How to Buy a Retail Business
If you’re weighing the possibility of purchasing a business, it makes sense to consider retail. After all, retail consumption accounts for a stunning two-thirds of the entire U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. Plus, retail as a whole is expected to continue growing. The U.S. Census Bureau reported that total U.S. retail trade sales increased 4.0 percent in 2017, with e-commerce increasing a whopping 13 percent.
What exactly is retail? This type of industry deals directly with end users, selling finished products such as clothing, electronic devices and food to consumers. Traditional retail businesses include brick-and-mortar department stores, restaurants and car dealerships, but it also encompasses e-commerce businesses such as travel websites and movie streaming services. There are a wide variety of retail businesses listed for sale.
How To Choose a Retail Business
Which retail industry is right for you? There are many important factors to consider, depending on your personal interests, lifestyle, skills and resources.
1. Look for a Good Fit for You
Ideally, you should feel a connection to a new company. This can be because you see its potential and know you can transform it into something amazing, or you’re passionate about the type of market it caters to, such as health and well-being.
When you’re excited about your business, it shows. Answering the following questions can help you make a decision:
- Your lifestyle: Are you looking to leave your mark on the industry with a business that will require your complete focus? Or, are you looking for an additional income source that mainly takes care of itself?
- Your expertise and passion: Can you apply your knowledge and personality to really make this company something incredible?
- The company’s location: Are you comfortable with the amount of travel required?
Once you've decided the type of retail business you'd like to own, you can start searching.There are many great retail businesses for sale to choose from. First, choose a few listings that interest you, then start evaluating them.
2. Consider the Company’s Characteristics
You may be excited about a potential business, and you feel that your skills can turn it into an industry superstar. What’s next? Now you need to analyze the business itself.
- Profitability: Past and current gross sales tells you about a company’s value. Steady cash flow and company growth are important, but you also want to know what your sellers discretionary earnings will be. Balance sheets should show at least 10-20 percent of gross profits going to the business owner as SDE.
- Time in operation: Years of successful operation and ongoing profits are living proof that the business’s concept works in the local market.
- Uniqueness: To really dominate the market, a company should have something that makes it stand out from competitors.
- Brand reputation: Trusted, beloved brand names have significant value thanks to their loyal customer base, which usually leads to more stable economic growth even after the business changes hands.
3. Do Your Homework
Now that you have the hard data you need, it’s time to go one step further with some preliminary due diligence. There are many important characteristics to look for in a successful business. Find out what people are saying about the company. Look at online reviews and recent newspaper articles. Visit the business in person, and interact with staff members and customers.
The Key To Strong Retail: Adapting to Trends
Retail businesses aren’t going anywhere. The U.S. economy continues to grow, and it’s American consumers continue driving sales. What has changed, however, is the way buyers interact with businesses. Smart entrepreneurs notice these purchasing trends and adapt to maximize profitability.
- The all-powerful consumer: Millennials want total control over their buying experience, with instant access to product information, price comparisons and a wide selection.
- A closer client-business relationship: Successful companies need to interact with customers on a deeper level via social media, branded blogs, mobile apps, loyalty programs and other avenues that make the business seem more approachable and friendly.
- Hybrid e-commerce and store locations: Consumers look for a unification of the online and in-store shopping experience, checking out prices on their smartphone and trying on clothing in person.
- High-tech analytics: With digital data, businesses can offer personalized recommendations and online marketing to deliver products that appeal directly to each customer.
- Health and wellness market interest: A growing number of consumers take health and wellness seriously, as well as non-GMO, sustainable and green products.
Smart Decisions Lead to Flourishing Retail
Consumer behavior, our natural tendency to shop around for the latest items and look for ways to make our lives easier, isn’t going anywhere. There will always be a need for the products supplied by demand-driven retail businesses.
The key to being a successful owner in the current retail market is building a strategic plan that never loses sight of the people you’re catering to: your customers. By understanding the families, couples, teens, college students and other individuals that make up your target market, your business can adapt better to new consumer trends. This allows you to create a desirable product offering that combines the best parts of shopping both online and at physical store locations.
“Gross Domestic Product by Industry: Third Quarter 2018”, U.S. Department of Commerce Bureau of Economic Analysis, 21 February 2019, page 5, https://apps.bea.gov/scb/pdf/2017/10-October/1017-selected-nipa-tables.pdf. Accessed March 2019.
“Sales (1992-2016)”, Annual Retail Trade Survey, U.S. Census Bureau, 21 March 2018, page 1, www.census.gov/data/tables/2016/econ/arts/annual-report.html. Accessed March 2019.
“The Future of the Shopping Center Industry”, ICSC, www.icsc.org/uploads/default/Envision-2020-Report.pdf. Accessed March 2019.