Opening a retail store is an exciting time, but for new business owners, it is uncharted territory—or just downright terrifying. Most of that anxiety stems from knowing how much it really costs to launch a retail store from scratch.
Chelsea Sloan, franchise founder and store operator of Uptown Cheapskate, a consignment store that buys and sells secondhand designer apparel at up to 90% off retail prices, has done that not just once, but thrice.
Founder of consignment store Uptown Cheapskate
Sloan owns 10 Uptown Cheapskate stores—three of which, she opened herself. At the time of this interview, she is opening yet another.
Before we go into the costs associated with opening a retail store, Sloan shares what you need to first consider.
Before you open that retail store…
Prior to opening a new store, owners should be aware of rising construction costs and ensure they are adequately capitalized, warns Sloan. “The first six to 12 months are hard, and even if your books are saying you’re profitable, cash flow is a different matter,” says Sloan.
There are hidden costs you need to take note of when opening your retail store.
For example, a hard-tag security sensor system is a must-have for clothing stores and costs almost $6,000 to set up, according to Sloan. In the case of Uptown Cheapskate, its custom, branded hangers cost $10,000 to display 20,000 clothing pieces.
As a guide to help prospective store owners understand how much it costs to open a retail store, Sloane shares with us the cost estimates of her upcoming brick-and-mortar launch in State College, Pennsylvania, and what to take into account in our retail calculator below.
Calculate your retail startup costs with this calculator
Key cost considerations when opening a retail store
Below you’ll find Sloan’s top five cost considerations. Every store is different, but if you keep her recommendations in mind, you won’t find yourself blind-sided by unexpected start-up costs.
1. Rent and operations
“The lease is the most critical component of your business plan and the biggest fixed expense.”
- ✔ First month’s rent, last month’s rent and security deposit: $18,600
- ✔ Utilities, such as electricity, gas, phone, internet, water, sewer bills: $600
- Total rent and operating expenses: $19,200
Negotiate rent: Instead of signing a ten-year lease, Sloane signed a five-year lease with another five-year option for added flexibility. She also negotiated free rent for the first few months, and had the landlord deliver the store space in “a vanilla shell”—ready for paint, dressing rooms, and finishes.
Know (and negotiate, again) your landlord’s responsibilities: Sloane made sure it was stated in the lease that the landlord would be responsible for the HVAC system. She estimated that the HVAC would cost about $25,000 to replace, so having that coverage was a must.
2. Administrative fees
“A little-known cost is your electricity and gas deposits. Both of ours are more than $1,500, and the power companies hold that money for a few years while you establish credit with them.”
- ✔ Licenses: $2,000
- ✔ Permits: $1,000
- ✔ Filing articles of incorporation: $325
- ✔ State fees: $200
- ✔ Professional and legal fees: $100
- ✔ Liability and property insurance: $1,700
- ✔ Workers’ compensation insurance: $1,500
- Total administrative costs: $6,825
Save on phone and alarm systems: Instead of paying an extra $60 per month for two phone lines, Sloane found a way to save by using a low-cost VOIP phone system called OOMA. For an alarm system, she found a local company that was willing to price-match what she was willing to pay at $30 per month, equipped with other features such as an app and auto alerts.
3. Store upgrades and fixtures
“One of my biggest expenses is in the fixtures. We want to have an upscale look and feel to the store, so we ordered custom fixtures designed to the space from a vendor in Texas.”
- ✔ Flooring: $15,000
- ✔ 8 built-out dressing rooms: $8,000
- ✔ Painting: $5,000
- ✔ Bathrooms: $2,000
- ✔ Huge wraparound counter, glass shelving, slat wall, outrigger system, custom graphics, plants, wood-wall paneling and light fixtures for counter: $75,000
- Total store upgrades and fixtures costs: $105,000
4. Marketing and promotions
“The open-to-buy period for an Uptown Cheapskate is unique. We open our stores to the public while the store is completely empty, and only buy product for three months. During that time, customers can browse, but we don’t sell anything until our opening day.”
An open-to-buy plan is a purchasing budget for future inventory orders that a retailer creates for a specific time frame. Uptown Cheapskate’s open-to-buy strategy enables it to stock just the right amount of products at a time.
- ✔ Grassroots efforts, including flyering campuses and talking to its customer base of youths: $500
- ✔ Radio “Cash for Clothes” messages: $5,000-$8,000
- ✔ Digital media designed by in-house franchise support team reaching out to potential customers: No cost, included in franchise
- ✔ Public relations to reach readers and potential customers: No cost, included in franchise
- ✔ Billboards, bus boards and sponsorships to reach 18-25-years-old target demographic: $2,000-$10,000
- Total marketing and promotion costs: ~$20,000 during the grand opening phase
Tease your audience: Uptown Cheapskate’s open-to-buy strategy allows customers to see, touch, but not buy until opening day. Doing so creates a buzz and mouth-of-mouth publicity among your target demographic.
Target different mediums: Similar to Uptown Cheapskate’s strategy, you can ensure all bases are covered by targeting a wide variety of media to reach your audience.
5. Equipment and IT
“This is another big line item. I’m budgeting $23,000 on this project.”
- ✔ Linux servers and 4 computers with cash registers, zebra printers, and other peripherals: $10,000
- ✔ Scanners: $2,000
- ✔ Printers: $2,500
- ✔ Credit card machines: $1,200
- ✔ Security tags and sensors: $6,000
- ✔ CityGro text loyalty program iPad kiosks: $1,000
- ✔ iPad check-in stations for our sellers: $1,500
- ✔ A TV with a Chromebit application that plays Concerto2 images and branded content: $500
- ✔ Speaker systems (“Ambience is huge, so we use 4 speakers and a receiver along with mood music.”): $800
- ✔ POS System: $6,000
- Total equipment and IT costs: $31,500
Off-the-shelf POS systems (software and hardware) can cost anything between $1,000-$3,000, with an additional $550 for each workstation. They are also likely to offer ecommerce integration to sync sales and customer data between your physical and online store.
For example, every time an in-store sale takes place, it’s automatically synced and updated in your online inventory, accurately updating your latest stock.
You’ll also want to consider an online website to promote your brick-and-mortar store, or even expand your business online. Free websites are available, but we recommend investing between $30-$300 a month for a web service with more capabilities.
Grand total startup costs
The above numbers provide a real-life example of what opening a retail store like Uptown Cheapskate costs. Calculating rent and operations, administrative fees, store upgrades and fixtures, marketing and promotions, and equipment and IT amounted to: $182,525
More advice from the founder of Uptown Cheapskate
Even the most meticulous plans are bound to encounter a sudden curveball. Chelsea Sloan shares more advice as you start up your retail store:
Budget for unexpected costs: “My best advice is to plan to do some things yourself if necessary, and also plan for everything to be more expensive. On this project, I’ve budgeted $75,000 in working capital. We’ll need that to pay for labor and additional costs while we work to be profitable.”
Be prepared to inject more cash: “Businesses fail either because their fundamentals are off or, more often, because they don’t have the money to hang on while they grow. Even our best Uptown Cheapskate stores that are doing over a million dollars and are 20% profitable took a while to ramp up and build a customer base.
“An owner needs to be prepared to not make money for a while, and also be prepared to put in more cash.”
Figure out how much it costs to DIY and then price-match: “If you ask a company to bid out installing a 16 camera system, they’ll quote $65/camera, or $1050, plus additional costs. It takes a rookie about 10 hours to install themselves.
“I’ve found that by calling and talking shop with a camera installer, their bid will come down. When I tell them my budget is $400 (or $40/hr), they’ll match that. Every business salesperson will try to get a high price for their services. Knowing what things actually cost and being willing to do it yourself will get you real prices.”
Launching a brick-and-mortar retail store is one of the costliest forms of starting a business. That said, understanding your budget well in advance and knowing where you can save will put you in good stead to have a profitable new business.
This real-life case study of Uptown Cheapskate serves as a guide for what to account for in opening your store’s startup and operating costs, as well as strategies for how you can leverage minimal resources to yield big results.
Ready to get started? Whether it’s picking out the right retail POS or ecommerce platform, our expert advisors are here to help with your technology needs. Call us at (844) 687-6771 for a free 15-minute consultation.