The Promised Post: Store Financials

Introducing…the store-financials post that I promised three weeks ago! Ta-daaa! If you haven’t been following along, start reading at Curio Metropolis Online Redux to get the context.

I’ve been struggling since last week’s post to understand how a little store that earns only $125 per square foot can pay me a salary and cover its costs. The answer gradually became clear: It can’t. So I found some different starting data.

• Average gift-shop sales for a “neighborhood shopping center” -- one of those little malls surrounding a grocery store – is $149/sq ft, according to the Newspaper Association of America
• The median square footage for a gift shop in that type of shopping center: 2,250 sq ft, including non-selling space. This is twice as big as I’d originally planned.
• The average 2002 retail rent in Boston was $18.79. On one hand, there’ve been 5 years of inflation since then. OTOH, suburban locations are a bit cheaper. $20/sq ft is a reasonable rent budget.
• The store opens in September 2008, and achieves 75% of its 2009 same-month sales benchmarks.

Even using these new sales assumptions, no amount of budget-cutting could get the annual loss below $20,000. So I found this benchmarking tool and decided, reluctantly, to replace my experience-based cost numbers with statistical numbers. A few more hours of finagling finally squeezed a $135 profit out of my spreadsheet. (And that even includes a small slush fund for travel).

My $50,000 salary was the first extravagance to go. Curio City can pay me a maximum 11.5% of gross sales, or about $42,000 in 2009. Assuming 5% annual sales growth, I will finally regain my 1999 salary in 2012. As the only shareholder in the company, I’ll also pocket any year-end profits. So this works as a base salary with the potential for bonus income.

Staffing now becomes my biggest problem. If my store is really bringing in $335,000 per year, a typical slow month’s plan is $17,000. That’s a daunting $566 per day, or as much as Curio City Online grosses in a good week now. That’s 14 sales per day if my average $40 ticket holds up. I could handle that level of business alone, but where will I find the time to do all the admin stuff that currently fills my days if I’m tied to a cash register for 78 hours per week? The budget allows for one part-timer during November and December. But for the rest of the year, I’m on my own. No vacations, no days off, no sick days.

I shaved my store-opening budget to $75,000. If I can somehow manage to preserve $15,000 of my own cash to invest next summer, I’ll only need to borrow $60,000. That gets the debt payment down. My next chore in computing store financials will be to find some hard numbers for opening costs. For now, I just listed all of the expenses that I can imagine and put arbitrary numbers on them.

So I have a baseline budget, however shaky. Now I need to improve it. For one thing, I really can’t run a store of that size by myself, but the spreadsheet won’t balance with less than 2,100 sq ft even if I cut my slush fund in half, cut my own salary again, and fire one of my two December employees.

The only magic bullet is more sales per square foot. If I can boost that number from $149 to $175, I can cut my store to 1,500 sq ft – still bigger than I’d like, but it’s at least conceivable that I can handle a store of that size. The Curio City concept emphasizes more expensive merchandise than typical gift-shop fare (which probably includes souvenir shops). Also, my benchmark numbers appear to be national averages. Sales per sq ft in a major metro area are probably a bit higher. So $175 might not be unrealistic, but that’s just wishful thinking for now.

All of these calculations are for my own proof-of-concept. Before I can write a business plan and seek financing, I’m going to have to join a trade association and buy better-supported numbers. Random googling is not cutting it.

Next week I’ll draw some conclusions and try to define my new path.