How to Start a Retail Store With Little Capital

One version of the American Dream is to open a retail store that becomes wildly successful, but the problem for many comes in financing this dream store. The Ewing Marion Kauffman Foundation estimated in 2009 that the average start-up business cost $31,150, although many require much more capital. To start a traditional shop, you must purchase everything from fixtures to advertising to an initial order just to open the doors. Do not let this reality scare you away from trying your hand at a business of your own. There are several solid options available even if you have little capital to invest.

Consignment stores reduce or eliminate one of the biggest start-up and operational costs in running a store: purchasing inventory. In a consignment store, you make available space and sales staff to sell merchandise for someone else. You typically will receive a commission for the sale and, sometimes, a reimbursement for credit card processing fees. You still will be responsible for purchasing fixtures, signage and other store items, but your initial outlay will be much lower with the inventory cost eliminated. While clothing might be the most common type of consignment, some make a living selling big-ticket items, such as cars, on consignment. Draft a consignment agreement that your consignor signs when he brings you the merchandise to sell. This document should cover topics such as commission percentage, fees, what happens if the merchandise is stolen or returned, and the term in which you are willing to try to sell the item.

If your inventory cost is dwarfed by the high cost of retail space, consider a sublease with an existing business. In 1971, a young man named Johnny Morris carved a small corner of his father's liquor store to sell fishing tackle. A little more than 40 years later, his store, Bass Pro Shops, is a recognized leader in sporting goods and outdoor recreational items. Find a complementary business in which you could set up a merchandise display, then meet with the owner to see if there is mutual interest. Attempt to negotiate the terms to pay on a commission-only basis to eliminate monthly overhead and to provide incentive for the store to promote your merchandise. Or, look for business locations that are nearly empty or are going out of business. Often the business owner will remain responsible for the lease after he closes and may offer you a favorable sublease to try to recoup some of his losses.

If you are extremely underfunded, consider a drop-shipping business. You can establish such a business by building a basic, online catalog website from which to sell and ship directly from the wholesale distributor to the customer. Some wholesalers even will help you design the website or provide you with an electronic catalog to include on your site. When drop-shipping, you do not buy or warehouse any merchandise. In this business model, you merely collect a percentage of the goods sold on your website in exchange for managing and promoting it on your site or on other e-commerce sites such as eBay. The most common niches for drop-shipping are easily shipped items such as electronics, books, clothing and toys. Once you find a supplier who manufactures what you want to sell, contact the merchant, inquiring about drop-shipping opportunities. Investigate drop-shipping companies with the Better Business Bureau to be sure they are legitimate before disclosing private information or sending money.

If you own your own home, of have an agreeable landlord, you could open a store in your garage. Check with your city hall for planning and zoning requirements and for restrictions on the number of garage sales you can have yearly. Verify that your neighborhood association doesn't have covenants that prevent you from operating from your home. If you are clear to do so, purchase goods from businesses that are closing or in garage sales or flea markets, then hold a sale of your own every quarter or as your merchandise level increases. Between garage sales, you can sell your best merchandise on eBay or through classified advertisements websites like Craigslist to maintain a positive cash flow. As with any retail store, your goal is to buy low and sell high, so only choose merchandise that has profit potential that you can sell reasonably quickly. Find a niche of which you can learn the market values and exploit it when possible.