BrainTrust Query: Independent Retail Critical Mass
Through a special arrangement, presented here for discussion is a summary of a current article from the Hurlbut & Associates blog.
There isn’t a retailer out there that isn’t trying to grow their business. There isn’t a retailer that’s not looking for sales increases. But to what end? It’s not a frivolous question. For a well-managed independent retailer, sales growth flows to the bottom line in the form of increased profitability and cash flow. Then what? How best to re-invest that cash flow?
I believe that long-term success as an independent retailer requires achieving critical mass. Critical mass is achieved when an independent retailer becomes the retailer of first choice in their chosen segment for their target customer base in their geographic market. Critical mass is achieved when an independent retailer attains an almost “institutional” status within their community.
One approach to achieving critical mass is through re-investing cash flow in additional stores. Independent retailers observe this model on a large scale every day when they go to the mall or walk into a typical big box store. This approach is not without risks, however. It requires that the original store, and its formula for success, be replicable in new locations and markets, and that the company has the people in place to successfully execute the replication.
A different approach is to expand the existing store.This begins by layering in related, complementary goods and services to expand the customer base, establish the retailer as a true destination, and further entrench the business within its market. It may ultimately involve physically expanding the store or relocating it locally.
An essential element in achieving critical mass is scale. Simply put, a physically larger store has greater critical mass than a smaller store. Think of the most significant, enduring independent retailer in your area. Are they physically large, or not so much?
In my judgment, the objective of growth should be to establish critical mass; to become the retailer of first choice; to become a local “institution”. And scale and physical appearance (whether in a single- or multi-store business) is an essential component of achieving critical mass.
Discussion Questions: How should independent retailers define their growth objectives? What do you think of the author’s definition of “critical mass” for independent retailers?