HOW TO – Start a Retail Shop

One of the biggest challenges facing both the employed and unemployed folks is that of having a guaranteed daily income to take care of basics especially at home. In most cases, people with big salaries find themselves in negative balances by the time they are paid simply because during the month, as a result of lacking cash to purchase daily necessities, they resorted to borrowing.

There is a teacher who was struggling from pay cheque to pay cheque in a bid to fend for his family until a friend advised him to open up a stall selling simple home groceries. Within three months, his stall had grown and was taking care of all the home needs. Today, he’s actively saving his salary in a Savings and Credit Society with the hope of buying land to build a house.

Mid this year, I was approached by one of the blog readers with a request to help a young lady set up a shop for business. While her initial thought was to set up a wholesale shop, she eventually settled for a retail shop. It is the experience we went through doing all this that is shaping this article. Have you tried setting up a shop before or do you want to do it for the first time? Either way, I believe there is something to learn from this experience.

Retail shops are spread out in our communities and they are not something really new. They largely deal in groceries and other home products like toiletries, beauty products, Mobile Money transfer, Airtime sales, basic electronics among others. While they were traditionally overlooked by many in the past, it seems like their importance in stabilising family finances has been appreciated lately. It is the reason we are seeing more of them crop up.

So, you want to set up one? Good. Let us look at the key issues to consider.

Investment amount: You need to have an idea of how much money you are prospecting to sink into the investment. This will help you as you put your plan into action. Typical retail shop setup costs are dependent on numerous factors but they can range from as low as UGX 2 Million to as much as UGX 50 Million.

Target Market: Identify the target market for your retail shop. Is it an upscale or low end clientele? Is it a roadside location targeting passersby of all kinds? Could it be entertainment revellers in a nearby complex?

Correctly identifying your target market helps you to determine how much money to sink in the project, the pricing approach to be used, types of products stocked and packaging. A good example is the prevalence of small sized 30ml cooking oil sachets in less affluent communities as opposed to the standard 500ml sized cooking oil cans.

Set Standards. Before you set out to look for that shop to rent, have some minimum expectations in place otherwise you might just end up taking on anything that comes your way and not achieve your goals. Do you need parking space? Is a large storage space necessary? Do you want it in a residential area? Should it have electricity and piped water? Should it be able to double up as your accommodation? Is burglar proofing a must? The list could go on and on. You should have at least five core expectations. This helps ease the decision making process in case you have multiple offers.

Location: Be very critical of the location you choose. It highly determines the success of your shop. Basing your shop near a taxi or bus stage can be attractive to the users of public transport and shopping is likely to be brisk during the rush hours. Having a shop by the roadside on a route largely used by drivers of private cars endears you to them especially if you have parking. There is a row of shops on the Namugongo road near Naalya Secondary School, they not only benefit from the fleet of cars that pass by that route daily but have gone a step further to open for business as early as 5am. This allows parents that forgot to shop snacks for their school going children to buy them early in the morning on the way to school.

Agreement with Landlord: Upon identifying the space you want to rent, it is time to interact with the landlord. Most Ugandans are okay with informal agreements for as long as they know they shall pay for the place. However, I urge you to insist on a formal agreement complete with a contract that spells your expectations and obligations as a tenant clearly. If you can, use the services of a lawyer at this stage. There is nothing as sad as starting up a shop, then as it is booming, the landlord decides that it is time to double the rent or boot you out on flimsy grounds with the sole intention of replicating what you have done in that space. Always plan for the worst.

Secure Premises. Once occupancy issues have been sorted out with the landlord, you need to start establishing the investment requirements for furnishing, branding, security among others.

Product List: By this time, you should have studied the target market and identified what kind of products they are likely to buy from you. The items to be purchased should be fast moving because turnover is the secret in most of these retail shops. The margins on products are usually low and this calls for large sales volumes if one is to make some good money. If you can sell 100Kgs of rice weekly making a margin of UGX 20,000, you’re much better off than one who sells the same amount in three weeks making a margin of UGX 30,000.

Suppliers: With full knowledge of the target products, the next stage is to identify suitable wholesalers (suppliers) you can deal with. Most manufacturers do not sell directly to retail shops or consumers but prefer to use a network of distributors who tend to have territorial limitations. Take the example of Jesa Milk, their distributor in the Naalya and Namugongo areas is different from the one in Nansana. You therefore need to find out who to purchase from the selected products. An easier way out usually is going to Kikuubo and purchasing from the various wholesalers already there.

Registration: It is crucial that you register a business name. Lately, it is a very simple process to do this and will hardly take more than 4 hours of your time at the Uganda Registration Services Bureau if you have all the paperwork like Identity Cards in place.

Ensure that the local council registration requirements are met too. Visit that Municipal or Town council office and pay up for the requisite trading license.

Purchases: Your shop is furnished with all the shelves and tables required, burglar proofing is in place, registration paperwork complete, now it’s time to purchase the first products for stocking. Review your product list and purchase limited quantities of each identified product because you are still in an experimental phase and aren’t so sure what will or will not sell. Some shopkeeper once showed me stock he had bought while starting his shop and had not been sold two years down the road. He had misread the market.

Sell: At this point, you should open up the shop to the general public. Start selling as well as actively seeking their feedback on what products they would like to see stocked. Based on the product sales, you too can be able to make judgement on stocking decisions. Take note that different localities have different tastes. There are areas where the sale of fish is likely to boom while for others it’s beans.

Due diligence

The success of a shop isn’t a random occurrence. You need to work towards it and some of the things one needs to adhere to for this success to manifest are;

• Setting up a record keeping system. This helps you know what you have purchased for stock, how much has been spent purchasing it, what has been sold, remaining product quantities, payments for recurrent costs among others.

• The records should then facilitate you to carry out daily, weekly and monthly reconciliations. Without such a keen eye on the details, a shop can easily drag you into unnecessary losses especially when you rely on hired labour. I have heard of cases where a hired shop keeper stocks his products e.g crates of soda side by side with those of the business owner, sells off his stock first then starts selling those of the owner. Closer attention could help avert such scenarios.

• Open up an account for the shop with a financial institution. It’s good practise to desist from keeping business money under the pillow. This is the reason why robbers often times target shop keepers. By keeping money in the bank, you not only secure it but it also helps you account and plan for the business better.

• Upon transacting, ensure that you bank all your earnings prior to spending. It is a good trail that should make your efforts at accountability much easier especially when ambushed by the tax man. Withdrawals from the account should be clearly recorded indicating the purpose.

• Pay yourself. You are a human being with needs too. If you are working in the shop, pay yourself a salary, however small. You can always increase it based upon the growth of the business.

• Take on the services of a walk-in accountant for your book keeping. This should help you keep a proper record trail as well as analysis of business performance at an affordable rate.

• Your focus should be on growing the business through profit re-investment. Avoid the temptation of rushing to spend lavishly simply because the shop is making a lot of money. The time shall come when you will be able to do that, for now, focus on getting your business to grow.

• Honesty. As I finalise, it is important to touch on this subject. Exercise utmost honesty in your business. Avoid cheating of customers through dishonest scales or sale of counterfeits. Remember that customers over time get to know when you are dishonest. I once went with my kitchen scale to some meat vendors in my neighbourhood and as they ran towards me expecting business, I challenged them to give me an opportunity to weigh what they offer as a Kilogram of meat. They all withdrew apart from one elderly man who took me on and his Kilogram was of the right amount. I have never stopped purchasing from him ever since.

Hopefully, you have picked up some pointers from this article to pursue your goal of setting up a shop. Start small and scale up with time. What was meant to merely meet the basic needs of you home might turn out to be a huge enterprise worth millions of dollars. This is how the story of Quality Supermarket started in Old Kampala.

James Wire is a Business and Technology Consultant based in Kampala, Uganda
Follow him @wirejames on Twitter.
Email lunghabo [at] gmail [dot] com