Feel ready to open a second shop? Feelings are not a bad place to start, but before you go much further you will need to do a lot of research and planning.
Mel McGoldrick takes us through the process.
Your business is going extremely well and your gut feeling is that another store would prosper in another area. Should you take the plunge? Will it succeed? How can you be sure the second store will grow your business and not drain the life from your existing business?
Rather than making a decision based on external influences, starting the expansion process should stem from ‘gut instinct’. But the timing of an expansion depends on your business capabilities. If your retail offer is well received and your systems, logistics and suppliers are established, the time between your first and second store opening could be very brief. Without these back office systems in place, retailers run the risk of creating chaos in both stores. And just as you researched and planned to know you were ready for the first store opening, the research and planning process for store two is similar.
Often we find we have grown in our small business and what we started out as—and what we were originally good at—is far removed from what we end up doing. As owner-operator, you will need to consider the ramifications of expansion on your lifestyle, family life, leisure and stress.
While the decision to expand is initially made by instinct, in today’s environment there is only one path to a rational decision: research. Making sure you know all the facts and ensuring all your information sources are impeccable will help you to move forward with confidence. Planning is key to truly establishing and confirming what you thought was an opportunity or a future prospect; planning thoroughly prior to commencing anything is vital to protect your current business and your reputation.
The Plan
The first purpose of your business expansion plan is to establish whether your decision to expand is workable. At this stage you may discover expansion is not workable and, while this will be disappointing, pulling out of a doomed expansion at this stage is better than suffering the consequences of an ill-fated move further down the track.
Planning needs to include your vision; an analysis of the external factors such as the trading area, potential customers, location, lease considerations; analysis of how the internal systems and structures would work, with budgets and forecasts; what you need to achieve in terms of sales over a period of time; the business’s strengths, weaknesses, opportunities and threats; and an action plan of all activities required to carry out the store opening.
Careful and studied implementation, monitoring and review of the plan is also key, ensuring flexibility to adapt to change—build a reminder into the plan to constantly review, assess and react as you move forward.
The structure for your new enterprise may vary from the original format. Customer demands in different areas may be quite different, and you may find you need a different offer for a different demographic. If you can’t cater to different demographics, this will limit the areas of expansion to those similar to your first store. Otherwise, be prepared to adopt new products, services or structures to cater to your new demographic.
You may look at including an employee as a partner, such as a financial partner. Frequently there is a very keen employee who would love the opportunity to have some form of ownership of a new venture. If this person is not in a position financially to venture into business, there are other options to choose from—such as offering company share bonuses or financing that person in while reducing salary. Make sure you seek expert legal advice if you pursue this kind of set up.
It is wise to understand your skills as retailer and seek advice in areas outside your expertise. Just because your first store has been successful doesn’t mean your second attempt will automatically follow such success. The temptation to react instinctively without consultation or planning is not the way to move forward lucratively. A good place to start is the Ministry of Small Business in your state.
Team Tactics
As a small business owner, you are the business. Many small businesses are successful because the person who owns the business works there daily, building relationships with customers, being the role model for their team, ensuring that sales are maximised and customers leave satisfied. When the opportunity comes for expansion you need to plan with this in mind.
As owner of more than one store, you won’t be as hands-on as you were, so you will need to empower your team to be able to take over your previous role. A good test to find out how prepared you are to hand over responsibility is to examine how you delegate responsibilities in your first store. Do you easily hand over responsibilities to staff? If your store can run successfully in your absence over a period of time, you should be able to handle dual locations. Working on delegation and empowerment of your team is something you need to develop and excel at.
Geographical spread and sheer volume of work—added to the fact that nobody can be in two places at one time—means you need to rely more on your people. Recruiting and retaining the right people suited to the business is crucial to the new venture’s success. What has worked for your first store will probably work in your second store. You will have to hand over many of your current tasks, such as recruitment, induction and training, rostering, marketing, merchandising, and ordering stock. The benefit of greater delegation is the opportunity for personal and professional growth for the owner from the renewed sense of challenge that comes from expansion and multi-site businesses.
Once planning is in place, the next step is to find the location for your second store. This can require long-term research and it is not uncommon for people to wait years for the right site.
Through the planning process you will now know exactly what it is you want in terms of location. A quick solution is engaging commercial agents, brokers and consultancies—use these people’s specialist knowledge. Putting the word out that you are looking will help attract offers, too.
Streamlining much of the administrative workload can greatly assist in identifying if the second store is profitable or not. By having good systems in place—including good point of sale, efficient stock control, budgets, analysis of sales data and customer details all linked to the back office—and setting and monitoring benchmarks and targets, will minimise risk and provide the information you need to strive towards profitability.
When you are prepared, knowledgeable and have the research to support your gut instinct, it will be a winner.
Mel McGoldrick is program director at the Australian Centre for Retail Studies, with more than 20 years’ experience in small business. Further information about Mel and the ACRS can be found at the ACRS website: www.buseco.monash.edu.au/centres/acrs
