Have you been thinking about setting up shop in 2017? Curating a retail location holds the promise of making a living by sharing your style and helping others find their own. Before branch out from pop-up shops and you sign a lease on your very own location- stop and consider the mightiness of small.
The schoolhouse gives us constant reminders on the power of space, the joy of experimenting, and that impact and success are not tied to size. Last year, we began to search for a perfect tenant for our tiniest space inside The Milton Schoolhouse- a 230 sq ft studio that is part of a divided classroom. We felt the space would be great for a start up retail. Its entranced sat at our most highly trafficked area, it had a low rental cost ($200 per month, utilities included), and gorgeous distressed wood floors and abundant natural light. However, as we searched for a renter, eight potential tenants passed for one reason: It was too small.
Busy holidays aren’t a great time to find a new tenant. So, on November 1st, we made the decision to throw together a holiday pop-up shop to test the hypothesis of the “too small” argument for ourselves.
This post is part one of a series discussing the financials of the shop, merchandising discoveries, how the small space created powerful connections with customers. Below you’ll find the data from our seven week operation and what financial success you might expect if you choose to create a similar business.
Small Space Strategy
After 24 days spread over seven weeks of operation, we sold $2,654 of product in our shop. What sold me on this experiment was it’s near zero-risk. Part of this came from the space’s location inside The Milton Schoolhouse business incubator. Our building, like other brick-and-mortar incubators, focuses on providing low cost rental studios for start ups that include utilities, taking the guesswork out of overhead. Plus, nestling our tiny retail start up among other small businesses gave us the advantage of their network as well. In the end, just $345 was invested in stock to get the shop off of the ground. How?
Using consignment to boost retail stock for no upfront cost is standard practice in the small retail world. Two things made Bourmont’s situation different:
Limited space meant focused, cohesive curation
My set up time was crunched! I was asking artists to take a risk by consigning their limited stock during their busiest season of shows and sales- weeks before the holiday season
I knew I needed to provide the artists I wanted with an incentive to take a risk with our untested business. 40% commission is a standard industry rate for galleries and shops who feature handmade works. This would be my advantage: the overhead of this space was as tiny as it’s footprint. By mixing commission-based stock with higher margin items, I could afford to take half of the going commission rate. Of five artists I approached with a 20% commission rate, four enthusiastically agreed.
50% may be a standard markup for retail. However, making that a blanket rule for every product line limits flexibility when creating business strategies. Our highest volume item by both quantity and dollar sales had a 70% margin. Creating a mix of high margin goods allowed me to pay artisans 20% more for commissioned goods. This was good for the artists and the first win for the experiment.
Lesson learned: Industry Standards are good, but your focus should ultimately be on your unique market position.
Long Term Success
The percentages above look fantastic for the few weeks of data collected; yet the ultimate goal was to prove if a shop this small could be a sustainable and worthwhile part-time gig for a retail oriented entrepreneur.
The labor costs calculated above were for outside labor. I did not pay myself during this experiment, but I paid to have someone watch the shop during 25% of operating hours. For someone considering retail, these numbers are artificially low. Additionally, sustaining a shop beyond the holiday would mean reinvesting 25-40% of profits to acquire new inventory. This would have left $579 to pay myself. I would have made 32% less than minimum wage!
Fortunately, I used Bourgmont as a swanky well-merchandised office in which to conduct operations for our other two businesses- compensating my time through other work. Without this, revenue would have to be increased to make this tiny retail space work.
Pairing your brick-and-mortar with an online platform is a power duo for small retailers.
Moving stock online is a low cost way to increase revenue and doesn’t have to include building a website. Depending on your market, setting up shop on Etsy, eBay, CafePress, or ArtFire are great ways to reach out to customers. With the right set up, an entrepreneur can maximize their downtime during business hours by photographing, adding, marketing, and shipping goods to their virtual customer base.
I ran a successful Etsy shop that grossed $45,000 between 2010 and 2013. For the projected earning potential of this business, I used an average of first-year sales numbers coupled with the average profit margin of the wares carried by Bourgmont.
If we add in those numbers, our little shop has a conservative potential earning more like this:
These numbers assume the entrepreneur working 75% of the total open retail hours of the shop and hiring out the other 25%. Adding online retail raises the entrepreneur’s take home from under $6/hr to to just under $16/hr before taxes- or earning you about an extra $10,000 per year for an extra <15 hours per week of work.
Not bad- but could it be better?
By adding the element of time, the answer is “yes”.
The graph above is a conservative estimate of what one could with this business model in a similar space during the first year of operation. During my first year on etsy, I sold around $1,200 worth of goods every month. At the height of my Etsy shop, my average was around $3,000 per month. Using the numbers from my second year of online shopkeeping would result in figures like this:
Conservatively, one could anticipate earning around $15,000 per year for that same <15 hrs per week by nature of the growth that naturally occurs with an establishing business. That’s $15-25 per hour.
Committing to anything part-time is no get-rich-quick plan.
However, not all of us are looking for a traditional 9-5. I consult with potential entrepreneurs all of the time who are looking for a gradual transition from full time employment, who want a part-time source of income because of family commitments, medical limitations, or other lifestyle desires.
If retail is your passion, committing to a small space is a low-stress, low-risk way to add a little extra cash to your pocket.
Does this post have you thinking? Up next, more discoveries on how to make small work: creating a compelling visual story in your space through merchandising- and how I discovered that standard retail sales talk just won’t work in a 230 sq ft space.