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Two of the most frequently asked questions I encounter when working with both new and existing stores are, “How do I forecast sales for my store?” and “What can I expect to achieve in annual sales?”

Believe it or not, there are some projections that can be assembled to create a reasonably accurate forecast provided you have completed a few basic steps in securing your ability to do so.

The first is taking sufficient time to research the right location for the business. Gathering demographics is the first step. Good resources include the federal census bureau reports, local city and town offices, and Chambers of Commerce. Also, be sure to set aside time to meet local businessmen in the area and inquire about business in general. Usually, simply telling them about your plans will get them to open up and tell you about their experiences in the local market. This often provides insight into the type of customers who shop the area, frequency, loyalty, and whether or not there is business from markets outside the local market area, like primary or secondary tourism dollars. Interviewing these local business people can enlighten you about whether you’ll have a single Christmas season or some other bright shopping periods throughout the calendar year which may have an impact on your sales forecast. Just remember in your final vision of your housewares store that none may exist without three things — Location, Location, Location.

Store Size
Once you have established the proper location for the store, it’s time to establish the size or GLA (gross leaseable area — effectively, the total square footage) the store will be. In today’s market, if a reasonable personal income — more than a salary that may be earned being an employee of a corporation — is expected from the venture, with some solid ROI (return on investment) expectations, my recommendation is the store should have 3,000 to 5,000 square feet of GLA. Having said that does not mean success cannot exist in a smaller store, it just means that income and ROI expectations will need to be proportionately reduced to the limits of the store’s potential productivity.
With the size of the store determined, the lease may be negotiated or the purchase of the building executed.

Designing the store, selection of store fixtures, positioning them, and developing the store’s product assortment are the next steps that need to be taken.

Merchandise Assortment
Hopefully you have been reading this column since it began in January of this year and you have saved all my babbling because now it’s time to reread those articles, particularly the first two on “The 80/20 Rule” and “Dollar Sales per Square Foot.”

The important points from those articles are that 80 percent of your sales will come from 20 percent of the store’s merchandise assortment. But despite that, it is not possible to succeed without the other 80 percent of the merchandise assortment. Also, you must establish the classifications of merchandise the store will offer. There must be a recognition of merchandise divisions of which there are two — housewares and tabletop. There must be an understanding that each division will have dominant and opportunistic assortments. There must be recognition that the place for a store to be dominant in today’s market is housewares, not tabletop. There must be at least four of the six dominant classifications in housewares represented in the store to be successful. The four most important classifications every kitchenware specialty store must be dominant in are: bakeware, cookware, cutlery and accessories, and chef’s tools (gadgets). The other two are specialty foods (non-perishable, one year shelf life) and kitchen textiles — aprons, mitts, towels, not linens, placemats and napkins. Only a store of 4,000 or 5,000 square feet may be dominant in the latter two. It takes the larger space to accommodate a dominant presentation in all six dominant classifications.

Let the Buying Begin
Having accomplished the latter, establish the opportunistic assortments the store is going to offer like bar accessories, cleaning products and supplies, kitchen electrics, serving and buffet accessories, shakers and mills, and woodenware, for example. Now the buying may begin. The open-to-buy dollars budget should be $75.00 per square foot GLA. This is a high season-opening inventory but it is important to open at that level to establish with first time customers that the store is for real and will be a player when it comes to product selection and depth when appropriate. This inventory level target is particularly important if the store is going to be opening in the mid-August, September or early October time frames — in my opinion, the premium opening times of the calendar year. Be sure a thorough thought process is used to establish how the dollars will be distributed amongst the classifications of merchandise to be purchased. Most importantly, do not begin to release orders until the entire store buy is completed in order to be sure the purchase budget has been adhered to. Remember, freight-in is a part of the cost of goods and must be included in the purchase budget total.

First Year Forecast
So what is the sales forecast for the first year? It should be, depending on the GLA of the store and the demographics, $200.00 to $250.00 per square foot. Subsequent growth in year two will be 20-25 percent, year three 15-20 percent, year four 10-15 percent and year five 5-10 percent, plus inflation. Year five is the year the store matures. It is an important year because it signals the business is a success and will be around for years to come as long as the owner continues to pay attention, adapting and growing with the ever-changing times, and staying in touch with the store’s customers.

When forecasting years two, three, four and five, always use the lower percentage for sales projection growth, but recognize that the higher growth number is very achievable if the location is solid and the assortment is correct.
Smaller square foot stores are likely to produce higher sales dollars per square foot in the initial year of operation. For example, a 2,400-square-foot store is more likely to get $250.00 per square foot or $600,000.00 in sales the first year. If you use the above model, year two will result in $720,000.00 in sales; year three $828,000.00 in sales; year four $910,800.00 in sales; and year five $956,340.00 in sales.

A larger store at 4,500 square feet is likely to produce a lower opening number like $215.00 or $967,000.00 in sales the first year. Again using the model provided, year two will result in $1,160,400.00 in sales; year three $1,334,460.00 in sales; year four $1,467,906.00 in sales; and year five $1,541,300.00 in sales.

Note that the larger formatted store will yield much higher dollar sales even though productivity per square foot is lower the first year. That factor needs to be evaluated when determining the size of store. Investment dollars also come into play here. Commit to a space that is viable for the dollars available to invest. This model is a proven model and is the model I use when working with my clients.

Forecasts must be broken into quarterly, monthly and daily projections. This will vary greatly by location and seasonality of the store. Based on a calendar-year scenario, a fair quarterly breakdown in a non-seasonal environment is: quarter one 15-17 percent, quarter two 20-23 percent, quarter three 20-23 percent, and quarter four 35-45 percent of the annual forecast.

If the performance of the store is down or up at the end of a quarter, evaluate the forecast to establish if it should be adjusted. Generally speaking, unless there is a dramatic difference, I suggest you hold with the initially forecasted sales.

Remember that the forecasted sales are driving the open-to-buy projections. Therefore, the need to be realistic about sales projections is essential in order to avoid an over or under inventory position.

By now you should be convinced that simply liking to cook is not a good reason to get into this business. This is a real business and it takes real entrepreneurial skills if you want to be successful. It also takes long hours of hard work. Retail is a tough way to make a living, but can be very rewarding for people who enjoy the challenge.

May I offer some closing words based on my experience? If getting into the housewares/kitchenwares specialty store business is a goal in your life, then take the time to meet and talk with people in the industry. Seek out seminars to attend while doing your research on the industry. The cost is minimal if one thing is learned or one good idea is gained. Seek professional help and consult with knowledgeable people in the industry. They can save you a lot of money and educate you about the industry along the way. A budget for this should be in your store’s start-up costs. Finally, join one of the two industry buying groups in the industry, Gourmet Catalog Buying Group or the HTI Buying Group, Inc. Research them both and decide which one is the right one for you. Buying groups can save you lots of money, put you in touch with your peers, and assist you in being successful.

If you would like to comment or send us your feedback on this column, please send e-mail to mkeighley@gourmetretailer.com.

Robert F. Coviello is the founder and president of HTI Buying Group, an organization of independent housewares specialty store retailers and industry vendors. He is also president of Housewares Tabletop International, a consulting firm that provides innovative solutions to strategic challenges facing companies in today’s dynamic housewares and tabletop industry. Bob has more than 35 years of experience in the industry and is an acknowledged industry expert in the housewares field.