Types of Retail Ownership and How Each Might Work for You
So you're starting a business, and you've got a great idea for how to sell your product. Dipping your toe into the waters of retail can be a little overwhelming at first, so take your time if you can and get familiar with the different kinds of retail structures.
Many forms of retail business ownership are available to budding entrepreneurs. Each business model has its own list of pros and cons. Choosing a type of retail business to start will depend on why you want to own a business, as well as your lifestyle, family, personality and what you're selling. Will you have staff, or is it going to just be you? Here are a few of the main types of retail ownership and the advantages, disadvantages, and support system of each.
An independent retailer is one who builds his/her business from the ground up. From the business planning stage to opening day, the independent retail owner does it all. S/he may hire consultants, staff and others to assist in the business endeavor.
The opportunities are endless but prepare to wear many hats in this kind of business until you have some income: it may be a while before you can afford to pay anyone else.
This type of retail endeavor has a unique brand and struggles to be heard among the sea of retail giants. But, if done correctly, can be the preferred shopping place of local customers.
Existing Retail Business
Someone who inherits or buys an existing business is taking ownership and responsibility for someone else's hard work. The foundation has already been set, and the baton is being passed to you. This is often the scenario in a family business, where one generation takes over from their retiring parents. There's great responsibility in carrying on the tradition, especially if your parents built the company themselves.
Purchasing a franchise is buying the right to use a name, product, concept, and business plan. The franchisee will receive a proven business model from an established business. Be sure you are on board with all the company's practices and what they stand for because you'll be expected to represent those values in your store. Clear knowledge of what costs you'll be expected to absorb and when the parent company will be footing the bills is central to sustaining a healthy relationship with your franchisor, as well.
A licensed dealership is a mix of franchise and independent retailer. The licensee has the right (sometimes this is exclusive) to sell a brand of products. Unlike a franchise, the dealer can sell a variety of brands and there are generally no fees to the licensor. Dealerships may or may not be identified as an authorized seller or by the company's trademark. Think of cars and trucks as the most common example of a dealership.
This type of store is similar to a franchise or dealer except that the connection to the larger brand name is about buying power for inventory and services. In this model, you are not placed under strict guidelines or rules that your store has to follow. And most times, there is not even a % of sales you have to pay back every month as long as you maintain a buying volume at a certain level.
An example of this would be Do it Best hardware stores. Some of these stores have garden centers, others have craft and hobby sections, and some just focus on lumber and hardware. None of them look the same, but they all get the advantage of private label merchandise and shared costs on advertising.
Multi-level marketing (MLM) or network marketing is a business model where the selling of products depends on the people in the network. Not only is a product being sold, but other salespeople are being recruited to sell that same product or product line.
It's probably not a type of business one would initially consider when discussing retail businesses, but Advocare (the number #1 MLM company) used this model quite successfully for many years.
This type of retail ownership requires no physical storefront and the inventory is at once and stocked by the brand and not the retailer.
The Bottom Line
If you want to start a retail business, there are a wide variety of options available. Each business model has advantages, disadvantages and style. Spend some time interviewing people who operate a retail business within the different types before you make your choice.