Opening a brick and mortar store can be an exciting yet daunting process, with many factors to consider when estimating the total costs involved. While costs vary widely based on the type and size of store, location, inventory, and more, some key costs remain consistent across most brick and mortar ventures.
Key Initial Costs
Some of the major costs involved in opening a physical retail store include:
- Store rental or purchase
- Store buildout and renovations
- Fixtures and equipment
- Inventory and supplies
- Permits and licenses
- Store security system
- POS system
- Initial marketing and advertising
- Utilities and shop insurance
- Payroll and labor
Let’s break down each of these key startup costs in more detail:
Store Rental or Purchase
One of the biggest upfront costs for a physical retail store is securing a commercial space to house your business. You’ll have to decide whether to rent or purchase your store outright. Renting provides more flexibility and less risk, while buying your own store space builds long-term equity but requires major capital. Average per square foot costs for commercial space vary drastically based on location, but expect to pay:
- National average retail rental rate: $15-$25 per sq. ft. per year
- Purchase price for commercial retail spaces: $100-$250 per sq. ft.
For a 1,000 sq. ft. store, that translates to around $15,000 – $25,000 per year in rent, or $100,000-$250,000 to buy the space outright. Be sure to negotiate the best deal possible and consult a real estate agent for guidance.
Store Buildout and Renovations
After securing your retail space, you’ll likely need to invest in building out your store interior, which may involve renovations, fixtures, decor elements, flooring, lighting, storage space, and more. On average, expect to spend $100-$300 per sq. ft. to design and build out your retail store space.
For that 1,000 sq. ft. shop, you could spend $100,000-$300,000 or more on your buildout costs. Carefully research contractors and manage this process closely to avoid cost overruns.
Fixtures and Equipment
Fixtures like display cases, racks, shelves, counters and cash wraps are critical retail store elements. Expect to spend:
- Display cases – $1,000-$5,000 each
- Shelving units – $100-$500 each
- Racks and displays – $500-$5,000 each
- Point of sale counters – $2,000-$5,000 each
- Cash registers – $200-$2,000 each
Additional furniture like desks, office chairs, stools, and storage can cost $2,000-$10,000. Invest in durable, versatile furniture built to handle heavy use and traffic.
Inventory and Supplies
The products you sell and supplies like bags and hangers to support operations will be one of your biggest recurring costs. Most experts recommend having at least 2-3 months of inventory available when first launching. The exact costs depend entirely on your specific products, suppliers, and average order volumes.
Some benchmarks to help estimate include:
- Average retail inventory turnover rate: 3-4 times per year
- Average retail inventory as % of sales: 25%
So for example, if you expect $500,000 in first year sales, you may want $125,000 in inventory at any given time.
Permits and Licenses
Various permits and licenses are required to legally operate a retail business. Common costs include:
- Business license – $50-$500+ annually
- Sales tax license – $20-$100+ annually
- Zoning permits – $500-$1,500+
- Health department permit – $100-$1,000+
- Fire and building permits – $200-$500+
- Alarm permit – $100-$200+
Research all municipal and state permits for your location, industry, and business type to ensure compliance. Some additional permits may be required for businesses selling certain products like alcohol, food, or firearms. An attorney or accountant can advise you on licensing requirements.
Store Security System
Security is crucial for any retail store. Plan on spending:
- Security cameras – $100-$300 per camera
- Alarm system – $500-$2,500+ for equipment and installation
- Anti-theft tags or cables – $30-$500+ depending on method
Ongoing monitoring and maintenance fees for security systems will be part of your recurring operational expenses as well.
POS System
A point-of-sale (POS) system is essential retail technology that facilitates transactions and provides inventory management, reporting, CRM, and more capabilities. Basic POS software costs around $79-$299 per month. The hardware terminal can cost:
- Countertop POS systems – $500-$2,500 per terminal
- Mobile POS systems – $500-$2,500 for iPads or tablets plus accessories
- Cash drawers – $100-$300 each
- Receipt printers – $200-$400 each
- Barcode scanners – $100-$300 each
Consider both upfront and monthly or annual costs for your POS system when budgeting.
Initial Marketing and Advertising
Getting the word out about your new business is critical. Some initial marketing costs may include:
- Logo design – $200-$2,000+
- Branding – $500-$5,000
- Website – $500-$5,000+ for development
- Print materials – $500-$2,000 for flyers, signs, business cards
- Local ads – $300-$1,000 per ad
- Grand opening event – $2,000-$10,000+ depending on size
Factor in an ongoing advertising budget for your first year as well, which could be $1,000-$5,000+ per month according to your strategy.
Utilities and Shop Insurance
Recurring monthly expenses for operating a store include:
- Electricity – $100-$500+
- Gas or oil for heating – $100-$300
- Water and sewer – $50-$200+
- Phone/internet – $100-$300+
- Business insurance – $100-$500+
Shop insurance costs vary based on your location, industry, inventory value, and liability coverage needs. Work with an insurance agent to find the right retail policy for your business.
Payroll and Labor
Staffing your store will likely be one of your biggest recurring costs. Expenses include:
- Employee wages and salaries
- Payroll taxes and workers comp insurance
- Benefits like health insurance and retirement plans
- HR payroll system or outsourcing fees
According to the Bureau of Labor Statistics, the average retail employee in the U.S. earns around $27,000 per year. Ensure your payroll budget provides competitive compensation to attract and retain quality staff.
Total Average Startup Costs
Based on typical costs in the categories above, total average startup costs to open a new brick and mortar retail store often range from:
- Small retail store (500 sq. ft.): $100,000 – $250,000
- Medium retail store (1,000 sq. ft.): $200,000 – $500,000
- Large retail store (3,000+ sq. ft.): $500,000 – $1,000,000+
However, this varies significantly depending on your specific concept, inventory, location, facilities, and more. Carefully research and project all expected startup and operating expenses in your business plan.
Financing Your Retail Store
Coming up with $100,000 or more in startup capital is no small feat. Many brick and mortar retail entrepreneurs finance their new business through some combination of:
- Personal savings and assets
- Loans from family and friends
- Business loans or lines of credit from banks or the SBA
- Crowdfunding campaigns
- Grants and incentives for some industries like agriculture or tech
- Business partners or investors
Aim to have at least 20-30% of your startup costs covered through personal equity, and create a funding strategy using multiple sources if possible. With strong planning and financials, you can convey the viability of your retail concept to potential lenders and investors.
Ongoing Operational Costs
In addition to one-time startup costs, carefully estimate the ongoing expenses to run your store on a monthly or annual basis. Key operational costs include:
- Rent and utilities
- Payroll and benefits
- Inventory and supplies
- Insurance
- Equipment leases or financing
- Marketing and advertising
- Accounting, legal, and professional services
- Repairs and maintenance
- POS and other software systems
- Credit card processing fees
Create detailed financial projections for at least the first 12-24 months of operation to estimate your fixed and variable costs. This will help determine the sales and profitability you’ll need to keep your store running. Update your budget frequently as your business evolves.
Ongoing Strategies For Success
In addition to budgeting for your initial store opening and ongoing operations, focus on the customer experience, marketing, and business management strategies that will drive sales and profitability over the long-term, like:
- Creating exceptional in-store experiences and customer service
- Leveraging retail technology like loyalty programs and CRM
- Engaging on social media and digital platforms
- Running sales promos and community events
- Offering online ordering with in-store pickup or delivery
- Carefully managing inventory to match sales trends
- Building partnerships and collaborations with vendors, the community, and complementary local businesses
- Analyzing sales reports and financials to make informed business decisions
The costs involved in launching a physical retail store can seem daunting at first. But with thorough planning, financing, budgeting, and the right retail strategies, you can set your new brick and mortar business up for success. Prioritize the customer experience, watch the numbers, and leverage resources like SBA support and retail associations to make your entrepreneurial dream a reality.
Conclusion
Launching a new brick and mortar retail store requires significant upfront capital, with average startup costs typically ranging from $100,000-$500,000 or more depending on the size and type of store.
Key costs to factor into your retail business plan and budget include:
- Store rental or purchase
- Commercial buildout and renovations
- Fixtures, equipment, and displays
- Starting inventory
- Permits, licenses, and legal fees
- Security systems
- POS system costs
- Initial advertising and marketing
- Utilities, insurance, and initial payroll
Financing your retail startup may involve personal savings, loans, investors, and other creative funding sources. Thoroughly plan for both your one-time opening costs and ongoing operational expenses like payroll, rent, inventory, and marketing. Most importantly, build your brand and retail strategy around delivering exceptional customer experiences. This is the key to driving sales and profitability for your new brick and mortar business.
