If you are interested in learning about brick and mortar businesses and what they have to offer, you are in the right place.
Sure, online businesses have become increasingly popular, but sometimes a solid brick and mortar business is your best bet for reliable long-term success. Interacting with customers, earning their trust, and consistently offering them a great product or service at a fair price is never going to go out of style.
In this article, we are going to discuss some of the most important things you are going to want to know if you are looking into a brick and mortar business.
We will start by answering introductory questions like what is a brick and mortar business and what are some examples of such businesses.
We’ll then provide critical information on the profitability of these types of businesses, including an analysis of which sectors are the most profitable.
We’ll then cover the pros and cons of operating this type of business and conclude with an easy to follow step-by-step guide on how to start a brick and mortar business.
We’ve got a lot to cover, so let’s get into it!
This post may contain affiliate links. If you click on a link and complete a transaction, I may make a small commission at no extra cost to you.
The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.
What is a Brick and Mortar Business?
A brick and mortar business is a business that primarily operates through a physical location. It generates revenue when customers enter the store and purchase goods or services available at that location. Because brick and mortar businesses rely on local foot traffic (and in some cases, car traffic) to make sales, the location of the storefront is paramount.
Contrast that with an online business. This type of business does not rely on foot traffic or a physical storefront to generate revenue. Rather, it relies on internet marketing to draw customers.
There are businesses that have a physical location, but also a meaningful online presence. These are called “click and mortar” businesses. Many brick and mortar businesses will attempt to migrate to this model because they understand the importance of online sales to their continued survival and growth.
Examples of Brick and Mortar Businesses
Brick and mortar businesses vary in size, scope, and profitability. They include big box retailers like Target, Walmart and Costco and huge enterprises like Exxon, Starbucks, and McDonalds. But brick and mortar businesses can also include small local businesses, like coffee shops, bakeries, and hardware stores.
The common denominator is, of course, the physical storefronts and the direct human interactions involved when making sales.
Profitability of Brick and Mortar Businesses
Two common measure of profitability are gross profit margin and net income (or net margin).
Gross profitability is gross revenue minus the cost of goods sold (in other words, your total earnings minus how much it costs to produce your product or service). These costs include labor, materials, etc.
Net income is gross revenue minus all expenses and costs. Those expenses include all operating costs as well as debt and other expenses. It’s what is often referred to as the “bottom line.”
It’s hard to find detailed data on profitability for brick and mortar businesses in general, but a good proxy for a brick and mortar business is a retail business.
According to a survey conducted by Vend (makers of point of sale systems) of more than 13,000 retailers across many different sectors, the average gross profit margin for retailers is 53.33%. Source
The profit margin is much slimmer when you look at net income. According to data provided by NYU’s Stern business school, net margins for brick and mortar retail businesses range from 1.11% to 9.63%.
Of course, this begs the question, which are the most profitable brick and mortar businesses? Glad you asked…
Most Profitable Brick and Mortar Businesses
Based on that data provided by NYU’s Stern business school, gross profit margins for retail businesses in these major sectors were as follows:
- Automotive (22.2%)
- Building Supply (34.75%)
- Distributors (30.34%)
- General (24.32%)
- Grocery & Food (25.68%)
- Special Lines (30.90%).
Note: For those who don’t know what “special lines” are, they are specialized retail outlets like Abercrombie and Fitch Co., Linens ‘n Things Inc., Sharper Image Corp., etc.
From that same data set, we see that online retailers enjoyed gross profit margins of 41.54%.
Net margins for these same sectors were as follows:
- Automotive (4.81%)
- Building Supply (9.63%)
- Distributors (5.4%)
- General (2.65%)
- Grocery & Food (1.11%)
- Special Lines (4.53%).
Compare that with online retailers who had net profit margins of 7.26%.
Based on the foregoing, we can conclude the following about brick and mortar business profitability:
The most profitable brick and mortar businesses are in the building supply, distributorship, and special lines sectors if you are comparing gross margins. If you are looking at net margins, the most profitable brick and mortar businesses are in the building supply, distributorship and automotive sectors.
Pros and Cons of Brick and Mortar Businesses
Now that we understand how profitable brick and mortar businesses can be, we will turn to the pros and cons of owning these types of businesses.
Profitability is important, but it’s only part of the story. You need to know good and the bad of owning this type of business if you want a complete picture of what you will be getting into.
Advantages of a Brick and Mortar Business
1. You Can Generate a Loyal Customer Base
One of the great advantages of having a physical storefront is that you can interact with your customers and start building connections with them. If you are personable (or you hire people who are) and you offer a great product or service, people will flock to your location.
And they will remember the great experience they had at your store and come back. Even better, they will tell their friends and family about your store. Word of mouth advertising is a powerful thing.
2. You Can Create an Engaging Customer Experience
Because you get to design your store just so, you can create the right ambience and setting for your customers.
You also get to control the customer sales experience. You can train your employees on how they should greet customers, how they can graciously handle complaints, and how they can generally offer amazing service.
That type of atmosphere and service makes for happy customers and it is impossible to replicate online.
3. You Sometimes Can’t Beat the Convenience of Picking Something Up Right Away
There is always going to be a place for local businesses.
When you need milk, water, food or batteries right away, there is no substitute for going to the local grocery and picking it up. The same hold true for gas and other essential things you need to run your day to day life.
Brick and mortar businesses fill that need in a way that online businesses simply can’t.
4. Building Customer Trust is Easy
When you have a physical storefront, you can easily build trust because your customers can see and feel the products you are offering and they know that they won’t get scammed if they decide to purchase.
Not so when it comes to online transactions.
Sure, more people are starting to trust online businesses due to the emergence of Amazon, but there is still a fair amount of mistrust out there (especially if you are shopping outside of Amazon (or the other big ecommerce giants)).
Plus, with a physical storefront, customers know where to find you if they have an issue that they want resolved. Complaining to a company that is on the internet can feel like you are talking to the wind.
5. Your Competition is Mostly Local, Not Global
One of the nice things about owning a local business is that you are mostly competing against other local businesses.
Now, I want to qualify that statement a bit.
If you are selling things like cars or gas, or are operating a restaurant or oil change business, this is definitely true. These types of goods and services are perfectly suited for brick and mortar establishments because it’s almost impossible for online businesses to fill that need.
But if you are selling things like electronics, you are basically competing with every e-commerce store out there that is also selling electronics.
6. Most Business Is Still Conducted Offline
Although online business is on the rise (and has been for some time), the majority of business is still conducted offline. Source.
That’s good news for brick and mortar businesses, although you need to recognize (and prepare for) the continued ascension of online business transactions in the future.
7. You Are Not Beholden to Online Platform Providers
When you operate an e-commerce business, you are often at the mercy of large online platform providers. If you are selling on Amazon, they can yank you from their platform at any time. The same holds true for many of the other large e-commerce platform providers (Shopify, Etsy, Wix, etc.).
Even if you are not on these platforms, you are likely advertising or getting traffic to your business online. If you run afoul of Google’s, or Facebook’s rules or algorithms, that can decimate your business.
Brick and mortar businesses are, by definition, immune to all that.
8. A Great Location Is It Own Marketing
When you are online, you often need to spend a lot of money on online ads to generate traffic to your site. It’s one of the primary ways you get customers.
But the best advertisement that you can have for a brick and mortar business is the location of the business itself.
If it’s located in an area that has great foot traffic (or car traffic in the case of gas stations, car washes, etc.), then the location is going to do the marketing for you.
That means you are going to get tons of customers walking in and buying your products by virtue of simply being in the right place (assuming you do a decent job of making your storefront inviting).
Disadvantages of a Brick and Mortar Business
1. Cost Can Be High
This is perhaps the most obvious and biggest drawback to operating a brick and mortar business.
The initial costs are generally going to be high. You need to buy inventory, get a lease (and pay a deposit) for the storefront, and pay for all of the equipment, furniture and renovation costs.
Ongoing costs are no joke either. You will have to pay monthly rent and utilities. And if you are hiring people to help you run the business, you will have payroll expenses.
There are tons of payroll service providers out there, so go with someone who is reputable and offers a fair price. I use SurePayroll for my business. They are affordable, reliable and a well-known player in this space.
Of course, many of these costs can be avoided if you are operating an online business.
2. You Have Greater Operational Responsibilities
Operating a storefront means being open for business during business hours. You will need to have someone at the store and the store will need to be clean, fully stocked, and ready to go everyday. It’s a big responsibility and it never ends.
3. You Might Face Online Competition That Will Beat You on Price
Because of higher costs, you will often need to charge higher prices. That means that your online competitors will likely be able to beat you when it comes to price. Unless you can offer things to your customers that justify your higher prices, you will be facing a really tough competitive landscape.
4. Your Neighborhood May Suffer Decline
As we discussed, location can be a huge advantage, but it can also turn into a huge liability. For example, if that posh neighborhood where your high end boutique is located starts to decline and becomes a crime-ridden mess, your store is going to fall on really tough times.
5. You Must Deal with Retail Customers in Person
Customer interactions can be a blessing because they are opportunities to build rapport and loyalty, but not all customer interactions are pleasant.
When a customer is unhappy with the product or service they are getting, they will often let you know about it! Dealing with that day in and day out can become a chore.
How to Start a Brick and Mortar Business
If you want to start a brick and mortar business, there are some key things you need to do.
Note: The following steps are a condensed version of the steps I describe in my article on how to start a brick and mortar business. If you want more details (including resources that can help you implement these steps), check out the full article here.
First, you will need to figure out what type of business you want to start.
Finding the perfect business idea is not going to be easy. After all, it has to tick a lot of boxes. It should be one that (i) is interesting to you, (ii) plays to your strengths, (iii) works within your budget; (iv) fits with your current lifestyle and situation; and (iii) has the potential to grow and generate strong and reliable profits.
One of the most important things you should consider is the business’ typical failure rate. If you choose a business that is highly competitive or is facing decline, your chances for success are going to be low.
If you want to learn which businesses are the least likely fail, check out my detailed article on the topic here.
Establish Your Business
The next thing you will want to do is set up your business. That includes picking a name and logo and setting up your business on Google My Business (so that people searching online for your type of business nearby can find you).
You should also consider whether you want to a business entity, like an LLC, corporation or partnership. There are legal and tax implications if you do this (or don’t do this), so you should consult qualified professionals to help you make your decision.
Create a Business Plan
A business plan is basically a roadmap for your business. You want to create one that covers your budget, identifies your market and competitors, and lays out your marketing and pricing strategy. You will also want to cover your operational plans and growth goals.
As we discussed, opening a brick and mortar can be expensive, so you will need to save up some money and also get financing for any expenses you can’t cover on your own.
Find a Great Location
I don’t mean to beat a dead horse here, but location is going to be key. As I mentioned, find a location that is well-trafficked and easily accessible. Visibility is going to be important, especially if you are relying on walk in (or drive-in) traffic.
Purchase Your Equipment, Supplies and Other Needed Items
This one’s obvious, right? You can’t launch a storefront without these things lined up. And hunt around for great suppliers – they can be a godsend when you are in a pinch and need to restock in a hurry.
Obtain Permits and Insurance
Depending on the type of business you are operating, you will need licenses and permits from your state (or even local governments). There may also be federal requirements too. At the very least you will likely need a general business license.
You should also get appropriate business insurance (usually general liability coverage at a minimum). In most cases, you will also need workers comp insurance if you have employees.
Develop a Marketing Strategy
Of course, having a great location is not the only thing you can do to make sure customers find you. You can advertise locally through billboards, flyers, etc. You can also market online. We talked about Google My Business already, but you can also advertise on platforms like Yelp, etc.
See what your competitors are doing and learn from them. Ultimately, you want to experiment with various marketing strategies – you may be surprised at what works best.
Launch Your Business
Once you have completed all of these steps, there’s nothing left but to launch your business. Signal to the world (or at least your local community) when your grand opening will take place and advertise a compelling offer on that day to motivate folks to visit your store.
For example, I have seen lines around the block when a new restaurant opened and promised free or heavily discounted lunches on opening day.
So there you have it – everything you need to know about brick and mortar businesses.
Hope this has been helpful and if you want to learn more about how to start a specific type of business, I have tons of articles covering a wide range of businesses. You can explore them here.