You’ve successfully launched your brick-and-mortar store, you’ve navigated the roadblocks of finding your perfect customers and nailing down your sales and marketing channels.
Pretty soon, you’ll start thinking: What comes next?
For many retailers, expanding to a second location seems like the next logical step. But that doesn’t mean it’s an easy call.
In this article, we’ll explore the pros and cons of expanding your retail business to a second location, look at how to know when the right time to expand is, and the steps you’ll need to take to begin the process.
4 reasons to open a second location
While shopping online is convenient, many consumers still prefer to discover and see products for themselves. Opening a second retail store helps you serve more customers who want to see your products in-person.
“We’ve seen such a great response to our brick-and-mortar stores," explains Ariel Kaye, Founder and CEO of Parachute. "Customers love to touch and feel products for the home—especially linens, towels, and other fabrics they’ll be using frequently."
"I believe that giving customers the option to interact with these kinds of products, without any pressure to purchase, is so valuable in the long-term.”
Opening a second store location can be a boon for any retailer. A few reasons you might consider expanding include:
1. Higher profits and reduced costs
A second location can help increase your operational capacity, with larger product orders resulting in lower per-unit pricing. This helps increase profit margins, providing a potential financial boost to your business.
2. Increased customer base
When you enter a new market in a buzzing location with less competition but high demand, you’re likely to attract footfall and enhance brand awareness, leading to more visibility and an increase in customers.
One of the reasons we opened a second store is because we built a strong brand and have loyal customers who travel a fair distance to see us. A second location helps us serve them better and reach customers who haven’t experienced our stores yet.
3. More efficient management
Opening a second location doesn’t have to mean reinventing the wheel. You already know what works (and what doesn’t) and how to manage your store to see success. You can build on your previous experiences, double down on what worked, and duplicate successful strategies.
4. Operational and competitive advantages
Choose your second location strategically and you can unlock access to wider pools of talent, vendors, and production equipment, giving you an operational and financial advantage. You can double (or more) your production capacity with two locations.
Potential pitfalls of retail store expansion
Opening a second location might seem like a no-brainer next step, but expanding before your business is completely ready can be a risky undertaking. Be sure to consider these potential pitfalls that come with adding another retail store location.
Doubling your footprint usually means doubling your rent, and if you’re planning to open your store in a high-footfall location like the retail heart of New York, it’s going to be expensive: the average retail rent there is almost $57,333 per month. Add to that the additional employees, equipment, software, raw materials, and storage space, and you’re spending much more money every month (keep in mind that some equipment might be tax deductible through section 179).
Before opening a second location, retailers should negotiate their lease terms and do the math on cash turnover. Stores can take up a lot more cash upfront than many smaller retailers realize.
Potential supply chain management issues
Operating two locations means ensuring their individual supply chain management systems are streamlined. With a larger business, you’ll need rock-solid systems that don’t create bottlenecks leading to delays or losses.
Reduction of in-store shopping
Since the pandemic, in-store shopping has seen a sharp decline. With everyone locked down at home, consumers have resorted to online shopping and still prefer it over in-store, even when restrictions have eased. Research shows 66% of consumers now prefer online shopping, and although ecommerce sales rose by 35% year over year, in-store shopping has only seen a 10% YoY growth.
When’s the right time to open a second location?
While there’s no black or white answer to exactly when a business should open a second location, there are some indicators that can suggest you’re ready.
Pursue opening a second location when your business is primed for growth and can support expansion. This includes your processes, workforce, and supply chain.
Before you sign on the dotted line and open your second retail store, there are some important questions to consider:
1. What is your goal with a second store?
Understand what you’re looking to achieve with a second location. Are you aiming for more revenue? A greater presence and a more diverse customer base? To expand production capacity? To test a new market?
This goal will help you structure the launch plan for your store, align your team with the vision, and help you implement steps that lead you to this end goal.
When Ariel Kaye founded Parachute, she knew textiles and bedding were a category that historically were largely purchased in-store versus online. And while she knew some customers would easily transition to a digital shopping experience, she was certain others would benefit from shopping in-store and seeing the quality first-hand.
"Our strategy for retail was to provide a new type of shopping experience compared to what the customer expected," explains Ariel. "Our stores are set up to look more like homes rather than storefronts, offering design inspiration and allowing customers to touch, feel, and engage with products in an authentic setting."
Parachute has seen a conversion rate that is up to 50% higher in cities with stores and our goal is to have a total of 30 retail stores across the country by the end of 2022.
2. Do you have access to capital?
While you can gather capital from external sources, it’s essential you have savings or a percentage of profits you can use to fund your expansion. Aside from this, you can easily expect a slow ramp up with a second store, so your finances should be healthy enough to support the second store until it can pay for itself with the revenue it generates.
"Be careful with investors," explains Kristoffer Reiter, Principal at CohesiveWhole. "Their perspective of success should be the same as yours or you'll be in trouble. Brick-and-mortar retail is a long game, not an overnight success."
💡 PRO TIP: Try Shopify Capital to get the funds you need to open a retail store, invest in staff, inventory, and marketing, and pay it off as a flexible percentage of your sales.
3. What legal structure will you choose?
You may have opened your first store as a sole proprietor, but it might be wise to have a different structure for your second location, as it will define your path and business plan forward. You can choose to open this second location in partnership with someone who has a similar vision as you, franchise it, or turn it into something more prominent, like a corporation or an LLC.
4. How will it impact your current store?
Opening a new location will inevitably steal your focus from the first one. It’s important to draw a line and define how involved you’ll be in the building, launching, and managing the second store and how that will impact your role in the first one.
You could choose to be fully involved and appoint another manager for the first store, be partially involved and define your role there, or completely hand it off to another leader (appropriate if you’re entering into a partnership).
"Brick-and-mortar retailers—especially single-site ones—have a competitive advantage that's hard to contend with: their customer relationships," explains Chris Vanderkolk, Demand Generation at Marsello.
"Retailers built lasting relationships with their customers by being present in the community, understanding their preferences, having deep product knowledge, and establishing trust with through face-to-face communication."
The hardest part of opening a second site is replicating and maintaining customer relationships when owner-operators aren’t behind the till. Look for ways to create consistency across all stores.
5. How will you hire and train employees?
The second location will require a new set of employees who have no idea of how you operate, your vision, what you want to achieve, and your overall company culture. Document how you want to hire and train them so your processes and operation procedures become second nature.
Consider these questions:
- Will the first store’s management team train them?
- Will you hire someone externally to train the new team?
- How will you document your procedures to offer as resources and enable them constantly?
A solid and trusted management team can act as a support pillar for both your locations, overseeing operations and making decisions when needed.
How to open a second location
Opening a second location needs a planned strategy to rule out the guesswork and proceed with a head-on approach.
Here’s a step-by-step strategy on how your business can open a second location:
1. Perform market research
Many of the same strategies that worked for you with your first location will carry over to your second, but certain variables like customer demand and the market will be different. It’s important to assess the state of the market before you step into a new location to maximize your chances of success.
- Perform a location and competitor analysis to assess the market demographics, current competitors, how you fare against a competitor, and where you’ll stand in the market.
- Evaluate the demand for your product in the new location, customer demographics, buying patterns and power, and what makes them tick.
- Find out the availability and pricing of resources you need to run your business, like raw materials, transport, labor, and warehouse facilities.
2. Write a business plan
If you had a business plan for your first store, build on that to create one for your second location. Factor in everything that worked and didn’t work for your business to help ensure brand consistency and translate your previous store’s success to this one.
Here’s what your expansion plan should include:
- Clearly defined goals and objectives. Get your first location’s team together and discuss what goals you want to achieve and which objectives will lead you there. Everything you implement, from how you launch your second store to how you interact with customers, will depend on this crucial first step, so get everyone on board early with the vision and goals.
- Potential challenges and a mitigation plan.Identify the things that failed in your first location and create a plan to address the challenges you might face as you open your new store.
- Systems and processes for management.Decide who will be responsible for what aspects of the business, which team members will migrate or manage a part of the other store, and which software you’ll use to streamline work.
- Funding and financial needs. Forecast your expenses, profits, and expected revenue for the first six to 12 months to decide how you’ll fund your business and make money.
- Marketing. Decide how you’ll launch your store, spread the word, invest in paid and organic media, participate in PR activities, and drive customers to your store.
3. Find the right location
For a brick-and-mortar store, location plays a prime factor in defining success. You already know which elements are most important for running your business from your first location. For example, if you’re a cosmetics brand, you want to be in a location where electricity and air conditioning are not an issue.
When opening a second location, brands should consider proximity to the first location, optimize inventory allocation, and create consistency between store experiences. That becomes more difficult as you open stores.
Here are some best practices to find a great second location for your store:
- Scan all recent corporate real estate newspapers, online property listing directories, and magazines to shortlist locations.
- Consider posting an ad or query on an online real estate group or community.
- Spread the word in your network, ask your employees to seek contacts, and let your vendors know you’re looking for a new location.
- Post on social media and get influential people to share it—even if it’s for a minimal cost.
Once you find some potential store locations, vet them against your non-negotiables and pick the one that best aligns with your needs, gives you an advantage over your first location, and would be an excellent fit for your product and target market.
4. Anticipate your expenses and secure capital
Opening a retail store is quite expensive—the rent and infrastructure alone can add up. For most, it isn’t feasible to run a second store on a small amount of savings from a previous store. You need considerable cash flow to launch your second location and set things in motion.
Make sure you anticipate your expenses, including hidden costs, taxes, and inflation. For a retail store, this means store rent, infrastructure, warehouse rent, transportation, production, raw material, equipment, technology, and staff expenses.
You also need an accounting system, preferably with an accountant or finance officer, to process payments, manage accounts and see how you’re faring with capital, profit, and loss.
Once you’ve ironed out your expenses and set up accounting, it’s time to seek funding: liquid cash, angel or VC investments, loans, lending options, crowdfunding, friends, or family. Choose the path that will provide you with the capital you need to launch your business successfully.
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5. Hire employees
Hiring the right set of people is crucial when expanding, as you won’t be actively involved in every aspect of both your stores.
Here's how you should proceed with hiring:
- Think about your existing workforce. Can you promote and migrate someone internally to the second location as the manager or move some part of your staff there? Since these employees have experience running the first location, their support will help get the second store on its feet.
- Decide which positions you need to fill—operations, inventory management, customer success, and sales. Create hiring criteria for each role to ensure you vet all candidates properly and can build a strong team that will be an asset to your business, especially in your absence.
- Decide how you'll train the new staff. Since you’ve done this before, you likely have a set of standard procedures to follow. You can bring the heads of departments from the previous store as trainers to get the new team up to speed with how you operate, the software you use, the company culture, and the values and vision you follow.
6. Buy inventory
Make a list of the equipment, supplies, and raw materials you need for production or inventory for selling (if your manufacturing happens somewhere else).
If you can, find local vendors who can provide quality materials (preferably at a lower price point). You can ask around for local vendors, do your own research or ask the vendors from your previous location for references.
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Launch your second location
Once all this is done, it’s time to plan your launch. Prepare a realistic timeline for the launch to ensure all items reach the new store location well before the operations begin. Decide if you want to go big and invite media to cover the event or keep it small with a soft launch
Start creating buzz around your opening by spreading the word in your network, letting your existing customers know, posting on social media, running ads, and even advertising in your first location.
"Brands should tread the second store just as special as the first," explains Rebekah. "Opening a store is not a set-it-and-forget-it exercise."
Customer behavior evolves, as do traffic patterns and market conditions. The more a brand can pay attention and listen to the feedback of the frontline teams, the more likely it’ll be to make the adjustments needed to succeed.
Scaling with a second business location: worth the effort
Business expansion comes with its fair share of challenges, but if your risk pays off, a second store can take your business to a whole other level.
If you’re planning to scale your business with a second location, consider all the factors listed above, assess the pros and cons, and use our roadmap to embark on this new and exciting journey.
Second retail location FAQ
How do I start a second retail location?
- Conduct Market Research: Before you open a second retail location, it’s important to conduct market research to determine if the area is a good fit for your business. Look at demographic information, median income, competition and potential customers in the area.
- Secure Funding: You will need to secure funding for your second retail location. This could include a loan or other forms of financing.
- Choose a Location: Once you’ve identified a potential area for your second retail location, you will need to secure a physical location. Consider factors such as rent, square footage, parking, signage, and visibility.
- Set Up Your Store: Once you’ve secured a location, you will need to set up your store. This could include stocking merchandise, setting up displays, and setting up systems for payment and inventory tracking.
- Promote Your Store: You will need to promote your store to attract customers and drive sales. This could include advertising, digital marketing, and in-store promotions.
What are the three types of retail locations?
- Brick-and-Mortar: Physical stores located in a shopping center, mall, or street.
- Online Retail: Selling products through an online website or platform.
- Mobile Retail: Selling products through a mobile app or mobile website.