25 May 2024, 11:19
By Gordon Hecht Apr 11, 2024

Time to expand your retail empire?

Ever considered expanding your retail portfolio? There may never be a better time to expand your empire, writes our US correspondent, business growth and development consultant to the retail home furnishings industry, Gordon Hecht …

I’m not sure exactly how it looks in the UK, but, here in the US, big-box and specialty retailers are planning to close hundreds of shops. The result will leave shoppers with less brick-and-mortar choices to spend money. With a little good fortune, we may see retail rents drop.

Your retail store is like a great white shark. That mammoth fish must continually move forward to live. If it stops moving, it stops breathing. Your business must also move forward. When it becomes stagnant, you end up with a dead shark.

Adding in a second, third, or 33rd location takes time, planning, and assets.

Place


Of course, you will need a spot for your new shop. A similar rule of residential real estate applies to the commercial side. Location, location, location.

In commercial real estate, (almost) any location can be successful. Look for an ‘A’ building that has abundant foot and drive-by traffic. It will have tenants selling similar merchandise or attract a similar target demographic. You pay more rent, but you may be able to reduce your advertising cost based on the number of shoppers in the area.

You can consider ‘B’ locations too. These might be older centres, or less-desirable spaces in ‘A’ location centres. These can be of substantial value if they are in an area of town going through a rebuilding or located near legacy retailers, and you’ll pay less rent, and will need to increase your advertising budget to attract buyers.

Rent is your largest ongoing expense. When assessing occupancy costs, multiply rent by 10 – the resulting calculation is a fair picture of the retail sales you’ll need to generate to show profit.

People


Your current business is successful for many reasons. In that mix is the company culture. Everyone on your team knows their job. Good teams execute and give a little more. Your people know the guardrails of what they can and cannot do. Your best people look out for the interest of the business.

A new location means duplicating that culture and building durable careers. One of the top reasons that business expansion fails is the loss of company culture. For K-Mart, Linens and Things, and Kenny Rogers Roasters, each new store meant a reduction in the culture of success. The shopper experience diminished as they rushed to fill store positions. They became dead sharks.

You may have someone on your team that’s ready to step up into a leadership role. Don’t wait until the grand opening day of your new location to give them responsibility and authority – start today. Add in your new sales staff 60-90 days ahead, in your current location.

And plan to ‘live’ at the new location for 6-12 months, to further develop your culture.

Manual labour


McDonald’s and Starbucks would never think of opening another store without insisting that the staff uses the same recipes as existing stores. Unlike Mom, those recipes aren’t handed down by word of mouth. The grande, bone-dry, five-shot ristretto extra-whip, two-raw-sugars cappuccino instructions are written down, trained upon, tested, and reviewed for full compliance.

Having a written sales and operations manual is not an option. You need to have those best practices documented so they can be duplicated. Here’s a hint – the best people to write the manuals are the people that do the work. You can edit it later.

Do-re-mi


Think you have enough cash reserves? Think again! It’s costly to open a store. There are fixtures, tenant improvements, signage and merchandise. And, oh, those licenses – city, sales tax, sign reviews, PoS cost, fire inspection. Insurance, deposits for water, sewer, and power.

The money you budget is enough, until something goes wrong. And something always goes wrong.

Use the 20% rule to start. We recently had new flooring installed in a room at our home. The room measured 600ft2. The floor salesman suggested we order +20% extra to account for waste or error. We added 120ft2 to the order, and used all but 22 of that.

Add up the initial expenses that you think you will incur. Be sure to have ready cash of 20% left over. It’s for waste or error.

Then you’ll need working capital. A solid number would be 12 months’ rent. Understand that in the first 90 days you’re just starting in a new neighbourhood, and traffic may be slow. On top of that, you’ll need to double or triple your advertising budget to get your name out there.

Like any new venture, you’ll take a risk with a new location. You’ll invest a lot of time and dough. But you will also maximise your operations and advertising costs. As time goes on, you’ll have the strength and infrastructure for … the next new location.

Gordon can be reached at [email protected].


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