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How To Expand Your Retail Enterprise

Should you… or shouldn’t you? The decision to expand to a second retail location is the hardest. It’s sort of like taking a trip to Europe though: You may be daunted initially, and it might take you decades to get there for the first time, but once you take the plunge, you find affordable ways to go back again and again. Most importantly, you must live within your means and remember that “bigger” is not always “better.” 


Important Considerations 

First, you need to ask yourself if your business can be duplicated and if you’re okay relinquishing some of the control. After all, as much as we’d like to clone ourselves at times, you will more than likely have to hire people to manage these new retail businesses.


Secondly, you will need to be honest with yourself about the profitability of your business. Is there room in your market for more shops like yours? Do you get a lot of customers from another nearby town? Have you grown all you can grow in your existing location?


Location is the most important factor for a new retail business, so you will need to conduct considerable market research to identify new markets, current demand, and anticipated competition. Be sure to run test advertising in the new area first.


Lastly, be sure you have explored your options thoroughly before taking such a big leap. Do you have the funding resources to make the move? Are there other cheaper methods to grow your business, such as online retailing?  


Lessons From A Successful Expansion

One upscale French clothing boutique successfully expanded from their three shops in New York, Los Angeles and Orange County to 15 new retail locations. At first, they were hesitant about opening new shops because their New York shop was profitable, but their LA store languished and their OC store was just at a moderate sales volume. Their options were essentially to stay the course, invest in a nationwide expansion, or shut down completely.   


They looked at factors affecting their success or failure, such as: rental costs, products offered, pricing, staff, and target demographic. After considerable research, they identified that the biggest driver of boutique profitability was the ratio of sales per square foot vs. the rent per square foot. Their most profitable store had the highest rent, but was also the smallest.


Even though a larger store (like the one in LA) would provide a better shopping experience, it was not better for the company. The New York boutique had floor-to-ceiling inventory, with 90 percent of the inventory packed on the shelves and only 60 percent of the SKUs stocked at a time. Consumers knew if they saw something they liked, they’d better snap it up fast because the items wouldn’t be around for long!


The boutique profitably expanded to 15 new locations across North America by estimating the demand in each new market, estimating the total store sales based on a percentage of that market demand, determining the maximum square footage for an affordable rental rate, and designing the store with a small footprint.   


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Related Articles:
INC: The Secret To Retail Store Profitability
Entrepreneur: Expanding With A Second Location


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