The high stakes of retail expansion

Establishing a new store is a complex and costly venture.

The high stakes of retail expansion

Retailers often grapple with the challenge of identifying the perfect location for their expansion plans. The process is riddled with pitfalls, and there are countless examples of retail establishments that have failed. 

When retailers open numerous stores, the probability of some underperforming is high, leading to significant financial losses. 

The costs associated with building and establishing a new store can be monumental, often running into millions. Furthermore, retailers invest a considerable amount of time and effort to set up the store, only to potentially end up trapped in a lease contract that drains money month after month for years, with the typical contact length spanning 5+5 years.

Despite these risks, decisions about new retail locations have historically been based on gut feel and intuition. 

Understanding the costs involved

When leasing a new location, retailers typically bear the costs of adapting the site to their needs. On rare occasions, landlords may shoulder these costs or offer a generous building contribution, but this is usually added to the rent over the consecutive years. 

Landlords are often hesitant to adopt this approach as it places the risk of a new establishment on their shoulders.

The cost of setting up a new store can range from a few hundred thousand Norwegian kroner to an almost limitless amount, with a typical Norwegian retailer often spending between 1-2 MNOK.

The hidden costs: time, effort & strained relationships

Setting up a new store involves not only financial investment but also a significant amount of time and effort. This includes creating new decor, sourcing inventory, paying salaries, training staff, and marketing the store. This process can consume resources that could have been allocated elsewhere.

Moreover, a new establishment can strain relationships with key partners, including landlords. If a retailer needs to terminate a lease early, they may face additional costs and time used to negotiate with the landlord.

The opportunity cost of underperformance

Retail chains inevitably have stores that perform at varying levels, and data shows that many retailers have a more than 3X difference between the bottom 10% and the top 10% of stores.

If a new store underperforms, and is in the bottom 10 % of all the stores, retailers are stuck with a costly location for years, potentially losing money every month. Choosing the ideal location might be the difference between losing money, or making millions year over year.

A new approach to retail expansion

Fortunately, many retailers are beginning to realize that there’s a new way to approach expansion. By leveraging location intelligence and analytics, it’s possible to assess potential store locations more accurately and quickly.

By analyzing the existing stores network through location intelligence, it’s possible to identify value drivers and success criteria. These factors can then easily be used to assess new locations with ease, and will help mitigate the risk of choosing a poor location.

This new approach can help retailers make more informed decisions, reducing the risk of costly mistakes, and ultimately leading to more successful store establishments.

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