The cost to open a retail store is a major investment. To achieve your goals and succeed, it’s important to accurately understand the expenses involved before you start

No matter what the sector, whether you’re planning to open a fashion, electronics or food store start-up, the cost analysis is essential.

The average cost to open a retail store is in excess of £150,000. This is a large financial investment, so it makes sense to be clear on the breakdown of the budget and get it right from the beginning.

Whilst you won´t need this amount at the offset, it is important to be aware that this is approximately what it will cost to open a retail store

This article gives the factors to consider and demonstrates how to calculate the cost to open a retail store in the UK.

Summary

  • Select the right premises for your type of business
  • Manage the cost of utilities
  • Register the business
  • Understand the importance of insurance
  • Buy stock and arrange transport
  • Budget for shopfitting and equipment costs to open a retail store
  • Market your new business
  • Budget for the cost of employees
  • Establish the finance requirements

 

Selecting the right premises

Costs to rent or buy

Whether you intend to buy the premises or rent, a large portion of the costs will be required on rent or mortgage payments. A security deposit for rentals of one or two months’ rent in advance will be required, or a down payment towards the mortgage if you’re buying.

You’ll also need to consider the cost of storage space for the products and office space if you plan to have a team to run the retail store.

Tip: negotiate the rental price

Many retail premises have been vacant since the COVID-19 pandemic. This presents the opportunity for negotiation on the rent. If possible, offer to pay 6 months’ rent upfront for a substantial discount.

Selecting a location

A Statistica report on major UK city retail rental prices published in June 2022 shows London’s Bond Street as being the most expensive place in the UK while Bristol is one of the cheapest. This demonstrates the importance of choosing an affordable location.

City Annual GBP per square foot
London – Bond Street 2,150
London – Oxford Street 675
London – City 240
Manchester 220
Birmingham 180
Cardiff 140
Leeds 140
Bristol 95

Source: https://www.statista.com/statistics/321066/annual-rental-cost-of-prime-retail-rents-in-the-united-kingdom-uk/

The cost of utilities

Accounting for utility costs

A retail store should be a warm, light and pleasant environment for customers. Running a physical store encompasses utility costs including 

    • electricity 
    • gas 
    • internet connection 
    • business rates Consider the size of the premises

The above figures may differ depending on whether the store is in a prime location and its size. However, it is important to consider that if a cheaper location is in a place where there is no passing traffic you are not likely to achieve your projected sales.

Registration of the business

What kind of business?

The registration will depend on whether you intend to be a sole trader, limited company or partnership. 

  • limited company incorporation £12
  • trademark application  £2002

Permits and licences

You may also need special permits, for example, to sell food. If you plan to import goods from abroad there are specific rules to follow for a UK retail business. This government page on setting up a business in the UK can guide you.

The importance of insurance

Why you need insurance

Every retail store must have insurance cover in place in case of damage or accidents. There is a certain degree of risk both to employees and the public as stock and shelving can cause injuries. 

No matter how carefully the store is set up, the unexpected can happen, and as the owner of the retail store, you will be liable to pay out, which is why insurance is crucial.

What insurance should cover

The key insurance policies are:

  • professional indemnity (protection against loss or damage made by third parties) 
  • product liability
  • public liability (to protect your customers) 
  • contents insurance (anything that is not fixed e.g. stock) 
  • employers liability (to protect your employees) 

Good to know: buildings insurance should be paid by the landlord, not the tenant

Depending on the type of retail store, other insurance may be required such as 

  • business interruption – perhaps due to flooding or fire
  • legal cover – if help with a claim from a third party is required
  • glass cover – also known as shop front insurance, which can be claimed in the event of the store window being broken
  • freezer stock – if you sell frozen food and the freezer breaks down or the electricity is cut off

Stock and transport

Stock costs

Stock costs will depend on the type of retail business and volume of stock the store will hold, both on display and in storage. 

According to Shopify, business owners allow 31.6% of their first year’s spend on merchandise and product development. 

Tip: negotiate on inventory costs

When discussing orders with suppliers always push for their best terms. Ask if they offer a discount if you order a large quantity and if they will take stock on a sale or return basis.

Transport costs of a small business

Transport costs for stock must also be budgeted for, particularly if stock is ordered from abroad. You’ll need to consider any import duties (in light of Brexit) and the delivery lead times, especially if stock is coming from the Far East.

If stock is to be delivered to customers (for example from a furniture retail store) the cost of leasing or buying a van should be in the budget. 

  • van lease average 
  • van purchase second-hand 
  • van purchase new 

The transport will also need to be insured, under a company insurance policy. This will depend on the size of the vehicle, whether the insurer considers the business to be risky (high-value items) and if items such as tools or stock are kept in the van overnight. The average price for van insurance in the UK is £2,000 per year.

Shopfitting and equipment costs to open a retail store

Shopfitting costs

From display equipment to computers and a coffee machine, a retail store needs certain items to set it up effectively. The most important is the display equipment. The store needs to look immaculate and well-planned out. 

You may wish to employ the services of a shopfitting company if the store is undergoing a complete transformation. This will also give it a unique look and set the theme of the store. For example, if you’re selling cosmetics and perfume you’ll want a light, clean look, while a flower shop needs a fresh, natural feel.

The shopfitting costs will depend on:

  • store size
  • number and quality of fixtures and fittings (shelves, rails, racks, mannequins, cabinets, flooring, and lighting)
  • design and layout
  • point of sale (POS) material (signs, banners, posters) 
  • plumbing or electrical work
  • labour costs

The average cost for a medium spec retail store fit is £90 per square foot3

Tip: how to save on shopfittings

If you want to save the cost of employing a full shopfitting service, consider friends or family who may do the services for free or at a reduced cost. Do you know any painters, carpenters or designers? This could make a real difference to the retail store set-up costs. 

Equipment costs

In terms of other equipment, the basics you will need are:

  • till £1,000
  • computer/laptop £500
  • phone £200
  • office furniture (per person) £550
  • kitchen facilities (kettle, coffee machine, microwave, kitchenware, tea and coffee, water dispenser) £400

Marketing is important

Why you need a marketing plan

Opening a retail store needs a focussed marketing plan. This will ensure that people know about the business and products and are excited to visit. 

Your brand is one of your strongest tools and building it through marketing will increase awareness of your retail store. A solid, memorable brand keeps businesses ahead of the competition. Use the services of a designer to create a logo that can be used on all your marketing material including:

  • signage
  • price labels
  • publicity material
  • bags and packaging

It’s also important to understand the target market and who will visit the retail store. This links with the location. A designer clothing store is more likely to achieve success in an affluent area, while a gift store could benefit from being located in a tourist region.

Part of the marketing strategy should be to research the need for a retail store in a particular area. This identifies what potential customers want and like. This can be done locally by setting up surveys or through a professional research panel.

Marketing costs

Expect to pay the minimum UK wage of £9.50 an hour for people over 23 for temporary survey staff and at least £1,000 for an organised focus group.

These figures are based on an average size retail store with a website. 

  • logo design £50
  • website domain name £50
  • website hosting £100
  • website design £500
  • PR and advertising £3,000

Tip: search for free publicity

The best PR is word of mouth. Ask customers to put reviews on the website and social media, organise regular events and competitions to promote the store and keep the local press informed of marketing activity. 

Marketing the brand is an essential part of raising awareness of a retail store. If you want positive publicity you have to deliver an excellent service. 

The cost of employees

Do you need staff?

Whether full or part-time, freelance or contracted, even a small retail store needs some employees. Doing everything on your own will be impossible. You don’t need to employ a big team of people to start with, but you will need some assistance, depending on the size of the store. 

Let’s assume that you set up a jewellery retail store in a wealthy location and decide to employ one full-time employee to help you.

If you don´t have anyone in mind, you’ll need to advertise the position. This can be done in the local press or online, which will cost approximately £50 per ad. 

Once you’ve found your ideal team member to work in your retail store, as an employer you’ll have to pay their tax and national insurance which you must deduct from their salary at source.

National Insurance and Tax

The percentage to deduct will depend on the category the employee is in. As a guideline, if the employee earns £758.01-£2,083 per month and is in category A, 15.05% of their salary has to be deducted.

An employee in the UK is allowed to earn £1,048 per month before they have to pay tax. 

More information on tax and National Insurance can be found on the government website.

Working out employee deductions can be complicated as there are so many options and scenarios, so it is advisable to use the services of a bookkeeper or accountant to do this. They can also manage the business’s accounts and keep the books in order.

If you’re running a large retail store or a chain of stores you may wish to offer employees benefits such as private pension payments, healthcare, free lunches or gym membership, which can all be motivational. This all depends on the size of the store and what you can afford to offer.

You’ll also want to pay yourself a salary. This works in reverse. You can´t decide you want to earn 50k a year and take that amount from the business. How much you earn is dependent on how much profit the retail store makes after all other expenses are paid. 

Establishing the finance requirements

The total costs of running a retail store

Keeping the finances in check will contribute to the success of a retail store. The income and outgoings should be constantly reviewed, and any financial issues addressed. 

Some of these figures are not set in concrete which is why sales projections are important. As the store grows and you become more successful each year, you’ll learn which inventory items make the most profit.

The cost of promotions

One of the financial costs is how much you can afford to run promotions and special offers. For example, the range of handbags you thought would sell well is still on the shelves. Can you afford to discount them to make way for other stock you know will sell? Or do you want to run a seasonal promotion during Halloween – buy one accessory and get one free – will the profits allow for this?

Running a retail store requires dedication and careful financial management for it to succeed. Using the above figures should help you manage the costs and make sure you’re aware of the investment required.

For help and guidance, Ankorstart gives you the support you need to set up a retail store. Try the free programme and make your retail store a success.

FAQs on the cost of opening a retail store

How can I fund my retail store?

If you don´t have the budget you need to talk to a bank, or an investor could give you the funds you require.

Do I have to pay for market research?

This isn´t essential as you could ask a diverse group of friends, family and other acquaintances for their thoughts on your ideas. Ensure they don´t give biased opinions because they know you.

Do I have to buy all my stock at once?

No. You will need to look at what sells fast and slowly and manage the supplies once you open the store. If you run a larger store you may wish to employ a supply manager to do this.

Can I just use free marketing such as social media?

This is an excellent way to promote your business, but you also need to raise awareness through other forms of advertising such as press ads, Google ads and attending industry events.s

 

NB unless otherwise stated, all figures are annual averages and from the quotemyenergy.co.uk business calculator.

2UK Government website figure