Creating and managing an independent retail business today is probably harder than it ever has been before. Retail rents are sky-high, chain store consolidation is wiping out entire market categories, and shoppers are continuing their rapid shift to online and e-commerce purchasing for more and more products.

And yet, opportunities abound in the boutique and niche retail sectors — even in segments that were previously left for dead. For example, the rise of Borders and Barnes & Noble into nationwide mega-chains wiped out more than 90% of all independent book retailers over the last twenty years. And yet today, Borders is gone and Barnes & Noble is in the midst of a rapid retreat, leaving new opportunities for independent booksellers.

The same is true in many segments — but the challenges remain high. Here are five key steps you should take to build a sustainable, successful small retail business in today’s marketplace:

1. Format comes first.

When we say ‘format’, we don’t mean the layout of the store or space itself. Rather, we’re referring to the structure, target market and brand positioning of the retail concept. All retail is concept-driven, and that means you don’t begin with products…you begin with market segments (and sub-segments). For example, don’t just open a shoe store…open a shoe store focused on children’s shoes and orthotics. Don’t just open an apparel shop…open a shop with a uniquely curated collection of designer looks for professional women over 50.

Define your format through rigorous research, and identify the audiences and market pockets that are most likely to want, need or benefit from your products.

2. Capital is king.

There’s a reason so many retail and restaurant businesses fail every day. The reason often boils down to one word: Undercapitalization. Don’t start a retail business without sufficient capital — capital for real estate acquisition and tenant improvements/build-out (whatever your budget is, double it); capital for inventory acquisition and holding (whatever your budget is for this, double it too); capital for marketing and advertising (don’t skip this budget!); and capital for personnel and operations. You need to be able to hold inventory in a downturn, survive a market slump, keep your employees on the payroll and make it through 2-3 years before you should even expect to break even.

Capital is the funds you have available to invest, and that means both liquid assets (i.e. cash and sources that you can quickly liquidate to access more cash), and hard assets (that you can use as collateral to back a loan). You need capital, and you need to be prepared to get it, whether through partnering with investors, seeking a loan from a bank, or both. And since capital requires collateral, be prepared for a detailed discussion with you banker about the value of your primary residence, your vacation house, and any other assets worth noting, because the bank will want these as collateral for a personal guarantee.

3. Invest in building a brand.

A great product selection and an enthusiastic owner are not enough to carry the day anymore, so be prepared to build a serious brand. No one will find your unforgettable logo, weak signage and confusing communications endearing or authentic. Instead, they will find it boring and forgettable. You need a strong brand, and that begins with your visual identity and it carries through every aspect of the customer experience. A strong format gives you the right foundation for a powerful brand. The more specific your format is, the easier it is to create a compelling brand around it.

4. Open your store on three fronts, not just one.

While the old adage, “Location, location, location” is still true, today you need to understand that when you open your store, you’re actually opening three locations, not just one.

The first ‘location’ is your brick-and-mortar retail space, and the target audience for this location is people who walk in from the store’s immediate trade area. For this audience, the store is the retail location. These people will be attracted, in part, by your location and in part, by your superior marketing, advertising and promotion.

The second ‘location’ you’re opening is the store that you bring to your customers, by using the brick-and-mortar store as a base of operations from which to go into the community and bring the business and its product to customers. This can often be the most lucrative (and most commonly ignored) market that’s right in front of the business. For example, a franchised cell phone store for a major carrier doubled its revenues simply because the sales manager left the store and visited nearby businesses to sell service plans, and an independent jewelry store achieved similar results by holding trunk sales and home/office events as well.

The third ‘location’ you’re opening is the store that you deliver to your online audience, and this is another reason why a highly specific format is so valuable to any retailer today. Generic retail can only appeal on the basis of location, in-person service and other convenience advantages (most of which are harder and harder to deliver). In contrast, a highly focused retailer can appeal to anyone, anywhere.

5. Combine a specialty with a service.

Standing at the counter and waiting for customers to browse and buy is not a very strong strategy for a retail store that will survive and ultimately thrive. Remember, service is something that customers will pay for, and no independent retailer today should shy away from selling services. Some of the best retailers have used services to drive profits. For example, a high-end clothing store that offers free personal shopping services is often able to secure scheduled appointments with customers, and then convince those customers to spend 2-3 times as much as they would have spent on their own. Some of the specialized services your store can offer include:

• Custom fitting or bespoke tailoring (for apparel)
• Offsite and in-home visits or assessments to find the best-fit products
• Free or low-cost product training sessions (Apple offers this, for example)
• In-store product support for the life of the product

The best retailers use these opportunities to re-engage and up-sell customers as well, by reminding them of new attachments or options that can increase product effectiveness or enjoyment.

6. Focus on loyal customers, worry less about walk-ins.

The most important long-term priority for any retailer is not just to turn visitors into customers; it’s to turn one-time customers into repeat customers. This means building customer relationships through loyalty programs, frequent customer benefits and consistent, high-value marketing. Make sure that your Point-of-Sale (POS) system allows you to collect customer information such as the customer’s name, contact information and email address, and also that it enables you to examine purchasing data to create special offers.

Use your retail space as the stage to hold regular events for loyal customers, friends of the business and other partners. Your retail floor creates a great opportunity to host learning events, product demonstrations and special events. Then, use social media, email marketing and direct mail to reach out and engage your customers on a regular basis with general and customized offers and opportunities that encourage them to return.

Each of these six strategies is complex enough to warrant its own article (or book, for that matter), and this just demonstrates how complex the business of launching a retail business can be. Nonetheless, by focusing on these six steps, you can position your new independent small retail business for not only survival, but also long-term success in ways that generate revenues, protect profits and create strong, loyal customer relationships too.

Image Credit: Baker County Tourism (Flickr @ Creative Commons)