How much does it cost to open a retail store?

Opening a retail store can be an exciting milestone, but it comes with many expenses. From the initial investment required to set up shop to the ongoing costs of keeping the business running, understanding where your money goes is key to long-term success. Whether you’re opening a brick and mortar store or expanding your existing retails business online, careful budgeting and planning are essential to ensure your business remains profitable.

How profitable is retail business?

Opening a retail store can be profitable, but success depends on your niche, pricing strategies, and operational efficiency. To understand retail profitability, it’s helpful to look at two key metrics:

• Average Gross Profit Margin: This measures how much profit is left after deducting the cost of goods sold (COGS) from your revenue.
• Average Net Profit Margin: This shows the percentage of revenue that remains as profit after deducting all business expenses, including COGS, overhead, taxes, and interest.

Retail net profit margins can vary a lot, ranging from 1.18% to 23%, depending on the type of business. High-margin sectors like building supplies and distributors have more room for profit, whereas grocery and food retailers rely heavily on high sales volume to offset their lower margins.

Retail store startup costs

Opening a new retail store requires an upfront investment in several key areas. These costs can vary depending on the size, location, and type of store you plan to open, but they all play a crucial role in setting up your business for success.

1. Business registration and permits

Before you own a retail store, you’ll need to register your business and secure the necessary licenses and permits. These fees typically range from $50 to $550, depending on your location and industry requirements. Below are some common types of permits a new retail store need:

• Business license: Required to legally operate a business in your city, county, or state.
• Sales tax permit: It helps you to collect sales tax from customers and remit it to the government.
• Zoning permit: Confirms that your store complies with local zoning laws. This is especially important if you open a retail store in a residential zone.
• Health permit: If you plan to sell food, beverages, or other consumable items, you need this permit to ensure your store meets all hygiene and health safety regulations.
• Commercial sign permit: Required in many areas for installing outdoor signage to promote your store.

2. Retail space leasing costs

The cost of leasing a retail space varies depending on the city, neighborhood, and type of lease. In the United States on average, the retail space in a prime downtown location ranges from $20 to $50 per square foot annually. To calculate the monthly rent, you can use this formula: (Total square feet x Price per sq ft.) ÷ 12 (months).

For example, The monthly rent for a 1,500-square-foot retail space at $30 per square foot annually would be $45,000.

Store sizes depend on the type of business and the products they offer. Here’s a look at the average store sizes across different types of retail businesses:

• General retail shops: The average size is typically around 2,500 to 5,000 square feet. It provides enough space to display a mix of products.
• Big box stores: Big box retailers like Target and Home Depot often have store sizes averaging between 100,000 and 150,000 square feet, with some locations reaching up to 250,000 square feet.
• Convenience Stores: Convenience stores typically range from 1,500 to 4,000 square feet, designed for quick shopping trips and easy access.
• Specialty Retailers: Stores which focus on specific product categories, such as clothing or home goods, typically occupy 1,000 to 3,000 square feet, balancing intimacy with sufficient display space.

3. Store renovations and setup

Whether you’re transforming an empty commercial space or updating an existing one, costs for renovations, fixtures, shelving, and decor can add up. These expenses typically range between $4,000 and $50,000, depending on your store’s style and aesthetics.

Throughout the renovation process, you need several professionals to help you make your dream store come to life.

• The designer develops the layout, color scheme, lighting, and materials, creating mood boards, floor plans, or 3D models to bring your vision to life.
• The contractor manages construction and installation, sources materials, secures permits, and oversees subcontractors like electricians and painters.
• Engineer ensures structural integrity, safety, and compliance with building codes, focusing on load capacity, fire resistance, and energy efficiency.
• The manufacturer builds fixtures and decor to match your design specifications, ensuring everything aligns with your store’s style and functionality.
• Installers set up fixtures and decor, ensuring everything is installed safely and matches the design plan.

4. Security systems

The retail sector faces significant security challenges. Retail revenue loss from theft has increased 8.5% from $112.1 billion in 2022 to $121.6 billion in 2023. Security risks go beyond theft and shoplifting, including card skimming that puts customer payment information at risk. In just the first half of 2023, skimming incidents compromised 120,000 cards, a 77% increase from the previous year.

Protecting your store and your customers starts with investing in a solid security system. You can open a retail store with two cameras and an alarm system which costs about $50 per month. To prevent shoplifting, you can add security tags to high-value or frequently stolen items. Tag and detector systems start at around $1,000, depending on the number of tags and the sensitivity needed.

To reduce security costs, you can ask your landlord to contribute to or cover part of the security system installation as part of your rental agreement. Besides, if you set up your store in a supermarket, mall, or shared retail space, you can save money on a standalone system. These locations often provide guards, cameras, or patrols as part of the lease.

5. Marketing and branding materials

First impressions matter, and your branding plays a key role. A store that offers a visually engaging experience not only attracts customers but also fosters brand loyalty and encourages repeat visits.

Designing your logo and creating signage are the first essential steps.

• Your logo: This is the face of your business. A well-designed logo makes your brand memorable and recognizable across marketing materials, packaging, and online platforms.
• Signage: Store signage can attract foot traffic and communicate your brand’s message. Eye-catching signs convey credibility, while clear and inviting messaging helps customers understand what your store offers.

A designer’s services typically cost around $35 per hour. For small business owners who don't have a budget to hire a full-time designer, hiring a freelance designer on platforms like Fiverr or Upwork for assistance with specific projects is a great option. These platforms allow you to choose professionals based on their expertise, reviews, and rates, making it easy to find the right fit for your branding needs.

Initial inventory costs

Stocking your shelves is one of the biggest upfront investments for any retail store. We’ve separated this expense from general startup costs because it can be difficult to estimate, and we want to provide a dedicated, step-by-step guide for you.

Here’s a simple 2-step process to help you calculate your initial inventory costs:

• Step 1: Calculate your initial inventory quantity
• Step 2: Calculate your initial inventory costs

Step 1: How to calculate initial inventory quantities

Here are the 3 steps on how to calculate your starting inventory quantity, after discussing the definition, we will guide you through the example on how to calculate it.

1. Estimate display items: Determine how many items your display space can hold.
2. Estimate first-month sales: Predict how many customers will visit and buy during your first month.
3. Estimate safety stock: Add a buffer to cover unexpected demand or delays in restocking.
4. Calculate total initial inventory: Add together the numbers from the steps above.

Calculate initial inventory formula and example: you’re opening a boutique specializing in home decor.

1. Estimate display items: You have 15 shelving units that can each hold 80 items. Additionally, you have 10 racks for hanging products, each capable of holding 50 items. This gives you:

• Shelving capacity: 15 shelves × 80 items = 1,200 items
• Rack capacity: 10 racks × 50 items = 500 items
• Total display capacity: 1,700 items

Therefore, you’ll need at least 1,700 items to make the store look full, plus some extra stock for the backroom.

2. Estimate first-month sales: To estimate foot traffic, consider using local market research tools like SafeGraph, which provide accurate data on customer patterns in your area. For example, if you estimate 1,000 foot traffic per month and assume 20% of visitors make a purchase. Then, you take a conservative approach by estimating an average basket size of 2 items per customer, you can calculate your expected monthly sales: Total monthly items sold = monthly foot traffic × purchase conversion rate × items per purchase

So your total monthly items sold is 400 items in the first month (1,000 customers × 20% × 2)

3. Estimate safety stock: Add 20% to forecasted sales for a buffer. For 400 items, this means 80 extra units.

4. Calculate total initial inventory: Display items + first-month sales + safety stock = 1,700 + 400 + 80 = 2180 items.

Step 2: How to calculate your initial inventory costs

Your estimated total inventory quantity is 2,180 items based on your store’s size, expected sales, and safety stock. From Step 2, you estimated a need for 2,180 items. Here’s how your inventory might break down:

• High-demand items: Everyday essentials that are likely to sell quickly, such as decorative pillows and vases.
• Seasonal items: Products tied to specific seasons or holidays, like wreaths or holiday-themed decor.
• Niche items: Unique or specialty items that appeal to a smaller audience, such as artisanal candles or limited-edition pieces.

Decide how much of your inventory should go to each category. For example:

• High-demand items: 50% of total inventory (1,090 items)
• Seasonal items: 30% of total inventory (654 items)
• Niche items: 20% of total inventory (436 items)

Within each category, select individual products, assign costs, and calculate totals. Example:

• Decorative pillows: $20/item × 700 items = $14,000
• Vases: $15/item × 390 items = $5,850
• Holiday wreaths: $25/item × 400 items = $10,000
• Seasonal candles: $12/item × 254 items = $3,048
• Artisanal candles: $10/item × 300 items = $3,000
• Limited-edition wall art: $25/item × 136 items = $3,400

As a result, your total retail initial inventory cost will be $39,298

Retail POS system costs

Imagine a busy Saturday afternoon in your store—lines at the checkout, customers browsing, and inventory updates happening in real-time. That efficiency wouldn’t be possible without a reliable POS system, which combines hardware and software to process sales, manage inventory, and streamline operations.

Here’s a breakdown of retail POS system costs.

1. Retail POS software

POS software connects your payment terminal and other hardware to a computer or tablet, allowing you to process transactions, manage staff, and track inventory. While many payment processors charge subscription fees ranging from $50 to $100 per month, Helcim offers a free POS software with all payment and operational features, giving you everything you need without extra costs.

2. Payment terminal

With debit and credit cards accounting for 63% of customer purchases, a reliable card terminal is essential. Basic models start at $99, while advanced machines with features like touchscreens, built-in receipt printers, and integrated POS software range from $300 to $500. Modern terminals support traditional swipe or chip methods, as well as contactless payments, mobile payments like Apple Pay and Google Pay.

Besides, with some providers you can also accept contactless payments using your iPhone with Tap to Pay on iPhone. This simple and free solution ensures you’re ready to meet customer expectations without investing in extra equipment.

3. Receipt printers

A receipt printer gives customers a printed record of their purchase. Basic models start at $30, while advanced printers with faster speeds and additional features can cost over $600.

4. Cash drawers

This is where you store cash and coins. They range from $65 for standard models to $650 for larger capacity and enhanced security.

5. Barcode scanners

A barcode scanner makes checkout quick by sending product information directly to the POS system, where it displays the details for the cashier and gets the transaction ready. It cost from $50 to over $200 for wireless models and advanced scanning functionalities.

Retail operational costs

Running a retail shop involves several ongoing expenses that are essential to keep things running smoothly. Understanding these costs helps in effective budgeting and maintaining profitability. Here's a breakdown of common operational costs with estimates:

1. Utilities

Cooling, ventilation, and refrigeration take up roughly 30% of a store’s energy use, while lighting adds another 20% or more. The average monthly expenses for electricity, water, heating, and internet services is around $2.14 per square foot.

2. Employee wages and benefits

From the sales associates who greet customers to the store manager who ensures everything operates like clockwork, every team member plays an important part in your success.

Labor costs, including wages and benefits, are one of the biggest operational expenses for retail stores. Here’s a closer look at the key roles and what they contribute to your retail business.

• Retail sales associate: Supports customers with purchases, restocks shelves, and maintains the sales floor, earning a median wage of $15 per hour.
• Stock clerk: Manages inventory in the stockroom, restocks shelves, and tracks stock levels, earning a median wage of $5 per hour.
• Assistant store manager: Helps the store manager with daily operations, staff training, and scheduling, earning a median annual salary of $25 per hour.
• Store manager: Oversees all store operations, including hiring, training, and sales performance, earning a median annual salary of $40 per hour.

3. Maintenance and repairs

Your store is more than just a place to sell products—it’s an environment where customers discover and experience your brand. A clean, well-maintained space shows that you care about the details, leaving a positive impression that encourages shoppers to return.

Setting aside 1% to 2% of your annual sales for maintenance is a smart way to stay ahead of unexpected issues. This budget covers everyday tasks like cleaning, HVAC servicing, and replacing lights, as well as unexpected fixes like plumbing or electrical repairs.

When you take care of equipment, and the overall space, they last longer and continue to look good over time. Working with reliable contractors or scheduling regular inspections can help you catch issues before they become major headaches.

4. Retail store insurance costs

Protecting your business with insurance policies such as general liability, property, and workers' compensation is vital. Annual insurance costs can range from $500 to $1,000 for general liability insurance with a $1 million coverage limit. Here are some key insurance options your store may need:

• General liability insurance covers claims if someone gets hurt in your store or if you accidentally damage someone else’s property. It’s a must-have for physical stores to protect against risks like slip-and-fall accidents.
• Commercial property insurance protects your store, inventory, equipment, and furniture from things like fire, theft, or natural disasters.
• Workers’ compensation insurance covers medical expenses and lost wages if an employee gets hurt on the job. This is required in most states.
• Business interruption insurance helps cover lost income and ongoing expenses if your store has to close temporarily due to something unexpected, like a fire or storm.
• Business interruption insurance provides financial protection if your store is forced to close temporarily due to unexpected events like fires or natural disasters.
• Cyber liability insurance protects your business from data breaches and cyberattacks, protecting sensitive information like customer payment data from theft or unauthorized access.
• Employee dishonesty coverage protects your business from losses caused by employee actions, including financial forgery, cybercrimes, embezzlement, theft of business property, and unauthorized money transfers.

Payment processing fees

While payments are processed in the blink of an eye, there’s a complex system working behind the scenes to make each transaction go through smoothly. Every time a customer makes a purchase, part of your sale covers payment processing fees.

1. Credit card processing fees

Payment processors charge a credit card fee from 1.5% to 3.5% per transaction, depending on the card type and payment method (in-person vs. online). To better understand how much each type of card costs your business, try using Helcim’s Credit Card Fee Calculator for a quick and transparent breakdown.

2. ACH processing fees

ACH payments (bank-to-bank transfers) is a cheaper alternative to credit card transactions, with fees typically ranging from 0.5% to 1.0% per transaction. Also, the ACH fees are limited to a maximum of $5 to $6 per transaction. Retailers may find ACH payments particularly useful for high-ticket items, subscription boxes, and recurring billing.

3. Debit card processing fees

Debit card fees are typically lower than credit cards, averaging between 0.5% and 1% per transaction. They cost merchants less because the funds are directly withdrawn from the customer’s account, eliminating the bank’s risk of lending and potential defaults.

4. Online store monthly fees

If you’re looking to expand your retail store online, tools like website builders or hosted storefront builders can help you set up and host your store. Options like the Helcim Storefront Builder are completely free, while traditional website builders typically start at $30 per month. The key advantage of a hosted online store is that it eliminates the need for domain hosting costs, making it an ideal solution for a small retail store to quickly and affordably establish an online presence.

Marketing and advertising costs

Think of marketing and advertising as the voice of your retail shop. Without it, your business is like a well-decorated shop hidden down a quiet alley—no one knows it’s there. Whether you’re running a physical storefront, an online shop, or both, your marketing efforts are what draw customers in, keep them engaged, and encourage them to come back. It’s about building a brand that people trust and love.

The common metrics used to measure your success with marketing and ads is cost per action (CPA), meaning the average cost for a customer to take a meaningful action, which is to make a purchase.

1. Social media advertising costs

Social media is great for reaching younger, tech-savvy audiences who are exploring options and discovering brands. Facebook and Instagram remain popular choices, with an average cost per acquisition (CPA) of $21.47. Tiktok is also an ideal choice for retailers who want to connect with Gen Z. Tiktok delivers an impressive average return on ad spend (ROAS) of 2.5x—meaning for every $1 spent, you can expect a return of $2.50.

2. Google ads costs

Google Ads target high-intent shoppers who are often ready to make a purchase. For retailers, the average cost per acquisition (CPA) is $45.27, but the potential return on investment can be significant when campaigns are optimized effectively. By appearing at the top of search results, Google Ads ensure your store stays front when customers are ready to buy.

3. Email marketing costs

Keeping existing customers coming back is 5 to 25 times cheaper than finding new ones, and email marketing is one of the best ways to make that happen. You can also use email to re-engage potential customers, like sending a reminder to those who added items to their cart but didn’t finish checking out. Platforms like Mailchimp and Klaviyo make it simple to create and manage campaigns, with costs ranging from $20 to $100 per month, depending on your subscriber count. Despite the cost, the return on investment can be 45x for retailers.

Other hidden costs for retail stores

Running a retail business is like managing a ship at sea. Even with a solid plan and clear direction, there are always hidden currents—unexpected expenses—that can throw you off course.

These hidden costs might seem small at first, like a tiny leak, but over time, they can add up and impact your profits. Knowing what to watch for and budgeting accordingly can help you keep your business sailing smoothly.

1. Chargeback and disputes fees

You might think that once credit card payments go through, the transactions complete—but that’s not always the case. Sometimes, customers dispute a charge and initiate a chargeback, often because of frauds or they’re dissatisfied with the product. On average, retailers face a chargeback rate of 0.52%. When a chargeback occurs, you have the opportunity to submit evidence to dispute the claim. However, if your counter-claim is unsuccessful, you could be charged a fee, typically $15 per failed counter-claim, in addition to losing the sale.

2. Licensing and permit renewals

Business permits and licenses aren’t just a one-time expense. Many require annual renewal fees, which is ranging from $50 to $500 or more.

3. Shrinkage

Shoplifting, employee theft, vendor-side losses can lead to shrinkage, which averages 1.33% of annual retail sales. To prevent shrinkage, you can invest in concealed buttons to call for assistance when shoplifting happens. Besides, an inventory management system can help you ensure that the physical count matches your store’s digital records.

Save 25% in payment processing costs for retailers

Every dollar counts when it comes to running a successful store. With so many expenses to manage, the last thing you need is processing fees quietly eating away at your profits.

That’s where Helcim makes a difference. With transparent pricing, retailers can save up to 25% on payment processing fees. But the savings don’t stop there, Helcim offers powerful tools to help you keep even more:

• Fee Saver: Pass credit card processing fees to customers, reducing your costs.
• Volume-Based Pricing: Automatically lowers your rates as your sales grow.
• Level 2 and Level 3 Data Optimization: Ensures you qualify for the lowest possible rates, saving even more on credit card payments.

If you’re stuck with a current payment processor but want to switch to Helcim, our Merchant Buyout Program offers up to $500 in credits to cover your contract cancellation or equipment costs.

Break up with bad rates.

Feeling stuck with your provider? We'll waive $500 of your processing fees when you switch to Helcim.

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Frequently asked questions (FAQ)

How much does it cost to open a retail store?

The average retail store costs depend on factors like size, location, and type of business. Generally, operating costs, including retail rents, utilities, wages, and inventory, can range from $3,000 to $20,000 per month for small to medium-sized stores. Initial setup costs, including renovations and inventory, can be up to $70,000 or more.

What is the biggest cost for retail stores?

The biggest costs to a retailer are typically inventory costs, as they represent the largest initial startup costs and ongoing expense required to stock products for sale. Other significant costs include retail rents for the retail space and employee wages, which are crucial for daily operations. The exact breakdown depends on the type of store, but managing inventory effectively and negotiating favorable lease terms can significantly impact profitability.

Should you start a retail store?

Retail continues to be a thriving industry. Building a retail store takes patience, resilience, and a willingness to adapt to challenges like managing inventory, attracting customers, and staying ahead of your competition—all while keeping an eye on costs.