by missfleecy on Mon Feb 28, 2011 6:50 pm
Be careful: Stores tend to carry items that sell well, so the model of only carrying things that other stores don't can be disastrous. Remember that anything you purchase which doesn't sell is money you've thrown away!
Before choosing suppliers, first you'll want to research the average sales per square foot for the fabric industry in Nebraska. From that, you can calculate how much retail space'll you need to obtain and maintain profitability given the rental cost per square foot in your area. Then you can calculate how much inventory will you need to fill that space, and in turn how much of your initial capital investment you will need for inventory.
Here's a simple example. Suppose that you plan to mark up your prices by 50% over what you paid--you pay $100, you sell for $150 (so if you pay $166, you sell for $250). This is typical for a small, newly-established retail store. Then suppose your retail space costs $5/square foot per month and the average annual sales per square foot for the fabric industry in Nebraska is $250. With those numbers you can do the simple math to find that you lose $60 (24%) of the $250 to rental, leaving in $190 of annual income per square foot. Subtracting your inventory cost of $166 gives you a final figure of $23 per year of net profitability per square foot. That is a 13.8% profit.
So to make a total profit of $15,000 in the first year (equivalent to a minimum wage job at McDonalds) you would need to sell around $110,000 of inventory. If you expect to turn over 8% of your inventory per month (a typical figure for a small, niche store, which is also simple to use for calculations), that also works out to needing an initial $110,000 investment in inventory and roughly 650 square feet of retail space.
Of course, the above calculation assumes you have absolutely no other costs (for signage, shelves, marketing, additional labor, etc.) but those are easy to figure in. If all of that will cost another $15,000, for example, you simply need a 1200 square foot store with $220,000 of inventory so that you can still make your $15,000. And obviously you should use the actual annual sales per square foot in Nebraska, rather than the estimate of $250. (For example, stores in higher-traffic locations, such as malls, on average do as much as $350/square foot of sales.)
Once you've got that figured out, then you can start deciding how to allocate your square footage and exactly what types of inventory you'll want to carry.