There you are sitting on your couch doing nothing and then it hits you. All those cats are getting sick rich selling me vape I am going to start my own vape shop! Well as of the writing of this article you are behind the curve and the days of overcharging for cheap Chinese built products are on the way out.
There are some barriers now in your way that just were not there one year ago. Pie-eyed thinking about how everything will be super easy and quick cash is just a recipe for disaster to the vape shop startup’s on the horizon.
- Customers are digging deeper and having control of the top page isn’t helping sell cheap garbage as well.
- Profit margins are going down due to a Democrat Party push to get Vape regulated
- New laws on the books are putting an end to the backroom custom mix. Factory seals are required in most states come June 1st, 2015.
- SKU’s are multiplying, goods have to be ordered dated and rotated
- Shelf space for a multi-dollar business just became a premium.
- Zero nicotine is now 85% of the sales
- CBD is confusing the mix to what vape really is.
- The skills to run a real business are now going to be a requirement to survive.
- Manufactures are novices too. Having no real clue how shipping cost, distribution layers or simple following what the “others” are doing is having a negative effect on the entire industry short and long term.
- Entry Cost has gone up.
Let’s address the CBD first it’s a gray area to begin with but we have to give props to the dope smokers who started the industry. Any article you read about legalizing Medical Marijuana pleads in the first sentence then jumps to the wonderful benefits of Cannabinoid (CBD), only they are not the same thing and the Marijuana crowd is sponging off CBD effects. Cannabinoid (CBD) is proving too outstanding in curing some common ailments from diabetes, epilepsy, COPD, Asthma, muscle spasms, cancer etc… Not because it’s a cure-all but because it does a few things really well. Delivers more oxygen to the cells allowing the body to scrub itself and its blocks the absorption of Glucose (sugar) and the lower your sugar level the faster you heal. Just that simple. BUT THC the stuff in Marijuana that gets you stoned is downright bad for you. Destroys cells in the brain stem (reason stoners talk so slow…dude) Causes the brain to swell giving the high and disorienting fun of being high. As the level of THC in marijuana has gone up drastically over the decades the amount of CBD has gone down as CBD counteracts the negative effects. In short the better the high the worse the CURE. Legal CBD has to have less than .3% THC when tested and CERTIFIED. Puff all you want you are not getting sleepy, high or stoned off true CBD. But your arthritis will go away. So from a business standpoint the stoners are messing up the mix and are bad for the vape business.
So how do you build a better online Vape Store?
Build a better Brick and Mortar store first. Grabbing stuff off a shelf and filling a box is not a store its a warehouse and in the business world we call them distributorships. There are lines that shouldn’t be crossed good distributors shouldn’t be selling retail but the Chinese have made a mess of that and the Americans asked them to do it. When an American Company goes to china and says “make 5000 of my widgets” china says thank you and makes 100,000 of them and then uses the word “clone” well its counterfeiting and wannabe companies who can’t calculate the loss of sales competing against their own product line for Zero profit kind of get what they deserve when they avoided American labor. A 4 axis CNC machine is less than $50,000 and can crank out mods and parts without the quality of the metal and plastic being cheated making for all around inferior quality. So when you decide to build your Better Vape shop start by being picky as hell who you do business with. Do not look at $10 wholesales with $100 retails and think it’s that easy. Customers are going to trash your name when that crap breaks and you blew the $90 on your Ferrari… posters.
Get involved with Vape retailers association there are a few of them the two break outs right now are the AEMSA (American E-liquid Manufacturing Association) and the NAVB (National Association of the Vaping Business) . We here at SkyVape Magazine are a practice what we preach company we are right now building a vape store from the ground up and all the pit falls of dealing with the industry from legal to buying stamps at the post office are being recorded and addressed with would be leaders of an industry in its infancy and will be addressed in our Business to Business category of articles.
The entry cost of your new business has gone up but it’s still a rock solid investment even for a novice business owner. Most small businesses are a franchise of a single job household and are shoe stringed on a budget until it hits (which is why over 90 percent of small businesses fail in the first year). You have no clue how big your shoestrings should be in order to get by. There just is no “new store” store where you walk down the aisle and through a couple glass display cases in the basket and large box of starter products and signage. Then run down isle 2 and get your head cut opened to dump in some basic knowledge on how not to get your butt handed to you by growing to big to fast spending money on stuff that doesn’t make the money back in the time you need it too is what THAT PHRASE MEANS. Experience is what you get shortly after you need it and money can’t be spent twice unless you’re designing a healthcare system.
So what do I do?
Think small on your Brick and Mortar. Find a location that has great traffic and check out the parking during peak hours (4 – 9pm) make sure that you have 2 to 3 parking spots near your future door, laziness of your customer will hurt you like nothing else. Small footprint stores are much cheaper to make them look FULL. $10,000 of inventory doesn’t stretch out as far as you would think. Rule of thumb it takes $10k to fill every 100sqft of space and around $200 per inch of shelf space.
Do not cheap out on your displays. Glass display cases are a must Two is a great basic start 5 feet long each and make sure they have LIGHTS AND MIRRORED DOORS. Your product will look much better and the mirrors help you cut the room in half and fill space more effectively.
Perform a soft open that takes 6 months. Do not go out and spend $25k buying what the guy down the street has the market is changing BE THE CHANGE. When you open your doors the “other” vape shops will have an INCREASE in business but are probably too dumb to know that is what happens with all business’s competition is not just good for customers but it’s good for business as it CREATES CONVERSATION (reads free advertising for everyone and cattle prong to check people out) So it’s best to NOT be open and just talk to your customers. Sell them some juice show them a few mods you were interested in and talk about what they have, how often do rebuild or change the coils. (Coil rebuilding is dying screw in replacements are new industry standard) But certainly stock wire and kits to so hobbyists can rebuild their own coils for their friends. Take the information and add one new Display the next week and then another in another week. Make the customers have to come back to see “what’s new” before you know it Curiosity turns INTO A HABIT.
Have a website but DO NOT TALK ABOUT IT. You cannot click on a conversation. Want to watch people’s eyes roll into the back of their head talk about your website. Use the new Ping technology its safe for the users zero spam and doesn’t require people to download apps etc… You can sample that by trying ours (631) SKY-VAPE from your cell phone. Do not get in over your head trying to do reviews (like we do) not because we do not like competition but because it’s a time suck we run a staff of 5 people for a simple online magazine. We want to set a standard so that when you do business with a manufacture they send you DATA, (that means an excel spread sheet of their products READY TO SELL with pictures and UPC codes cost and retail prices in a format that YOU can just click and upload and be selling their product line.) Remember you’re growing slow and steady you get a new vendor, your picky, they send you a display for your store, and you upload your data adding their line to your online presence. You PING your customers, with a link to the new product line and bam 300 people get to see it online and KNOW they can come down and pick it up, like it on Facebook and you will get a 15% growth from every product line you add. Wow that was almost like a marketing plan. It’s the lowest cost of customer acquisition ever. Up until 5 years ago to get a new customer for the first sale to them used to cost $63 we can now do it for under $5…Just a little bit of that isle 2 knowledge.
A website is not cheap, you need to buy a domain $20/year, REAL HOSTING (GO DADDY WILL BURN YOUR ASS). Your buddy who disagrees with that statement have him take you for a ride in his Ferrari and explain the benefits to Go Daddy in detail (consider your source is my point people with low expectations often find great value in low cost) Expect to pay $30 a month for good hosting, shared dedicated servers is what you want so you can host your own email and not have CPU limits storage is not an issue so don’t fall for the big storage ads. I recommend using Xcart for your free shopping cart because it won’t stay free and the Xcart platform is easily scalable and has the capability to be your IN STORE POS (point of sale) which ties your brick and mortar online very nicely.
Get your paperwork in order first, business license, Federal Tax ID, State CRS certificate then visit a Vape Expo and take $10k with you. Show up early plan to be there the whole time. Get all the ligature, Show books, and sample products you can. Do not forget the swag (that’s why your early) , Respect the swag you are going to use it to reward your customers. Keep in mind some of the manufactures are wannabe’s just like you. If they don’t have shown buy promotions put them on the end of the list of your new vendors. Start making that list find 26 products and put them in an order for your Soft open roll out. Get your posters and other displays now and decorate your store.
How fast is too fast?
It’s been our experience it’s a matter of need. If you do not need your store to feed you, clothe you, and keep you sleeping indoors regularly, it’s really hard to fail. Simple rule the More you take the less you make. Your business is FIRST, if you are struggling with your car payment now a new business isn’t going to fix the problem it’s going to make it worse. Sad fact is there is a difference between Employers and Employees. Employers can wait out rough patches and keep spending on growth. Employees look for other jobs when the going is rough.
Try to keep your monthly expenses to bare minimum, it’s what we refer to as the cost to open the door. Rent, electricity, gas, water and sewage, sales tax, income tax on the money you’re making and growth. If it takes $2500 to open the door each month then you have to gross $6k in sales just to break even. This reality and I do MEAN REALITY is how people fool themselves into bankruptcy. So how fast will you grow in your area becomes key. This is why so many shops are “custom mixing” they buy $300 worth of raw juice and squeak 5k in sales out of it. THE LAW SAYS NO MORE so a good startup is going to cost $25k to get through the first 6 months and then should be growing naturally. Your new vape store should easily hit $20k per month by year 2 as long as you keep your spirits high, your shop doesn’t look like a tattoo parlor or a smoke den so thick with hangouts that no new business would dare come in the door. People form clicks, and new customers are not in your CLICK of hangers. Do not encourage people to hang out in your store, encourage them to come back.
Your customers are you best sales people ever and they are not selling if they are hanging out with you. If you want a Hookah lounge build one that’s got at least a $150k price tag. Do not try to blend your efforts.
Holding your Juice and Equipment manufactures to a better and more responsible standard
I am going to put “manufactures” in quotes here because frankly I am seeing rookie mistakes. Do not get me wrong millionaires have been made, but falling backwards into a pool of cash is not proof of a plan. So as they got out of the pool of cash the government has been right there to say “let me dry all those hundred dollars bills off you sir, before you catch cold” after all they are just there to make your life better right?
The vape industry was seeing 800 to 1000% margins at the retail level and that meant any idiot who could hold a conversation or corner the market in their town did well. Now the margins have fallen to under 100% AT FACTORY DIRECT PRICING (this is a key note) Distributors didn’t get setup in the gold rush. Wholesalers are nothing more than retailers who will sideways sell what it is they are selling. Thus an important lesson I learned over 20 years ago.
I owned a retail store that was dominating the market. Had 4 other competitors in town and was High on the fact I was kicking everyone’s ass. One quarter I am going over profits and noticed they were down significantly. Mind you I was still doing well, but was curious as to the reason. I started counting customers walking through the door each day, Looking at my repeat customer coming through and looking around. I turned around from counter and looked at my back wall inventory and it struck me. I loved everything I had on that wall. Everything. I was buying what I liked and not what sells. Customer service is not having your customers service your business. They came for my expertise and knowledge, not my personal taste.
There are rules to business that are 1000’s of years old. Just because the customer goes online and see’s the wholesale because some Chinese wholesaler is trying to get YOU the retailer to deal with customers’ demands that you sell at their pricing. The internet is the death nail to retail if Manufactures do not find ways to enforce profits at RETAIL LEVEL. Manufactures number one goal in life is to fight for square footage in a quality retail location. WATCH ANY SHARK TANK that is what they are selling those new businesses. “I can get you 2 feet of end cap space in 400 locations”.
What markups should you expect?
Manufactures tend to see 35 to 300% in gross markup with the hopes of a 15-25% margin. Smart manufactures who are getting better than that use the extra to expand into bread trucking programs and gain more retail shelf space NOT add more lines to their existing products. You grow by doing what you do best in more places not by competing with yourself.
Distributors have the dirty task of dealing with 100’s if not 1000’s of manufactures planning product shipments up to a year in advance, (which is what expos are for not letting customers buy some startup guy his gas money home, fewer expos guys come on.) Distributors allow a retailer to shop dozens of premium brands and limit his weekly spend to a budget that fits his retail style. Distributors are looking for 30-70% margins with an expectation of a 7% profit margin from that. Manufactures should be seeking out distributors who will take a pallet of their goods and flip it to their retail market in a responsible way.
Retailers has become a lost art. Any fool who rents space and has paint on a windows is now a merchant. Any fool who rents space and has paint on a windows is now a merchant. A generation of proper customer service may have been lost due to the lure of easy profit that the internet promised. INTERNET STORES DO NOT WORK unless they have Brick & Mortar to leech off of. The Brick & Mortar will become the showroom of the Amazon world if a manufacture allows it. Retailers need to cut these manufactures off immediately. Cold TURKEY tell your customers no more. We had to do this with our automotive parts customers as the lure of higher profits from direct sales via… Manufacture friend’s sites etc. It only takes 3 worthless sales men to dominate the top of search listings to wipe profits out of a product. The Chinese PRACTICE and over sale and produce policy.
Watch for the over produce and sale policy.
A manufacture goes to chine with a design and says make me 10,000 of these. No problem Joe! They roll off 50,000 of them with your money and wait. What are they waiting for? The manufacture to spend money on marketing. Meanwhile the 40,000 are already in San Francisco and will be on over 500 different eBay accounts and 100’s of Amazon accounts the minute there is search movement. The other method is to sell to manufacture, step over that manufacture and sell direct to the retailer for less than manufacture paid as well as their direct to customer actions for less than is profitable for retailer to sink to. At no point in time did they spend any of their money on your “clones” reads counterfeit btw. I prefer the word counterfeit because they just counterfeit AMERICAN MONEY. Only they did it with products and not actual $20 bills.
We have some real world beta testing planned.
We are going to build a retail shop with online/offline full service that meets new packaging laws. Articles will outline HOW we are solving those problems.