I am writing my business plan for a soccer-and-rugby store but I’m puzzled about buying inventory. Opening accounts with manufacturers like Nike (NKE) or Adidas (ADS:GR) looks very difficult; certain requirements need to be met first. Where does a brand-new store get inventory to open its doors? —J.S., Ashland, Ore.
Choosing and stocking inventory is one of the significant hurdles for new retailers, especially if they want to sell well-known brands, which can be choosy about who carries their top lines. “Part of the reason the big guys make it so tough is that they don’t want new stores to open with low-ball pricing, erode their main distributors’ margins, and then go out of business 18 months later—having torched their brand’s pricing,” says retail consultant Bob Phibbs.
The brands you mention are likely to have requirements about finances, store placement, store appearance, placement of their goods vs. their competitors’ goods, your operating history, and your business experience, says Wes Shepherd, founder and chief executive of Channel IQ, a pricing consultancy.
Step back a moment to investigate several options as part of your business plan research. For instance, must you carry well-known soccer and rugby products? Or would you be better off eschewing the same goods your larger competitors carry and differentiating yourself with lesser-known, but still worthwhile, merchandise?
If you must have brand-name items, should you attempt to buy directly from manufacturers, or could you engage with a distributor or purchasing group? Finally, what are other small sports retailers doing—and can you glean anything from their experience?
Start with the last question first: Work some competitive intelligence into your business plan by attending sports industry apparel-and-equipment shows, where you’ll find a wide variety of vendors exhibiting. Not only can you learn about minimum order requirements, terms, and how to cut deals with suppliers large and small, but you can also seek out smaller retailers who have achieved success.
Talk to them about how they got started and what they are doing now. If there are no shows scheduled near you this year, or you can’t afford to travel to one, simply go to a city that’s not too remote—but is located far enough outside your region that you won’t be considered a potential competitor. “Call on a few stores that do what you want to do and you may find lots of practical answers to your questions,” Phibbs suggests.
When Michael Fox established M&M Paper in Van Nuys, Calif., nearly 30 years ago, he recalls, he sought out a purchasing group in the paper goods industry because they had better pricing on the items he wanted to stock. “When I started up my business, I was C.O.D. with everyone. I used my credit card to finance inventory and then after a period of time, I was able to establish credit,” Fox says.
He risked using credit cards because he felt it was a safe bet that his inventory would sell completely and quickly, he says. Be more cautious if you anticipate that your inventory is likely to get only a percentage sell-through, which may be more common with apparel that changes seasonally.
Consider working with smaller manufacturers that would be interested in distributing through your store. Not only will they make your store stand out from the chain retailers, they may also give you a break on price as you’re getting started, Phibbs says: “To succeed in retail, you have to tell a more compelling story with differentiated merchandise not easily shopped.”
Robert G. Kramer, a retail and marketing consultant and author of Revolutionary Retailing, says you might try to find an established independent dealer in your area and make an arrangement by which they could have a shop within your shop. “Your profit would be low but you would have a full complement of merchandise” the day you opened your doors, he says.
Another suggestion from Kramer is to find some unique products or services you can offer that are less price competitive. For instance, he did some consulting for a business that cleaned sports gear. If you could include a similar service component in your business plan, it would bring in extra revenue and give customers a reason to visit your store regularly during soccer or rugby season, he notes.