Retail Advice: 7 Reasons Independent Retailers Go Broke


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When I started my retail consultancy business in the nineties, independent retailers dreaded the arrival of retail super-chains like Walmart in their hometown.

Now, those big boxes are just as afraid of the retail super-chain Amazon.com.

The feeling is that if it just weren't for them...Amazon, Walmart, and the rest, those independent retailers would be fine.

Unfortunately, that's rarely the case because many retailers aren't doing everything they can to create an exceptional customer experience, especially indie retailers non-affiliated with a chain, franchise, or buying group.

That's because they typically have little experience or trusted advisors to bounce ideas off of.

While it's important to keep the competition in mind and make smart business decisions, if you are concerned about your company going under and losing everything, you need to take seriously why that could happen.

The seven common reasons why independent retailers end up going broke

Poor location

This one is more important than you might think. Many small business owners make the mistake of thinking that location takes a back seat to the loyalty they'll inspire in their customers. My retail advice is that while there is hope in the saying "build it and they will come," don't forget that customers must know it's there in the first place! You don't want to be 100 feet from success. Another common reason for choosing a poor location is to save money on the rent. While you will save some money in the short term, try to resist that urge and consider the future of your business's longevity. That should always come first when trying to find a good location. Otherwise, you'll pay that saved rent in expensive marketing to try and drag them to your front door.

Poor choice of merchandise

This mistake is something I see all too often in my work as a retail consultant. Yes, it's a tough one to avoid since you don't typically realize that you're making a poor decision when choosing your merchandise. You may fall head over heels in love with a product, but that doesn't always mean you should immediately buy a huge order of that product and hope that your customers will adore it as much as you do. As a rule of thumb, keep your opinion separate from what you believe will sell. All your merchandise should pass your quality evaluation, but stick to objective standards whenever possible, especially when buying at a trade show.

Overbuying merchandise

This mistake ties in directly with the last item, but it's worth mentioning on its own before we move on. Making a poor merchandise choice is much less of a disaster if you don't place huge orders for it. My advice? Test your hunch with a smaller batch first. Do yourself a favor and avoid buying too much merchandise because it will be your money sitting there staring back at you every day when it doesn't sell.

Relying on word-of-mouth marketing

This one might be more damaging than a poor location, honestly. As a retail consultant, I encounter this one far too often. Some small business owners think they can get by with word-of-mouth and recommendations from their happy customers. While we all love word-of-mouth recommendations, and it is certainly effective and likely to bring in some new business, it's not proactive enough for today's market. All retailers, large and small, need to take advantage of free marketing opportunities that are easy to engage in, such as social media sites like Facebook. When I am speaking with small business owners or those looking to hire a retail speaker, I find myself explaining the benefits of social media and online marketing more and more and it is advice that bears repeating.

Poor mark-up

This one is crucial to the success of any retail business. Let's say that you have secured a killer location and snagged some wildly popular merchandise that is selling madly. You're selling your products faster than you can restock the items! While this is outstanding news, you need to be certain that you are marking up the price appropriately. Selling all your merchandise is good, but not if the reason people are buying so much of it is the unbelievably low prices you are charging. Offering loyal customers special discounts and having clearance items is one thing, but that's a special occasion. Making sure that you are marking up your prices enough to keep your business afloat with money to take home and live the life you want is something that many independent retailers neglect or fail to totally understand. Here's how to do it.

Lack of cash flow

You can't be content waiting for customers to come in if sales are down, you have to go out and beat the bushes, call customers, take out ads, the works. "It's slow" won't play to your bank. That also means you have to sell what you have, not go out and buy another line to hope that one will make you money. It probably means you need to increase your knowledge of retail selling techniques.

Enamored with being the owner

Starting and owning your own company is exciting. Few get to be in that position; many are slaving away at their 9 to 5 jobs and would give anything to trade places with you. But the truth is that you will need a reality check every once in a while, to keep you from getting too caught up in all the exhilaration. Remember that being an owner means more work, not less.

Don't want to go broke?

Of course not!

So don't commit to reduced visibility when selecting a lease, don't buy a lot of stuff that won't sell, don't mark it up too little, don't expect customers to just "find you" or your merchandise to sell itself and never take your business for granted.

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