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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, June 15, 2007

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.

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