The retail growth conundrum- part 2

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(By: Darrell Wisbey)

GROWTH BY OPENING NEW STORES – home market expansion.
In the previous article growing sales and profit by way of improving performance in the current stores was considered as fundamental to operating a successful retail business.

Now presuming current retail stores are operating with maximum efficiency delivering maximum profit (ROI) then the quest to delivery higher turnover can move into phase 2 which is expansion by way of opening new stores in new locations.

Phase 2 growth can be segmented into two different pathways and these are new stores in the home country, (which is usually the precursor to considering), and/or international expansion by entering other countries.

Now whilst both pathways can be managed simultaneously it is logical that home market growth is considered the logical next step for a new retail business prior to taking the more complex course of opening new stores in other countries. The following is relevant to home country new store(s) retail expansion.

What is important prior to undertaking local expansion?

When a retailer decides they are ready for home-based retail location expansion it is critical they confirm they are underpinning growth by way of an existing sound retail business foundation. To substantiate the existing store foundation is solid a retailer must conduct honest and frequent self-appraisals.
The following chart, (an indication only), provides the basis for conducting a retail assessment when substantiating the business has a strong foundation upon which to base the entry into a new location(s):

Now presuming a retailer is fully satisfied their business foundation – strategy, product offer, management structure and operational disciplines – are robust with the capability to produce sustainable and acceptable returns on the investment and expectations of all stakeholders then same market retail growth by way of new stores can be considered.

Expanding retail stores within the same geological market can be considered a relatively easy challenge however, there are many steps in the process that can bring failure if a retailer presumes the same format in the same region will be an automatic success.

Increased sales and profit by opening new retail stores in new locations:
Methods applied to build the growth would include such action initiatives as shown in the following diagram:

1. CHECK STRENGTH OF CURRENT BUSINESS: ensure the current business model is examined and scrutinized regarding strategy, product offer, management structure and operational disciplines. It is imperative the current business is robust and confirmed financially strong enough to support the growth program to be undertaken.

2. CONFIRM DEMOGRAPHIC SUITABILITY: considerations should include population within the catchment area, age groupings, income averages, shopping behaviours and lifestyle attitudes.

3. ASSESS RETAIL COMPETITION: it is important to thoroughly understand the retail market that exists, (and is likely to exist in the future), in the target retail location. Are the major competitors already trading and if not are their future intentions and possible sites known? If they are already trading what is known of their performance and how do the local customers relate to them? Are customers already loyal or are they open to migration to a new retail store?

4. LOCATE A “QUALITY” STORE LOCATION: “location, location, location” is one of the MOST CRITICAL decisions to retail success. Saving on location costs in the belief this will protect the “bottom line” invariably leads to BIG PROBLEMS and often in the end is the key reason for retail failure. The following are examples of the critical nature of retail sites:

a. does the site offer acceptable visibility either in store front or for street signage?

b. is the site positioned to have a reasonable chance to “steal the competitors customers”?

c. can customers gain easy access to the site by way of both private and public transport

d. is the site surrounded by successful business?

e. is the site “the right size and footprint” to deliver the ideal layout and product offer?

5. INVESTIGATE PRODUCT OFFER AND VIABILITY: investigate competitors who are selling the same or alternative items to assess the competitive level of your offer. Consider the differences between same retail format competitors and those who are considered same market “specialists”.

6. IDENTIFY LOCAL MARKET UNIQUE NEEDS: are there product segments that are “wanted” in the new site geographic location that are not considered “everyday range” items in your own existing stores. Do climate conditions, socio economic patterns, industry development, tourism or other such factors impact on the range offer?

7. COMPLETE NEW STORE P&L PROJECTION: it is critical a realistic projected P&L is built and rigorously tested – consider as many “what if” conditions as possible – to ensure financial success is a realistic possibility. There is a tendency in building a new store P&L to underestimate the costs to create and open a new store and at the same time overestimate the projected sales and profit to be returned.

The Challenge:
Remember it is an expensive investment to open a new store but if the new store fails the costs to vacate that outlet can be and usually are significant. A failed store will impact the total brand image and business reputation and whilst building success takes a long time destroying the image can happen very quickly when a new store or stores fail and are subsequently closed.

About the Author:

Darrel Wisbey is a chief mentor and retail adviser who has 30 years of retail experience and has built a reputation for being a leader who interprets the market accurately, define strategic direction and deliver success by motivating, developing and inspiring teams to achieve continual improvement.

 

*First published on Philippine Retailing newsletter 2018 Q3 issue.