You have an idea of what you want your retail business to look like. You believe in the idea and it’s been validated by potential customers. But the cost of turning that vision into reality is often intimidating.

Opening a retail store can be expensive. How much you spend on your lease, inventory, setup, and staffing all play a role in how quickly your store turns a profit.

This guide will show you exactly what to expect before you commit to opening a store, as well as the factors that influence initial setup costs and techniques to bring down expenses.

How much does it cost to open a retail store?

Studies show that the average cost of opening a retail store is $39,210. However, this cost depends on various factors, such as the location and size of your store, the furnishings required to fit it out, what type of inventory you’re selling, and how many people you employ.

Retail store cost breakdown

Breakdown of one-time startup costs

Business registration, permits, and licenses

There’s a lot of administrative work involved in opening a retail shop. Aside from finding your spot and kitting out the store, many local authorities require sellers to obtain permits and licenses before you can open your doors to the public. 

These costs include the following:

• Seller’s permits, which you’ll usually need to collect sales tax if you operate within specific states and sell goods that are subject to sales tax. The application fee for a seller’s permit costs between $0 and $100, depending on your state.
• Business registration fees, which makes the business a separate legal entity from yourself. Filing fees range between $50 and $300, depending on your chosen business structure and state.
• Business license, a government-issued document that says you’re allowed to operate your store. Not all retailers require a license. If you do, filing fees can range from $50 to a few hundred dollars.

Our study found that operating costs—like legal fees, accounting software, and incorporation fees—account for 11% of a business’s annual expenses in their first year of trading. Almost a quarter of entrepreneurs said these were unexpectedly expensive.

Initial inventory purchase

The cheapest way to source inventory is from a reputable wholesale supplier. The majority offer bulk discounts, meaning that the cost per unit becomes cheaper with economies of scale. 

Shopify data found that product costs are the biggest expense, accounting for almost a third of a business’s annual expenses in their first year of operation. Some 21% of entrepreneurs said that these costs could quickly (and unexpectedly) rack up.

Store fit-out and design

Most commercial spaces are empty shells. You’ll need to invest money into kitting out your store and turning it into a friendly, functional, and aesthetically pleasing place to shop.

Depending on the size of your fit-out project, you might need to budget for:

• Store layout design and consultancy fees
• Construction and building work 
• Lighting systems
• Heating, ventilation, and air conditioning (HVAC) systems

A recent report that surveyed general contractors in central business districts found that the average fit-out cost for a retail store is $147 per square foot. Costs tend to be higher for retailers in Northern California ($216 per square foot) and cheaper in the Midwest ($106 per square foot). 

Fixtures and equipment

Products aren’t the only thing that influence the retail customer experience. Shoppers want an experience—one you can offer by investing into an aesthetically pleasing store design. 

Budget for fixtures and equipment to make this possible, such as:

• Retail signage
• Furniture, such as shelving units and display cases
• Mannequins 
• Counters and checkout stations
• Lighting fixtures 

Costs for fixtures and fittings depend on the interior design you’re aiming for and how many products you have to display. If you’re tight on budget or furnishing multiple stores, source secondhand furniture or lease fixtures instead of buying them outright.

POS system hardware

A retail POS system is the hardware and software that allows you to process transactions in-store. 

More than a device for ringing up orders, a unified POS system like Shopify lets you retrieve customer data, update inventory levels, and process a variety of payment methods that offer an omnichannel experience for your customers.

Initial POS system setup costs can range between $0 and $2,000. Most vendors calculate their prices based on your customized setup. Here’s a rough idea of how this is calculated:

• POS software ranges from $0 to $89 per month. Vendors that offer free POS systems often take a higher percentage of your sales plus a payment processing fee as a trade-off for a fixed monthly fee. These free options can end up costing you more in the long run. 
• POS hardware can be free (either through rental or using your smartphone) or a one-off cost of up to $500.
• Installation fees range from $0 to $1,000.

Before you choose a POS system, consider the vendor’s total cost of ownership (TOC). A recent study that analyzed transactional data from more than 3,800 businesses and surveyed senior leaders at more than 600 retail organizations and agencies, found that Shopify POS delivers 22% better TOC, on average, compared to competitors. 

Security systems

Before you commit to a retail lease, consider the security of your chosen location. You might have to pay extra costs—like a CCTV system, higher business insurance premiums, and replacement inventory—if the area is a prime target for retail theft.

Brands have reported an 18% increase in shoplifting incidents over the past year. A security system can help retain revenue and deter thieves from targeting your store.

As part of your retail store budget, consider anti-theft devices like: 

• CCTV systems: $20 to $500 per camera
• RFID tags: 10¢ to $1.50 per tag

Some retailers combine this security system with a security guard, especially if they sell high value products or operate in a heavily targeted industry. These cost $35 to $50 per hour, on average. 

Breakdown of ongoing expenses

Rent and utilities

The average rent per square foot for retailers in the US is $23, though this can differ depending on your store’s location. Renting a store in a mall, for example, is more expensive at around at $24.76 per square foot.

Retailers spend between $500 and $2,000 per month on utilities like gas, water, and electricity. Opt for energy-saving alternatives like LED lighting and smart thermostats to reduce these expenses.

Whether a piece of furniture gives way or your store starts to get dirty, it costs money to keep things in top condition. Actual costs vary depending on the size of your store and the equipment or machinery you’re maintaining.

Staffing, payroll, and labor costs

Chances are, you can’t operate a retail store single handedly. Here are the retail roles you might fill and how much you can expect to pay for each:

• Retail sales associates: $15.94 per hour
• Customer service representatives: $14.34 per hour
• Store managers: $19.14 per hour
• Inventory specialists: $19.49 per hour
• Buyers: $25.24 per hour

Remember that it’s not just staff salaries that influence costs. The Small Business Administration estimates that staff costs are 1.25 to 1.4 times their average salary after taking insurance costs, benefits, and taxes into account. 

As for how much this costs over the course of a year, Shopify found that the average business spends 18.8% of its annual expenses on staffing costs like salaries, training, taxes, insurance, and benefits. This tends to be higher in the business’s first year of trading, accounting for almost a third of their total budget.

💡Pro tip: Reduce onboarding and training costs by opting for an easy-to-use POS system. Shopify POS, for example, has proven to reduce upfront training and onboarding costs by 21% per retail store. Brands like Monos even managed to reduce POS training times to just a half-day with Shopify POS.

“We train our retail staff not only on POS but the full online experience as well, which helps them understand how everything like order processing, refunds, and promotions work,” says Mike Wu, director of ecommerce and customer experience at Monos. 

“Having it all on the same platform makes it much easier to connect the dots and gain a full understanding of the business, which results in better customer service.”

POS software and payment processing

Credit card payments have quickly overtaken cash as the preferred payment method for retail consumers. Your POS system should let you process these transactions in-store, either through their native payment gateway or a third-party processor that will take a percentage of each transaction as payment for their service.

Payment processing fees range from 2.4% to 2.7% per transaction, though some payment methods and banks are more expensive to process than others. 

💡Pro tip: Shopify Payments is included in all POS plans without any additional setup fees. Accept mobile wallet, contactless, and chip-and-pin transactions from your POS system. Shoppers can even opt to pay for in-store purchases in monthly payments with Shop Pay Installments.

Marketing and advertising

Marketing and advertising drives people toward your brick-and-mortar store. There are free tactics you can use, like writing press releases or posting on social media. Yet putting some budget behind your campaigns with paid media can accelerate results.

Shopify’s study found that businesses tend to spend between 7% and 12% of their first year’s expenses on marketing. However, the more money a business makes, the more it spends on marketing. This makes sense: extra profits give you more money to spend on acquiring new customers. 

Inventory restocking

Initial inventory costs tend to go down after your first year in business. Being on good terms with your suppliers can help you negotiate lower costs. Knowing exactly what your customers buy can also help you make smarter inventory decisions, like only restocking items that sell out to avoid obsolete stock.

Business insurance

Commercial insurance protects you from risks such as theft and injury to shoppers in your store. Per Insureon, retailers tend to pay around $45 per month for general liability insurance. Some specialty stores, such as liquor stores and convenience stores, pay higher premiums. 

Professional services

Sometimes it makes sense to outsource retail tasks that aren’t your specialty, whether that’s:

• Accounting and bookkeeping 
• Legal assistance
• Business consultants
• Interior designers

While they’re not essential, access to these professional services come at a cost. For example, accountants or bookkeepers who help file taxes charge $38.41 per hour, on average. 

Shipping

If you’re running your own retail store in conjunction with an ecommerce site or shipping items from your POS to customers’ homes, budget for shipping costs such as packaging supplies and labels. Our study found the average business spends 8.7% of their annual expenses on shipping in their first year.

Online store costs

Most retailers also sell online to reach a wider audience. Our study found that online store costs like web hosting and website design accounts for 9% of a business’s annual expenses. Platforms like Shopify let you get started for as little as $5 per month.

How much does it cost to open a store in a mall?

The cost to open a retail store in a mall differs from a standalone store, primarily because the lease often has different components baked into the monthly cost. 

Mall-specific leasing costs

Base rent is the fixed amount you pay to lease your mall space. It’s usually calculated per square foot, and is the minimum guaranteed rent you’ll have to pay regardless of store performance. This averages at $24.76 per square foot. 

That said, many shopping centers charge additional fees to open a store in a shopping mall:

• Percentage rent. Also known as overage rent, some malls take an extra fee when you pass a certain threshold. For example, your lease might have a 5% percentage retail rent clause on sales you make over $200,000.
• Common area maintenance (CAM) fees. These cover the maintenance, cleaning, security, landscaping, and other shared areas of the mall. They’re usually calculated per square foot of your leased retail space, and can be either fixed or variable.

Initial build-out and tenant improvements

Most mall units are empty shells. You’ll need to invest into the initial buildout with a budget that covers:

• Flooring
• Walls and partitions
• Ceiling and lighting fixtures 
• Retail signage (both internally and window displays) 
• Display installations

Most mall operators offer a tenant improvement allowance (TIA)—a contribution toward kitting out the space, which is either a set dollar amount per square foot or a percentage of your annual rent. Negotiate this TIA before you sign your lease, particularly if you need a hefty budget to customize the unit to fit your needs.

Kiosk vs. inline store costs

Inline stores tend to be the most expensive option if you’re looking to set up shop inside a mall. These traditional units come with higher operating costs due to the larger square footage. 

Kiosks are smaller open-air units usually located in mall corridors. They’re a cheaper option if you’re starting out on a budget or want to do market research before committing to a mall or unit. Less square footage means cheaper rent, and many operate on monthly or seasonal leases instead of multiyear agreements. They cost around $2,000 to $10,000 per month depending on the mall, kiosk spot, and size.

How to finance your retail store

Aside from the planned costs outlined above, there may be unexpected expenses you’ll have to account for in retail financial management—like expanding a product line due to high demand.

It helps to have 12 months of operating expenses saved up before opening your retail store. This doesn’t have to be your personal savings. Consider business financing options like:

• Business credit cards. It’s relatively easy to apply for business credit, especially if you have a track record of good credit—for example, paying wholesale vendors on time for inventory you sell online. 
• Business loans. Shopify Capital, for example, gives you access to immediate cash with a small business loan that you’ll automatically pay back as a percentage of sales.
• Line of credit. Borrow up to a certain amount and access cash when you need it. You’ll pay interest only on what you borrow. 
• Small business grants. They’re competitive, but you could get money for free (that you don’t have to pay back) if you qualify for a grant. 

Things to consider before opening a retail store

Before you take the leap to open your retail store, take a moment to research and think about these elements:

Location and foot traffic

Location plays a role in how much you can expect to pay to operate your new retail store. But there’s more to scouting for retail space than cost cutting. Sometimes, the higher monthly rent for a prime downtown location can actually help you make more money. A place with high foot traffic can help you save money on marketing and advertising costs.

Regulatory compliance and accessibility

There are laws and regulations that protect customers when they’re shopping in retail stores. You must follow these rules to remain compliant with laws and offer an inclusive retail environment. Failing to do so can result in fines.

Generally speaking, retailers are required to remain compliant with:

• ADA requirements, which ensures that people with disabilities can navigate your store—use wide aisles, opt for ramps instead of stairs, and add closed-captioning subtitles to any video signage
• Employment law, which protects staff from discrimination, poor pay, and unsafe working conditions

It’s always worth enlisting the help of a legal specialist when navigating the world of compliance. Different regions will have different requirements—the only way to know which laws apply to your business is to consult a legal professional.

Supply chain and inventory management system

The retail supply chain describes how you’ll produce, receive, and ship inventory to your customers. While it might not sound like the most glamorous of topics, supply chain comes with its own set of challenges and associated costs.

Shopify unifies your front- and back-end operations to reduce costs and give you a complete commerce operating stack that grows with your business. For example, you can:

• Offer omnichannel shopping experiences like buy online, pickup in-store and ship-to-home
• Buy discounted shipping labels with Shopify Shipping
• Automate warehouse management processes, such as generating picking slips and flagging orders from customers who’ve paid for expedited shipping
• Offer real-time shipment tracking through the Shop App
• Integrate inventory and order data with a third-party logistics (3PL) partner’s warehouse management app 

Open your retail store with Shopify

A brick-and-mortar store is a great way to connect with customers and showcase your products in the flesh. And if you manage to find a retail location with low ground rent while keeping other costs low, it won’t take long to turn a profit. 

The infrastructure you’re relying on to power your retail store plays a major role in how much you can expect to spend. Shopify’s unified commerce functionality, for example, helps merchants achieve 13% lower implementation and integration costs compared to other POS vendors, on average.