In my previous post, I had briefly outlined the reasons as to why many ecommerce D2C brands are exploring the offline retail market. Often, the first thing that comes to mind when one contemplates the offline market is a high street retail store. For brands who are considering this option, let me cover the costs associated with setting up and running a retail store.
The major expenses can be divided into capital expenditure (initial investments) and operational expenditure (cost of running the store). Let us assume you want to setup a 1000 sq. ft. high street store in Bangalore (in an upmarket area like MG Road/Indiranagar)
The capital expenditure or the initial investment required mainly includes
Interiors cost – This can vary from Rs.2500/- per sq. ft. to Rs.4000/- per sq. ft. (or even upwards). It depends on the condition of the property…the renovations, repairs, furniture & fixtures, and the major civil work required (plumbing, tiling, partitions, etc.). Assuming a median value of Rs.3500/- per sq. ft., the interiors will cost ~Rs. 35 lacs (3500*1000)
Property Deposit – This is a one-time refundable security deposit you pay to the property owner. In Bangalore, this can vary from 6 months to 10 months of rentals. Assuming a rent of 2 lacs per month and 6 months of rent as deposit, security deposit will amount to Rs. 12 Lacs
Production Cost – The cost of manufacturing initial and ongoing inventory to stock your store with products to sell is a significant consideration. This can vary greatly based on the type of products you are selling and the quantity you plan to stock. Generally, you should plan for 2-3 months of inventory
Additionally, there are expenses such as brokerage, legal and property consultation fees, signage for the store, store launch event, pre-launch marketing expenses that add up to the initial investment.
The operational expenditure mainly includes
Rent – Rent typically accounts for 50% of the total operational expenses. In an upmarket area in Bangalore, the rent can vary from Rs. 150-350 per sq. ft. per month. This can further vary based on the location of the property – a ground floor road facing property with great visibility would typically command a premium. Assuming a median of Rs.200/- per sq. ft. per month, you would pay a rent of Rs. 2 lacs/month
Staff cost – This is the other significant cost accounting for ~30-35% of your operational expenses. This involves staff salaries, training, hiring, bonuses, and other perks
Additionally, there are expenses such as transportation/courier charges, utility bills, licenses, and permits, marketing, contingency, Software/POS charges
While these costs may vary from city to city, my objective for writing this post was to make brands aware of the major cost heads involved in setting up and running a store.
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