Growing pains: Does your business need a bigger space or more locations?

January 23, 2019

Does it feel like the holiday rush has just…not stopped? The holiday season may be over, but if your business feels busier than ever, this demand may be your new normal. Retail business owners that face explosive growth often find themselves with a physical space issue on their hands—a good problem, to be sure, but a problem nonetheless. Is it time to expand, and if so, do you need a second location?

If this sounds like you, there are some quantifiable ways to determine whether you need a bigger space or a second location. Get the data points you need to grow and thrive. Here are some ways to make this big—and very exciting—decision.

Be sure you’re at max capacity.

Before diving into a real estate search or knocking down any walls, make sure you’re maximizing the space you already have. To do this, figure out your sales per square foot. Use this formula to calculate:

Sales Volume ÷ Sales per Square Foot = Selling Space

Knowing your ideal selling space can give you a benchmark by which to make your decision. The higher your dollar per square foot, the better.

Then, use your sales per square foot to benchmark against others in your industry. To find data to compare with your figure, check out similar businesses using Clover Insights, ask retail trade associations or trade analysts, or do some research at the public library. If your sales number seems low for the amount of space you already have, consider reconfiguring your store layout, upselling, or item bundling.

Is your increased demand specific to your location?

Once you’ve ascertained that you’ve gotten the most bang for your buck in your current space, the question remains: what’s the best way to branch out? Should you find more space, or open a second location?

Use your sales per square foot equation to work backwards and figure out how much more space you need to reach a certain profit mark. You don’t want too much space, as your store might look empty and less inviting. However, too little space can feel cramped and crowded—also not appealing. Need just a few extra feet? See if you can expand the footprint of your current location or stay in the same area. Experts say location trumps size every time. Staying in the same area reduces your advertising costs—you won’t need to start from scratch to get customers to find you.

Dig into what makes your first location successful. Are you near a transit hub, or a convenient intersection? Has word spread in the neighborhood that you are the best at what you do? Is there limited competition? If these answers are all yes, it may be better to expand your space but keep it where it is. Clover Insights can surface your business’s specific characteristics and provide you deep understanding of where the best location might be relative to your existing customers.

Are you ready to make the leap toward a second location?

If you need a lot more space, and your success isn’t specific to your location, then open another shop! Once you decide you need a second location, there’s a whole new set of questions to consider.

Use the estimate of the size of the square footage you need to do some cost-benefit analysis. See how much more in sales (revenue) you will need to cover things like rent or mortgage on the second location, a second manager or team of staff, and increased inventory costs. Opening a second location comes with a lot of overhead costs: can your increased demand cover those costs and still leave you with a profit? Don’t forget to include in your rent estimate things like the cost of utilities, maintenance, property insurance or fees and possible rent increases.

Many retailers are financially ready to invest in an expansion, but may not be business-ready. Make a hiring plan, think about how you will keep your company culture consistent, and build your brand outreach before opening in a new place. Better yet? Try a pop-up.

Try before you buy.

Many retailers find it helpful to double-check their own business assumptions with a temporary pop-up shop. This can be a good way to explore a new neighborhood and see if increased demand is sustainable.

A pop-up shop is also a way to see how steep competition is in your new location. Analyze your competition with this handy guide to see if the demand you’ve come to expect will be as consistent and reliable as in your first location. If it doesn’t seem like your business is easily replicable in a new neighborhood, scale back and keep doing what’s already working!

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