What does it cost to start a retail store?

What does it cost to start a retail store?

Kim Mercado
By Kim Mercado
Mar 15, 2024
1 min read

How much does it cost to open a retail store? Plenty. If you dream of opening a bookshop in your neighborhood or a clothing boutique downtown, you’ll need substantial cash to get your small business up and running. If you’re wondering how much cash you’ll need to beg, borrow or bootstrap, read on.

NEXT works with over 1,300 different types of small businesses, and we’ve learned from our customers along the way. We’ve pooled our wisdom into this list of some of the most common fixed and variable costs to open a retail store — as well as some ways to reduce your business overhead costs.

Jump ahead to learn more about:

Cost of commercial rent

Monthly rent is one of the largest expenses to consider as you plan your grand opening. You’ll need first and last month’s rent and a security deposit when you sign your commercial lease. And that can be a hefty bill.

In Q1 2023, the average rent for a retail space in the United States was $18.09 per square foot. If you open a 1,000-square-foot shop at that price, your rent will be about $18,000 a month.

Prices vary significantly state to state, and city to city. If you plan to open a retail store in a big city like New York or Los Angeles, you’ll pay more.

To save on rent, consider a smaller space, sharing space with another tenant that compliments your business, or a new neighborhood. You may also be able to negotiate with your landlord to reduce rent or sign a short lease.

Business insurance costs for a retail shop

The right retail business insurance can help protect your small business investment from a range of accidents and unexpected events that can lead to financial loss. Here are five types of small business insurance to consider:

  1. General liability insurance can help protect you if someone gets hurt on your business property or if you cause damage to someone else’s property.
  2. Professional liability insurance could help if someone accuses your business of doing something wrong — even if it’s not true. This coverage can help pay for some legal fees, court costs and damages.
  3. Workers’ compensation insurance is required in most states if you have employees. It can help pay for medical expenses and lost wages if an employee gets sick or hurt on the job.
  4. Commercial property insurance could help pay for repairs or replacements at your retail store if a covered event, such as fire or vandalism, damages your inventory, fixtures or other business property. And if you have to temporarily close operations due to a covered event, it can also help replace your lost income.
  5. Commercial auto insurance can help protect against financial losses if you have an accident with a business vehicle. Personal auto insurance doesn’t typically cover when you’re driving for business.
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Small business licensing and permit fees

Before you welcome customers into your store, you need to make sure you have the right retail licenses and permits. These are essential to keep your business in compliance with taxes and local and state government regulations.

Regulations vary by location, so it’s important to check with your city, county and state governments to make sure you meet the necessary requirements in your area.

  • EIN. Short for Employee Identification Number, you need an EIN from the IRS to file your business taxes. Getting one is free.
  • Business license. Nearly every business needs a license to operate legally in the United States. You can typically get one from the city or county where you plan to open your store. The cost ranges from about $50 to several hundred dollars, depending on where you live.
  • Seller’s permit. Most states require retail stores to have a seller’s permit so the government can collect sales tax on the merchandise they sell. Most states don’t charge for this permit, but those that do typically charge less than $100.
  • Resale certificate. Some states automatically issue resale certificates to businesses when they get a seller’s permit. In other states, there’s no application: A business owner downloads it from the state’s department of revenue website. If you’re buying inventory to sell at your business, you don’t have to pay taxes on it. But you’ll need a resale certificate to show the supplier if your business is in a location that charges taxes. If your business doesn’t charge state or local taxes, you don’t need one. Typically, there’s no cost associated with obtaining a resale certificate.
  • Certificate of occupancy. This shows that your store is up to code and safe for people to visit. You can get an occupancy certificate from your local zoning or building office for around $100.
  • Sign permit. If you plan on hanging a sign with your business name, you will need a permit. Get one from your local building and zoning office. Prices vary based on the type of sign you have.

The price of store fixtures

Once you find the space for your retail store, you may want to customize it with display cases, dressing rooms, shelves, cabinets, lighting, countertops, new flooring, paint and more. Unlike the other fixed costs and expenses of running a business, this is a part of your budget that you’re able to control completely.

Shelving can cost anywhere from a couple hundred dollars to a couple thousand dollars. Storage racks range from about $50 to $250. In general, dressing rooms cost around $1,000 each, and lighting can run from a few hundred to several thousand dollars.

Be sure to shop around. And check out non-traditional sources of commercial fixtures, such as auctions or liquidation sales.

Retail inventory startup costs

You will only need enough retail inventory to get you through the first few months of business. Once you see how products sell, you can adjust your purchasing accordingly.

To get the best deals on inventory, don’t be afraid to negotiate with suppliers — many of them expect it. You may save by buying in bulk. Don’t buy so much that it sits on the shelves for months, taking up valuable space.

Technology and electronic payment fees

Your retail store will need a point-of-sale (POS) system, and costs vary depending on the hardware and software you choose.

If you purchase the hardware, it typically costs about $300 to $1,600 per terminal, and the price of software ranges from about $50 to $300 per month. You may also be able to rent or lease hardware for about $50 to $100/month per unit. This could help you save money upfront but cost you more long term.

Be sure to include payment processing fees for debit and credit card payments in your monthly costs. Some services charge a per-transaction fee, ranging from about 2.7% to 3.5% of the purchase price. Others charge a monthly fee no matter how many transactions you process. The option that’s right for you depends on the volume of credit card payments you expect.

You can’t accept credit card payments without the internet. Small business internet service can cost anywhere from $50 to $500. Look for promotions and special offers to help you save money.

You’ll also need computers and printers to place orders, track inventory, print reports and manage the day-to-day operations of your business. To help save money on hardware, look for used and refurbished models.

The cost of security for a retail store

Shoplifting and theft are a huge problem in retail, and it can have a major impact on your bottom line. But there are security measures you can put in place to help deter would-be thieves.

The average cost for security cameras for a small to medium-sized business with one location is around $3,000. Installation and activation cost an additional $500, and monthly monitoring fees range from $40 to $120.

Read our retail loss prevention guide for more tips.

Signage fees

The average price of a public-facing business sign is $2,000 to $3,000. But you might pay more or less depending on the size and material you choose.

Marketing and advertising costs for a small business

Website development and web hosting can have a huge range — from free to a couple of hundred dollars a month (depending on how much of this work you can do yourself with free tools).

You will need to let the world know that you exist and then remind them about your products or services with advertising. To get the word out there are many options to choose from, including email, print advertising, radio, tv and social media.

The channel that’s right for your business depends on where your target audience hangs out.

How NEXT can help with retail business insurance

At NEXT, we create customized retail business insurance packages at affordable prices to help protect your business.

See coverage options, pricing and purchase policies — all in about 10 minutes. As soon as your purchase is complete, you can access your certificate of insurance online 24/7 via web or mobile app.

If you have questions, our licensed, U.S.-based insurance professionals can help.

Start a free quote with NEXT today.

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Kim Mercado
About the author
Kim Mercado is a content editor at NEXT's blog, where she writes and edits posts for small business owners. She enjoys helping entrepreneurs solve their business challenges and learn about insurance. Kim has contributed to Salesforce, Samsara and Google.

You can find Kim trying new recipes and cheering the 49ers.

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