5 Questions You Must Answer Before Opening A Second Retail Location

Posted on September 26, 2018 by Michael Benarroch

5 Questions You Must Answer Before Opening A Second Retail Location

Posted on September 26, 2018 by Michael Benarroch

While a lot of big retailers are closing their brick-and-mortar stores, small business is booming. Here’s what you should know if you’re considering retail expansion.

When your business is thriving, it’s only natural for you to question whether it’s time to open another store (or two). But you might wonder if you’re creating new opportunities, or spreading yourself too thin. Success isn’t guaranteed from one location to the next, and your reasons should be motivating enough to keep you going as you experience growing pains.

So how do you know when it’s time to grow to your next location? Here are 5 questions you should be able to answer if you’re considering expansion.

1. How strong is your business now?

What factors are contributing to your current success? Are your sales high temporarily due to a busy season? Or have you observed a steady increase in foot traffic and positive feedback from customers?

Before you even think about expanding to another location, your sales should be growing consistently for an extended period. If they are, fantastic – you’re ready to strengthen your operations and move forward.

Be realistic about your budget. Is your current location cash flow positive? Can you secure the funds needed to expand?
The smartest move is not to count on your current location to fund the operations of the next. You should think of opening your new storefront as starting a new business venture: while you should try to replicate all the elements of what made your first location successful, some aspects – like your customer base and competition – won’t be exactly the same.

Know where your customers are coming from. Do you have customers going out of their way to buy from you? Could your second location serve them better?

Find out where your customers live – their answers may surprise you. You might find an opportunity to build on your existing loyal following while also reaching new markets. Perhaps you learn that you have a lot of customers making a long trek to visit your store, and they are clustered in another area. That would signal that you could feasibly expand to another location, and also point you towards the area where you should settle.

2. Can your business run without you?

Do you have time for a second location? Think back to when you opened your first retail store and how busy you were. Will you be able to stretch yourself between two stores, or do you have a capable second-in-command who can handle the original store while you focus on the new one?

Keep in mind that once your second store is up and running, travelling between two locations may not be practical, so you will need to be comfortable delegating to a store manager for at least one location.

Consider this an opportunity to boost your management skills. If you don’t feel comfortable hiring someone to run your business as you would, then you can’t expect things to go as smoothly without you. However, if your customers don’t need to do business with you directly, chances are you can train another person to fill your shoes in your new location.

Is your current location running smoothly – employees, inventory, payroll? How you will offer a consistent customer experience? Consider moving some of your strained staff to the next store so you don’t have to start over from scratch. You will need established processes all ironed out so you can double them at your new location.

3. Do you need more space?

Are you running out of inventory, space, or staff? Turning away customers who would otherwise be paying? These are good signs that another location will launch successfully.

Don’t risk cannibalizing your original store. Consider if it’s in a market area large enough to support another location nearby. Benefits of running a new location nearby includes the ability to transfer some of your experienced staff to the new location, and established brand recognition in your current area.

If you don’t feel there are any more potential customers in your area who aren’t already shopping with you, that could be a sign that it’s time to grow elsewhere.

4. Can you try out a temporary location?

Could you test out your business in another neighbourhood? Is your potential neighbourhood the right fit, one you could see yourself spending time in? Is there an unfulfilled demand for your products or services? Will the same sort of customer base you currently rely on for business be present elsewhere (and do they patronize your future neighbours? Is your competition well-established there?)

Create a pop-up version of your store. Before investing heavily in a traditional storefront, you can test potential future markets by establishing a temporary location. This is a great way to pilot test sales of your products and services in or near your proposed new location. Pop-up shops typically run about six weeks, and can be established in a mall kiosk, vacant storefront or a complementary retailer’s store.

5. How can you build on the success of your first location?

What changes could you make to improve the experience? Can you make your next location run even better than the first? Creating a detailed business plan for your second location is a great opportunity to improve upon your original plans.

Even though you’ve done this before, don’t assume everything will go exactly the same (or cost the same) as when you opened your first store. Can you anticipate different overhead costs? Different rent, business hours, utility bills? Budget 2-3 times your initial projection costs to cover any unpleasant surprises (such as high heating costs.)
If these questions sound daunting, consider the upsides.

Going through your due diligence will make the decision easier. You may even uncover efficiencies that you hadn’t seen or considered before! Running multiple locations could give you the opportunity to order larger quantities or offer a more diverse range of products, which could potentially reduce operations costs. This provides the benefit of increasing profit margins while also passing some savings on to your customers.

Opening another location demonstrates that your business is thriving. An expansion is a sign that your company is well run, which will make a positive impression on your customers. Keep them in the loop as soon as you’ve decided to go ahead with opening another location. By communicating often with your current and potential customer base, you’re setting up future sales down the road, especially if you tie in exclusive promotions to your store opening. Making your original customers feel like they contributed to your success will strengthen their loyalty and boost your brand as a proven business success.

Ready to go ahead with your next store design or space planning?

We’ve helped many retailers grow successfully from one location to the next. Our in-house design and engineering team is here to help. Give us a call at 905-264-0917 or contact us.

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