How To Avoid The 7 Reasons Small Retail Businesses Fail

small business owner

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Updated April 12, 2024.

There are few things sadder than going by one of your favorite boutique retailers and finding an empty store with a sign For Lease posted in the window.  

It means someone’s dream has ended, and many employees’ livelihoods may have been erased.

Many times before the pandemic, I'd read an interview by a local store owner on that last day, and they'd say it was the economy and online competition.  

What has happened in most instances is that the owner was in over their head.  

One day, I received a call from someone from a mall store who told me their partner worked six days from opening to close, and they had just two part-timers.

Sales were down, and they were desperate to find the magic bullet advertising that would reverse their fortune. I had to inform them that they had many structural problems with their business. There would be no magic bullet; success is a series of small bullets.

In short, they didn’t know how to make a go of it. I don't want that for you.

Here are the 7 biggest problems small retail businesses face and how to fix them:

1. Going it alone. While it’s great to have a vision, going it alone is really difficult.  You can do the jobs of two or three people, but you can’t BE two or three people.  You need someone who can help you do multiple jobs so you don’t burn out and become bitter, which leads you to stop being customer-focused, take your initial vision, and turn it into cynicism.

2. Wrong partner. The right partner can help you immensely, whether a side-by-side or silent partner. But when you don’t do your due diligence of vetting each other, expectations may be wrong or mismatched. Deadlines can be missed, and the great relationship you thought you had at the beginning frays. You need to know what the other brings to the table, what you’ll do with disagreements, and exactly who will do what. Opening a new business is a rush, but when that rush fades in a few months, you both need to be bound to each other to succeed. Your partner isn’t an employee you can fire easily. Especially if you’re married to them.

3. Wrong location. Everyone’s heard it a million times. Location. Location. Location. But what does that mean exactly? Few know about correct egress and ingress to a center, traffic patterns, and demographics. Fortunately, rents are a good clue. Yes, you can save 30 percent with a location off the main road, but you’ll probably give that 30 percent back – and more - with advertising to try to get them there. You never want to be 100 feet from success. Yes, Starbucks can go anywhere, but you’re not them.

4. Enamored with your products. It’s wonderful to curate a great assortment of products from all over the world, especially ones that aren’t easily found in big box stores or online. It’s not wonderful having a store overflowing with merchandise, but hearing customers say, I love your store but refuse to pay full price to take any of your fine products home. Museums are non-profits. You need to be able to sell the merchandise.

5. Not focusing on the fundamentals. Profit and loss, break-even analyses, and cash flow are the basics of running a small business. If you don’t want to learn those basics, that’s OK, but you’ll have to pay someone to do them. You need to know your fundamentals, or you won’t have enough money to cover expenses - which can lead to stupid things like not making your quarterly tax payments - which can land you in jail.  

6. Not managing the people. Your job isn’t to be the owner. Your job is to manage and train your people so they sell better than you, consistently delighting and surprising your customers. Do that right and you can build a business that is competitor-proof.  Miss that opportunity, and those unmanaged employees will either rob you blind or turn so quickly that you’ll give up on training them, which is where many small retailers find themselves today. You need to invest in your people, or they won’t invest their time or loyalty in you. That leads to them hiding behind the register and not investing in your customers. That leads to a Now Leasing sign.

7. Not leading by a good example. Yes, work/life balance is important, but when you’re at work, you’re at work. Letting your smartphone tie you back to your personal life when you should be working on your business is a real trap. Employees will see you and do likewise – or be even worse when you’re gone. That means no long lunches, no bringing your three-year-old to work with you, and no going home early. You must balance your distractions, or you’ll have a personal life and no business.

If you’re serious enough about competing, you’ll run your store like a business and not like a hobby.

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In Sum

Many small businesses close because, at some point, the owners didn’t get enough leverage to change.  Leverage is associating your lack of action with the pain of the repossession of your car, the loss of your marriage, or the stigma of closing your family business.

Those who fail ignored leverage; they figured it would all work out.

But it didn’t. It doesn’t. And it never will.

Here's one of my retail sales tips for you...

Things work out when you change. But it has to start with you.

There's nothing anyone needs to drive to your store to buy that they can't buy online.

Don’t let these challenges lead you to throw in the towel. Get to work!

And if you need help, remember the Retail Doctor makes house calls.