How to Start a Souvenir Shop
If you are proud of the country and region you live in; if you enjoy showcasing its history and identity, and locally made arts and crafts, then opening your own souvenir shop may be right for you. As a souvenir shop owner, you’ll love to interact with travelers from far and wide and help them find a memento to remember their vacation or trip by. While becoming a business owner will require significant effort, the experience of running your own souvenir shop and work closely with local suppliers and craftspeople to put your region’s best foot forward can be immensely rewarding.
A souvenir shop is a brick-and-mortar retail store specializing in a wide range of products like souvenirs, novelty gift items, t-shirts, greeting cards, and other accessories. Souvenir shops typically do well in destinations such as theme parks, monuments, popular nature reserves and beaches, and tourist hotspots. That said, the trend towards online shopping provides additional opportunities for shop owners to expand beyond their local reach.
Souvenir shops fall within the gifts, novelty, and souvenir stores industry. According to a 2021 report by First Research, demand in that industry is very much driven by consumer spending, special occasions, and tourist travel. According to IBISWorld, there are currently around 15,400 businesses operating in this sector in the US, employing over 142,000 workers. This industry is also quite fragmented in the US. There are some large players, such as Disney, Party City Holdings, or Hallmark for example, and many small individual businesses. In fact, the top 50 companies make up 40% of the entire annual sales.
This sector tends to be similarly affected by economic shifts than the tourism industry. Travel and an increase in discretionary spending benefit a souvenir shop, especially in popular tourist destinations. This means that changes in travel patterns, changes in restrictions to enter the US for example, will affect souvenir shops. On the other hand, the recent trend towards supporting local artisans, finding unique as well as personalized gifts should present the souvenir industry and small business owners with great opportunities in the future.
Whilst large companies have the advantage when it comes to marketing, purchasing, and distribution, small businesses have the competitive edge by selling specialty products and delivering a unique customer experience. They might offer a great depth of selection in a niche category.
The target demographic for your souvenir shop will likely be travelers and visitors to the region looking to take home a memento. Your business will be heavily dependent on people visiting the area as locals are not likely going to shop at your store.
Your market segmentation will be influenced by whether your region is a family holiday hotspot or perhaps better known as a romantic getaway destination or a mecca for extreme sports.
Skills, experience, and education useful in running a souvenir shop
Industry knowledge and appreciation of local goods. As a rule of thumb, a souvenir shop owner who stays aware of industry trends will be better able to ensure the shop stocks the products and offers items that will be most in demand. As such, it will pay to understand tourism trends and supply chain matters. It also helps to be knowledgeable about locally produced items and be able to explain their origins.
Retail experience. Previous experience in the retail industry will serve a souvenir shop owner well since they’ll have a better idea of the tricks and challenges of managing a store, understand pricing, stock taking, and store display for example.
Customer service and interpersonal skills. This is a very important skill and one you need to enjoy. A shop owner who can provide a memorable customer experience, tells the story of the souvenir, is far more likely to achieve good sales results and create customer loyalty. And don’t forget to maintain a solid relationship with your suppliers as well, especially if they are local.
Management experience. Previous experience in hiring, training and managing employees will be beneficial for any shop with staff. Having a solid understanding of accounting practices and the ability to negotiate supply contracts will also be valuable skills.
Marketing talent: Your shop will require a solid marketing and branding effort to get people through the door, especially during the startup phase. If marketing is not your forte, this is a skill that you can easily hire out.
Checklist for Starting a Souvenir Shop
If you’re thinking about starting your own souvenir shop, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write your Business Plan
You had a great idea, you’ve discussed it with friends and family, perhaps even with a business mentor. The next step in starting your own souvenir shop should be to write a business plan. It will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, and much more.
Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect souvenir shop name can be challenging. Not only does the name have to resonate with your customers, it also has to be available to use.
Step 3: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a souvenir shop, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: 3 steps to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select Your Location
For a souvenir shop, the location is quite important. You’ll want it to be in an area close to tourist attractions and high foot traffic, with a highly visible, inviting storefront. Rental costs will depend on the shop’s size, location, and amenities.
A shop in a high-traffic area will cost more to rent, but it can also generate greater walk-in business and general public awareness.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
A souvenir shop owner will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. Some common local, state, and federal registrations a souvenir shop may need to include a sales tax permit, Employer Identification Number (EIN), and Occupancy Permits, among others.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing but getting the funding to start a souvenir shop is another. It is worthwhile to present your business plan to investors and check in with your local chamber of commerce or business association for business incentives. If you are in need of a bank loan to get the business off the ground, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate bank and credit card accounts is vital and also makes it easier to track the income and expenses of the business.
Step 8: Get your Marketing Plan in Place
A souvenir shop will need to set aside a budget for the initial marketing and branding campaign but also to cover a long-term marketing and communications strategy.
Common marketing techniques for souvenir shops include using social media platforms like Facebook, Instagram, and Twitter, online advertising, print advertising, and flyers at the local Chamber of Commerce, hotels, etc.
Understanding the flow of tourists is important so the store can be adequately staffed and marketing dollars are being spent at the right time to effectively reach tourists.
Step 9: Get Business Insurance
A souvenir shop needs several types of insurance to fully protect the business. A few common types of insurance to consider include:
– General liability insurance protects the business from expenses like medical and legal bills that it could face if a customer is ever hurt while on the business’ property.
– Commercial property insurance can cover expenses and losses that the business could face if the shop is ever damaged or destroyed by a fire or other type of event.
– Workers’ compensation insurance covers expenses like medical bills and legal fees that a shop might face if an employee were ever hurt while working.
Insurance policies will vary in cost depending on the shop’s location, the value of its inventory, and the number of staff. To be able to factor in insurance costs in your budget accurately, it pays to request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Step 10: Hire Employees
Most souvenir shops have a few employees on their payroll to cover shop hours and also factor in seasonal tourism. According to PayScale and based on almost 7,000 salary profiles, a shop assistant can earn anything between $10.11 and 19.34 an hour.
As part of the shop’s overheads, the shop’s budget will also need to include employee-related expenses such as unemployment insurance and paid time off. It’s also a good idea to factor in training and up-skilling.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an effective accounting system for your gift shop business is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the data gathered can be used to track and monitor trends, stock, and cash flow in the business, and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a souvenir shop?
Although the barriers to business ownership in this industry are considered low according to IBISWorld, one of the major challenges of starting a souvenir shop is having sufficient start-up funds available for the immediate larger costs for outfitting a store and inventory.
Common startup costs for a souvenir shop include:
– The rent, lease or purchase, and renovating and outfitting of the retail space. Costs will vary greatly depending on square footage, amenities, and the location of your shop. You might even like to just rent a kiosk for starters and then expand from there. Budget a minimum of $6,000 if renting or leasing.
– Equipment such as POS system (Point of Sale) or cash register, computer, alarm system, cameras, display racks, and shelves. Est $7,000.
– Initial inventory such as souvenirs, local art, cards, homewares. That really depends on the quality, pricing, and volume of items for sale.
Initial marketing campaign and signage, anything from $ 1,000 to $6,000.
– Supplies such as branded bags and gift wrapping
– Licensing and Permits, est. $ 200, depending on your location
– Working capital for the first three to six months of payroll, rent, utilities, internet, etc. ($ 30,000 plus).
How profitable is a souvenir shop?
Not much is published on souvenir shops’ profits, but according to the latest IBISWorld report the three main profit drivers in the industry are: accurately forecasting demand, maximizing peak period sales, and effectively managing inventory. The gifts, novelty, and souvenir stores industry as a whole is generating a combined income of around $18 billion in the US.
The cost of inventory for a souvenir shop averages 50%-60% leaving a significant profit.
Are there grants to start a souvenir shop?
It’s extremely rare to find a grant to start a souvenir shop. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.