Opening a brick-and-mortar location is an exciting milestone for a business owner. When you hang a sign and open your door to customers, you get to see their firsthand reactions to your products and services.
And when your retail business is thriving, it’s only natural for you to consider expanding from one physical location to two (or more). But how do you know when it’s time to grow?
After opening his first restaurant in Las Vegas in 2006, Mehdi Zarhloul, founder and owner of Crazy Pita Rotisserie & Grill, knew it was time to expand when the economy began its upswing in 2013.
“With people earning more expendable income, the key was to position ourselves in a location that was convenient, easily accessible, and that lent itself to growth as the Las Vegas economy expanded as a whole,” he says. “We had consumer demand for a more central location. Since opening, we have thrived at this location, which prompted our expansion for our third location, and subsequent franchising venture.”
While expanding to multiple locations was always part of Zarhloul’s business plan, it took him nearly seven years to open a second location. While seven years may sound sluggish at first blush, this kind of slow, strategic growth is a good idea, says Krista Fabregas, retail analyst for FitSmallBusiness.com, an information website for small-business owners.
“Multiple stores can be beneficial in expanding a brand into new markets and demographic groups, but the cost and management of expansion must be considered and weighed against other lower-cost sales expansion opportunities, such as online sales,” she says.
While Zarhloul created his growth plan for his storefront well in advance, it can be difficult for many retailers to know when they should expand their in-person sales operations. But here, we’ll tackle that tough subject, as well as highlight factors to consider when you’re creating your own growth plan.
How to Know When To Expand
Before signing on the dotted line for any expansion plans, it's important to complete some due diligence for your next storefront. Start by determining the reason for your success. Are your sales high due to a busy season? Have you seen a steady increase in foot traffic and positive feedback from customers due to a new product release?
Once you nail down the drivers behind your store’s traction, examine how you can replicate that. Can you transfer these attributes to a second location? For example, if customers love doing business directly with you instead of other team members, you might need to do some training prior to opening a second location. But if they come for your unique products or your team’s special blend of customer service, it may be time to expand to new markets where others can find you, too.
You also have to answer the question, “Why do I want to expand?” Your reason should be compelling enough to keep you motivated as you go through growing pains. If you’re running out of inventory, space, or staff, and you’re turning away customers who would otherwise be paying, then that’s a good sign that another location could benefit your brand.
Is your current location simply not large enough to take care of your customers? Are you looking to replicate your success in a new area or market? Or do you want to simply grow your business? Opening another stationary location may not be the only way to accomplish your goal. For example, you could consider opening a pop-up shop to test out new markets before investing heavily in a traditional storefront.
FURTHER READING: Want to know more about what it takes to start your own temporary retail store? Learn more about opening your own pop-up shop.
Market Research: Setting Your Store Up For Success
Success in a separate location is best approached as a wholly new venture, says Fabregas.
“Expecting to duplicate the success of one store in another location ultimately leads to frustration,” she says. “You can duplicate many elements of what makes the first location successful and a candidate for expansion, but variables such as competition and customer base will always differ from the first location.”
You can get get a sense of these factors with a little market research. It's important to do a detailed analysis of the proposed location's competition and neighborhood demographics from the ground up. Fabregas suggests answering these questions:
- What are the neighborhood demographics?
- What is the current competition?
- How do these compare to store one?
- Will store one’s product mix, merchandising, and marketing scheme fit the new location’s demographic makeup?
- Is the area economy fast growing, holding steady, or declining?
- Will co-marketing with location one work or will completely independent marketing be needed?
You also need to make sure your shop can run without you all day. “With two stores, one will have to,” says Fabregas.
Also, determine how you will maintain the same great customer experience you provide at your current location. Will some of your trained staff move to the new location or will you be hiring a new team? You need consistent systems in place that can be easily transferred and taught at your new location.
Timothy J. Ryan, president and managing broker of the Chicago-based commercial real estate firm Monarch Realty, recommends expanding under two conditions: your current space is not generating sufficient ROI and a second location comes available in a market that has a better mix of factors for success, or your current space in a market that’s saturated.
“Saturated is when each new additional customer can only be acquired at a premium so large that concerted sales efforts will adversely impact the gross margin in a material manner,” he says.
Why Having Multiple Stores Is Beneficial
Building Brand Awareness
While opening more storefronts can have a variety of benefits for different retailers, there are some common advantages most brands can cash in on.
“Multiple locations are crucial if a company wants to expand its customer base and build brand awareness,” says Ryan, adding that a second location should also “increase revenue and maybe improve margins.”
Moving into a new market opens your business to new customers. It’s like having non-stop billboards for the company, says Kristin Anthony, ecommerce manager for Anthony’s Ladies Apparel, a multichannel clothing store with 14 locations throughout the state of Florida as well as an online.
“It is additional marketing in certain geographic areas and you get a lot of walk-in traffic just from being in the area,” she says. “It’s another way to pick up new customers.”
In business for more than 120 years, Anthony’s Ladies Apparel continues expansion, opening its newest location in 2017. Multiple locations allow you to hold multiple grand openings, celebrating and attracting press each time you open another set of doors. Being a fresh face on the block provides a sense of newness that makes those who live in the area want to try your products and services.
Providing Better Customer Service
In addition to attracting new customers, having multiple locations allows you to serve your existing customers better by moving some of the traffic to your original location to an area that might be more convenient to a portion of your clientele.
If you plan your next location well, you can also ensure it’s in a neighborhood that’s central for your customers. Having a physical location that’s accessible to a large portion of customers makes it easier to lure them in-store with promotions and deals or target passersby with beacons and proximity marketing. It’s also convenient for them to take advantage of click-and-collect shipping options as well as in-store returns and exchanges.
More Inventory = More Product Variety
Multiple locations also mean ordering a larger quantity of product, which could result in lower unit pricing. This proves a significant advantage for companies operating multiple locations; With reduced operations costs, companies are able to simultaneously increase the profit margins while also passing a portion of those savings on to the guests, says Zarhloul.
Finally, opening another location is social proof that your business is thriving. It sends a message to customers that they’re dealing with a company that is well run. Original customers can become more loyal because they feel like they were a part of your success, and new customers have the peace of mind that your business is proven and you have a satisfied client base.
Moving Forward With a New Retail Location
Once you’ve gone through this process of due diligence, making the choice to open a new storefront shouldn’t feel so daunting.
Have you gone through the process of launching a new retail location? Share your experience in the comments below.