Establishing and managing a profitable multi-store retail operation is extremely challenging and risky - especially in today’s turbulent business environment.
Expanding your network exposes you to major cash flow risks with revenue being unpredictable due to different stores being at different life-cycle stages while new fit-outs, ramp costs and overheads continue to rise. For every new store added, management complexity multiplies by a disproportionately greater rate.
If you have more than one store and less than ten, this is a particularly risky stage to be in - retailers in this space commonly refer to it as “the danger zone”.
So, it’s essential to be aware of and navigate the common pitfalls that arise whenever you expand and scale up your retail business. In this article we cover the top 5 drivers of profitability for growing retailers.
This is based on our experience helping to scale some of Australia’s and New Zealand’s leading multi-store retail success stories.
These are the factors that we have learnt help to either make or break a retailer as they expand their operations.
Remember - almost anyone can create a multi-store retail operation, but it takes the right strategies and systems to build a profitable one.
Integration Between Online and Physical Stores
Most bricks and mortar retailers have already added an eCommerce channel to their business. However, most still run their webstores almost like a separate business operation. Products, inventory, customers and sales data do not get continuously synchronised between their physical stores and eCommerce site creating a range of omni-channel challenges that hurt their business and cause customers to abandon the sale.
By having an integrated setup, retailers can leverage all of their inventory across all of their stores to maximise sales potential and stock availability for customers. They can provide highly popular services such as Click & Collect and In-Store Stock Check. They can give the omnichannel shopping experience that today’s shoppers now demand - and keep up with intensifying competition.
By integrating their eCommerce and physical stores, retailers typically stand to increase sales revenue by 6% - which equates to $50,000 increased annual profit per store.
Many retailers spend a vast amount of their energy on new customer acquisition. Little focus is then put into driving repeat sales and maximising the lifetime value of these new customers.
Instead, by capturing key profile data about customers during their first store visit (often using incentives of rewards of signing up to a loyalty rewards system), you have paved the way to communicate with them using personalised marketing and targeted promotions to cross-sell complementary items, reorders and drive repeat store visits.
Even a small improvement in the percentage of your customer base that makes repeat purchases can have a major impact. Typically, we identify a 4% increase in repeat sales when retailers introduce some of our recommended practices in this area - which equates to $34,000 additional annual profit per store.
Planning inventory should be in response to market demand and being able to find the sweet spot shouldn’t be a guessing game. The key to success is getting the right amount of stock, in the right places, at the right times in order to meet your customers demands and increase profit.
Two of the most common retail inventory mistakes made when expanding to multi-store formats are:
- Over-ordering, leading to selling items at lower margins
- Under-ordering, leaving customers with empty hands
This means retailers are either frequently marking down inventory (and lowering margins), because they have over-ordered, or customers are walking out of stores empty-handed because the retailer under stocked and didn’t have what they were looking for.
This can happen if your store managers are placing purchase orders themselves, if suppliers are ordering on your behalf, or if you’re setting minimum stock levels based on 'gut instinct' without continuously reviewing recent (real-time) sales performance data.
By using data-driven decision making processes, most retailers see a 3% increase in return on inventory - which equates to $15,000 increased annual profit per store.
Reducing Purchasing Administration
According to the Harvard Business Review, companies lose over 20% of their productive capacity to organizational drag — “the structures and processes that consume valuable time and prevent people from getting things done.”
In retail, purchasing is one of the biggest culprits.
Manually identifying which products and quantities to purchase from each supplier and then raising all of the purchase orders steals time that could be spent on higher value-adding areas (and usually results in understocking or overstocking errors as mentioned above).By automating purchasing processes, most retailers we work with see a 50% reduction in the amount of hours spent on admin - which equates to a $7,500 increase in annual profit per store.
Retail Analytics To Optimise Marketing Investment
Just because one type of marketing worked for one store, doesn’t mean it’ll work for them all. What’s important to discover is which type of marketing channels are actually leading to more dollars in the register. By introducing a “how did you hear about us” as part of an in-store survey process (and aligning a loyalty rewards system with this) across your network, you can start to collect vital data that you can analyse over time.
By combining this centralised sales and customer data, you can identify which channels drive the most profitable, loyal customers that you want to attract more of. You can look at your overall business as well as individual stores to account for geographic variation.
By retailers having access to this data, they see 12% improvement in return on advertising spend which equates to $15,000 increased annual profit per store.
Want to Increase Your Annual Profit by $120k Per Store?
When retailers focus their efforts on all five of these key areas of growth, the potential annual profit improvements total to $120,000 per store.
This provides a level of capital that allows you to safely sustain your business expansion and see a worthwhile return on your investment.