MARKET WATCH
by: DARRELL WISBEY
www.darrellwisbey-retailadviser.com
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
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.
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:
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.
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):
6
“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
Methods applied
to build the growth
would include such
action initiatives as
shown in the following
diagram:
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.
CONFIRM DEMOGRAPHIC
SUITABILITY:
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.
LOCATE A “QUALITY” STORE LOCATION:
considerations should include population within
the catchment area, age groupings, income
averages, shopping behaviours and lifestyle
attitudes.
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?
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?
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”.
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?
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.