13th September, 2018

Do I really need a second retail store?

History is littered with examples of empires that expanded far too quickly for their own good, and retail businesses are no different.

In recent times, the likes of Sumo Salad and Doughnut Time have found the hazards of expansion a burden greater than they could bear.

“The need to get retail expansion across all channels right is now much greater than it used to be,” retail expert and CEO of the Retail Doctor Group, Brian Walker, told The Pulse.

“In days gone by, you could have 15 stores and five of them would be sub-performing and 10 of them doing well to carry the load. Now the market’s a bit too brutal for that.”

But done right, opening new stores can turbo-charge your business and put you on the path to ongoing viability.

It’s simply a matter of getting both the strategy and execution right.

Why should I expand?

Quite often, Walker said, a good retail store could get returns by simply looking at their existing setup before thinking about expansion.

“Having built the first website or store, draw breath and test and tweak – make sure it’s what your customers want and it’s trading well,” said Walker.

“Today it’s all about building coverage and building a loyal community that act as ambassadors and advocates – it’s less about building a sheer volume of stores.”

If you see expansion as the way forward after that, make sure you have a plan in place instead of jumping at an opportunity because it offers cheap rent.

“Sometimes things like research and insights are seen as nice-to-haves, but not necessities – but they’re critical,” said Walker.

“Strategy without consumer and market insights is like a surgeon with a blunt scalpel. You can’t make the incisions you need to make.”

He said having an impartial voice can help. An expert, outsider perspective can help you analyse your business and borrowing capability to make sure you have the capital required for expansion.

If you don’t want to dip into the lending market, Walker said, franchising was a consideration.

READ: The MYOB guide to franchising

But no matter which route you take, you need to ask yourself some key questions first.

Questions to ask before expanding

Even before thinking about a second store you need to ask yourself some crucial, and sometimes frank, questions.

Is this just a fad?

“I think one of the questions people should ask themselves is whether their product or service is unique, and not just a fad,” said Walker.

“Businesses that expanded too quickly such as Pumpkin Patch were relatively easy to copy.

“When higher overheads came in, and new competition came on, it became harder to succeed.”

Do I have the right people?

Walker said while it may be tempting for an owner to try and do everything themselves, expansion meant that invariably they would need to hire or promote from within – with the latter preferable than the former.

And while operating two stores is possible for an organised owner/manager, it isn’t ideal.

“It’s a different skillset to manage more than one shop,” said Walker.

“Trying to cover two points of business and activity…I think you’re half as efficient at each site as a consequence.”

Do I have the right, scalable systems?

He also said that businesses that ran the books in an ad-hoc fashion could get in trouble.

“When you look at over-extended businesses, what I find is that often they have really poor systems,” said Walker.

“It’s vital to have a great business information system and a good POS system that can move with you as you roll out.”

Have I documented my processes?

McDonald’s is successful for a reason – and it’s got very little to do with burgers.

It learned the value of great documentation to make sure each store is run in the same, dependable way.

“You’ve got to have the right operating platform and systems platform in order to attract the right people to run the other stores,” said Walker.

“That means things like training manuals and operation manuals, visual merchandising manuals…they’ve got to have all those systems in place and documented.”

Invariably, expansion is a huge step in the life of a young business. While it may be tempting to strike while the iron’s hot, Walker says a cautious approach is wise in today’s market.

“The consequences of getting expansion wrong are magnified in today’s market,” said Walker.

“That doesn’t mean it can’t be done very successfully – it just takes more planning and forethought than it once did.”