. If you want a business that you can start from home with relatively low startup costs, ecommerce is the best option.

You could also consider a drop shipping business, which does not have resources of its own for producing or storing products. You’ll just need to find manufacturers that are willing to ship the products directly to customers. You then advertise and sell them through your site. This is a great option because you don’t have to cover the costs of manufacturing, storing, and shipping inventory. 

Every type of retail business has its own pros and cons. Although a lot of people assume that ecommerce is always the best, that isn’t the case. Make sure you consider what you want out of a business and what your finances look like before making a decision.