If your business is booming, you may be thinking about the next logical step—expansion. Why else would you be reading an article about opening additional store locations? First, congratulations! Building a successful, stable, and (hopefully) profitable business is no easy feat. This is an exciting time for you and your business.
Now, you’re likely thinking, “what’s next?” If you’re looking to build off your previous achievement and replicate your formula for success in new stores, you’ve come to the right place. Below, we’ll walk you through the process of opening additional retail business locations — the right way.
Why open additional retail business locations?
Before you make grand plans to set up shop in a new location, it’s important to consider the pros and cons of this decision:
Pros of additional locations:
- Grow revenue: A second location allows you to reach and serve more customers, increasing your ability to make more money.
- Scale business: Economies of scale make things cheaper when you build a second location. Yes, an extra location will increase your fixed costs, but the more products you produce, the cheaper they become.
- Reach new markets: A new physical storefront may enable you to reach new geographical markets. It also could give you room to sell new products.
- Satisfy demand: If your store cannot accommodate customers (too long of lines or too far away), a second location could satisfy demand.
- Keep momentum: Adding another location can help you build off the momentum of your first.
However, it’s not all sunshine and rainbows. There are a few downsides to adding additional locations.
Cons of additional locations:
- Time required: Especially in the early days, you’ll need to be heavily involved in getting the new location up and running. Eventually, you can hire and train managers to run things smoothly without you, but it’ll require a bit of micromanagement from the get-go.
- Financial commitment: While economies of scale will lead to decreased production costs down the road, it’s going to require an initial investment to get things going. You’ll need real estate, equipment, inventory, employees, and more—and it all costs money.
- Logistical complexities: Managing additional locations can multiply the complexities. There are now more schedules, employees, customers, orders, and demands to juggle.
3 Common reasons to open extra retail locations
Building off the advantages we listed above, here are some of the common reasons (and examples) businesses add additional retail locations. Although some of the examples include non-retail stores, you’ll see how they relate to any form of business expansion.
1. Reach new markets
If you’re looking to introduce your brand to new customers, additional locations can give you the freedom to launch fresh products and compete in new geographical areas.
For example, Downeast began as a humble clothing store to resell brand-name apparel. After opening additional locations, they developed their own private label and expanded to include furniture, too. The company now owns more than 40 retail locations across three states—some of which sell furniture and clothing, while others are clothing exclusive.
If you want to explore new products—or just want to get in front of a broader audience—additional store locations can make it happen.
2. Scale the business
As long as there’s demand, scaling a business allows you to drive up the earnings by incrementally reducing your costs. Your profit margins don’t need to be enormous if you’ve got the scale to turn a profit.
Crumbl, a cookie shop launched in 2017 in Logan, Utah, has already opened 100 locations in 17 states. Why expand so quickly, you ask?
“Initially, we didn’t set out to build the nation’s largest cookie business, but after seeing the joy we could bring to customers, slow-paced growth just wasn’t an option,” said Sawyer Hemsley, Crumbl Co-founder & COO.
Crumbl is capitalizing on the nation’s brand-new trendy cookie craze, and there’s enough demand to keep them opening more and more locations.
3. Grow maximum revenue
Eventually, a physical storefront can only sell so many products. There is limited real estate and employees available to serve customers, which puts a cap on the maximum revenue you can make. Sure, you can drive up prices, but that only works for so long in the retail world.
J. Dawgs, a hotdog restaurant (though many would claim it’s much more than just a hotdog place), suffered from a good problem—it always had large lines extending out the door. To alleviate this “issue,” J. Dawgs opened a second location just 4 miles down the road. This spread out the crowds to two locations and allowed J. Dawgs to serve more customers every night. Now, J. Dawgs has 5 locations across Utah.
How to open additional retail business locations
Wanting to open a new location and actually doing it are two very different things. You’re going to need to invest the same thought and energy you used on your original store to ensure your additional locations succeed.
Here’s a simple 7-step process to adding a new location:
1. Find a location that matches your purpose
Finding the perfect spot for your next site is often the most challenging part. You want to make sure it fulfills your needs, but it also needs to be properly situated. For example, if you’re looking to expand to a new city, it’s not enough to find any ol’ vacant storefront in town—you need one in a heavily trafficked, safe location.
Also, you’ll want to keep in mind the condition of the local economy. If you’re trying to sell discount clothes to a high-end market, you may run into issues. Do your historical research into potential real estate, as well. If multiple companies have cycled in and out in recent years, this might indicate a weak location or struggling economy.
2. Create your game plan
Opening a second location needs to make sound management and financial sense. You need a plan for how you’re going to open and operate your additional locations and make them successful. This requires crunching the numbers.
You’ll need to use your existing cash flow forecasts to create estimates for your new location. Then, you’ll need to tweak those estimates based on other factors like:
- Brand awareness
Do your research to estimate your costs, too. You’ll possibly need renovations, equipment, inventory, supplies, employees, and more. Calculate how much that’s going to cost you.
Keep in mind that it’s not going to be an apples-to-apples comparison to your existing retail business location. For example, if you’re opening a new storefront in a metropolitan area, you’re going to need to budget for more expensive real estate and higher wages.
3. Secure necessary financing
Once you have a plan for what you need, you need financing to make it happen. Unless you have a massive stack of cash sitting in the bank, you’ll need to secure a loan or find investors. Loans get paid off, but equity costs you a portion of your business forever—so choose wisely how you finance your business expansion.
If you choose to go the small business loan route, here are a few of your options:
- Commercial Mortgage: Get the funding you need to buy, renovate, build, or expand.
- Business Line of Credit: Extend your working capital and get access to more cash whenever you need it with a business line of credit.
- Short Term Loan: Finance everything from equipment to inventory with a loan that’s all about speed.
- Merchant Cash Advance: Trade your future earnings for cash today with a merchant cash advance.
- Equipment Financing: Invest in any equipment your new retail location needs.
4. Hire your team
With your location locked in and money in your pocket, you’re ready to start assembling your dream team. In the beginning, you may want to consider personally managing the new location to make sure it’s running smoothly. Eventually, you can hire and train a manager to take over.
If it’s possible, consider sending a trusted employee from a current location to help get the new site settled. This employee will likely have a good feel for your business’s culture and processes, helping smooth out some of the learning curve for your new team.
5. Stock up on inventory and supplies
Sufficiently stock your shelves and backroom before opening day. You don’t want to run out of products if you have a successful opening day or week. If your business runs on tight margins, consider getting inventory financing or a business line of credit to invest in your stock. This will free up your cash flow from sitting in the warehouse.
6. Use the right software
Equip your business with technology that lets you manage multiple stores. One of the key pieces of software to invest in is a point of sale and inventory management system that has multi-outlet capabilities.
Ideally, your software should make it easy to see how your business is doing as a whole, while giving you the ability to drill down on the performance of specific locations. This will help you make smarter high-level and store-specific decisions.
Zoe Neuner, who runs three fashion and accessories retail stores, says that having multi-store retail reporting has been invaluable to her business. Zoe uses Vend to manage her stores, and this enables her to run all her locations with ease.
“I have three outlets, and I like Vend’s reporting features because I can look at my stores all together or I can unclick the buttons and I can look at them separately,” she says.
Multi-store stock management is another important one. Get yourself a retail platform that makes it simple to view products in each store and enables you to transfer inventory from one location to another.
This will ensure that your stores are stocked with the right products at the right time. Spoilt, a gift and homeware retailer with 4 stores in Australia makes use of Vend’s multi-out inventory management to track products across several locations.
“Being able to easily transfer stock and having it sit in transit in Vend until it arrives in the shop really helps us to keep track of what’s physically in the shops,” says Laura Semple, Marketing & Business Development Coordinator at Spoilt.
“Another feature we really like is the stock on hand. Being able to see that really quickly when you’re serving a customer is great.”
7. Open for business
After you’ve done the legwork to spread the word and generate foot traffic, cut the red ribbon and let your doors open for business. If you’ve done your part researching, planning, and investing in your additional location, there’s no reason it shouldn’t be as successful as your existing stores. However, don’t expect everything to go flawlessly. Like when you opened your original location, surprises and hiccups will happen along the way—don’t let them discourage you!
Once you’ve launched your second location, keep the momentum going. With two booming stores under your belt, why not go for three, four, or more locations? Start simple and one new location at a time. With a plan and a process, you can make each addition smoother than the last.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.