BrainTrust Query: Independent Retail Critical Mass

Discussion
Jun 09, 2011
Avatar

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?

Please practice The RetailWire Golden Rule when submitting your comments.

Join the Discussion!

15 Comments on "BrainTrust Query: Independent Retail Critical Mass"


Sort by:   newest | oldest | most voted
Max Goldberg
Guest
9 years 10 months ago

Critical mass is one way to gauge success for independent retailers. Others are revenues and profits. And let’s not forget the personal side of the equation. If you run a small business, are you getting personal satisfaction from your efforts?

There is no one way to define growth objectives. They are a combination of fiscal and personal. Regardless of how a small retailer defines success, the owner must factor goals, both personal and fiscal, into the equation.

Paula Rosenblum
Guest
9 years 10 months ago

I think for an independent retailer, critical mass is defined as a size that’s big enough to make money but allows the owner to sustain a high quality of life outside work.

Being an independent retailer is a lifestyle choice. I don’t advocate getting consumed by the business to a point where it interferes with having a life.

David Biernbaum
Guest
9 years 10 months ago

Independent retailers can grow and succeed in any number of ways. For one, they must use their “independence” as their strength within, and as their best weapon to attract and maintain customers. Independent retailers need to thrive on personalized service, destination customers, and points of differentiation in product selection vs the neighboring national chains.

Al McClain
Guest
Al McClain
9 years 10 months ago

One issue that single store independents face is when to expand to a second outlet. Sometimes, the decision to move forward can be their undoing. I know of an independent French-style patisserie that has just made the decision to expand to a second location, where a chain of similar restaurants failed. Could be their undoing, but they made a strategically smart decison, I think, to keep the first location focused on breakfast food, and make the second one more about lunch, since it’s in a location with many shoppers and office workers. Let’s hope it works.

Ian Percy
Guest
9 years 10 months ago

Now ‘this’ is an interesting question. But at the end of the article we’re still sort of left with it. If I’m reading this right the ultimate goal is “critical mass.” But “mass” and square footage aren’t necessarily synonymous. As implied, ‘mass’ can be measured in depth, flow through, loyalty and iconic value. There are many ways to “grow.”

Really this boils down to the age-old question: “What do you want to be when you grow up?” The worst thing any retailer can do is mindlessly aim to be like “them” — the sterile store that traded in soul for size.

Five minutes away and directly across the street from the Four Seasons is a dumpy biker hangout green chile cheese and bacon burger joint called Greasewood Flat. It’s an AZ ‘institution’ alright and a destination for anyone visiting. The moment they try to ‘grow’ or even if they try to fix up the place it will die. No mass! Please. AND it’s a money machine.

W. Frank Dell II
Guest
9 years 10 months ago

There is growth and then there is profitable growth. Before one can grow they need to know where they are. Independent retailers operating in a small market have different issues than ones operating in larger markets with chain competitors. Key questions start with: Who is my target market? What share of market do they represent? What is my penetration of this target market? This helps answer the question “Do I have the right target consumer?”. For larger markets, a realistic growth object is population increase plus one or two percent share increase. For smaller markets it is usually capturing an additional target consumer group.

Dr. Stephen Needel
Guest
9 years 10 months ago

I like the idea of critical mass, but I’m not sure that has to come from growth per se, whether it is more stores or more variety within a store. Sales growth is not always the goal – profitability growth could well be, though. Anyone can generate more sales – good ones do so while being profitable.

Bill Emerson
Guest
Bill Emerson
9 years 10 months ago

When considering growth alternatives, the independent must first determine what level of life changes they are prepared to make and how much control they are prepared to give up. Growing from a single location to a multiple store chain is far more complex than most owners think. It involves turning what has made the original concept successful into a process that can be performed by others who will, probably, lack the passion, energy, and skills of the owner. It will involve bringing in individuals with different skill sets and giving up some level of authority,control, and perhaps equity to these individuals. The list goes on but the point is that these are very tough decisions. The independent owner chose this path for a reason. Growth entails losing independence. It’s a decision that should not be taken lightly.

Tony Orlando
Guest
9 years 10 months ago
I think I can speak to this subject as I am a small independent store owner. When I purchased the store from my father in 1999, I had a plan to renovate the entire store in 7-8 years, without borrowing any money. By the end of 2008, every refrigerated case was replaced with state of the art equipment(LED lighting, new scroll rooftop compressors, and 2 new huge coolers). In 2010 I started over by replacing our 2001 deli case with a new 24 foot deli, and in May of this year, I updated the front end replacing everything top to bottom, with the latest scan master front end systems, and computer terminals. In addition, to achieve critical mass, I chose to redo my store layout, with fewer SKUs in grocery, and more dairy, gluten free, and regional deals, which has helped the bottom line. Many stores that I work with are struggling, by trying to bang heads with Walmart, and other big boxes, competing on price alone, and that will get you nowhere. A 100%… Read more »
Doug Stephens
Guest
Doug Stephens
9 years 10 months ago

I agree with Ted’s primary point, that the objective of growth should be to be the “retailer of choice, in their chosen segment.” However, I would also encourage independents to think beyond physical stores as a means of achieving this level of dominance and “critical mass” as Ted puts it.

They should be proactively learning how mobile, social and web based commerce strategies can become an integral aspect of their competitive position. While physical stores are still a key component of doing business, their value as pure distribution points is being increasingly marginalized by digital channels.

Independents that thrive will be those that keep up with this historic shift in the way consumers are shopping.

Brian Kelly
Guest
9 years 10 months ago

How should a “store of choice” independent retailer grow? What makes a “store of choice” is first a unique assortment and second, a compelling store experience.

I’ve been there–back in the day, the tendency was open (larger) stores that would:
1. Amortize the SG&A costs.
2. Expand selling square footage: broaden and/or deepen assortment.
3. Increase brand presence within a market.

Today, if I didn’t have it already, I would open an “avatar” online site. The unique assortment is probably as compelling to the online shopper as it is to her sister brick and mortar shopper. I’d add a kiosk in the original unit.

A larger physical store is a sea anchor on profitability; just ask any big box merchant. I’d look to opportunistic real estate situations and “pop up” to accommodate the old school objectives.

Gordon Arnold
Guest
9 years 10 months ago
The critical mass solution has one serious flaw in that it takes a lot of time. When one measures this amount of time against cash flow, open to buy dollars and clearance sale numbers, all of which are a critical mess, this solution is often to great a risk. Retail chief executives have two numbers in mind today and they are full scale. How much does the company cost every hour and how much does it make every hour. These numbers are calculated weekly to make the necessary adjustments within controllable spending to assure an optimum quarterly report. What makes this solution even more difficult is the disappearance of sales and marketing professionals within the industry. You see, they were the first to go in the downsizing of management personnel when the depression started. So what can we do? As for me, if faced with this predicament, I am inclined to close the losers and open market share winners by surrounding the highly profitable competitors’ stores. Real estate is cheap, construction is cheap, and so… Read more »
Cathy Hotka
Guest
9 years 10 months ago

It’s so rewarding to watch a local retailer achieve critical mass. In the 70’s and 80’s Hechinger’s was the hardware store of choice in DC, and as one result John Hechinger was elected to the DC City Council. Sometimes smaller is better. Now, can big chains achieve cult status by creating smaller-footprint stores?

George Whalin
Guest
George Whalin
9 years 10 months ago

I believe there are two flaws in the basic premise of the question. The first is many independent retailers do not have the goal of “growing” their business as we often think about growth. A single location store of the current size is often quite adequate for many retailers. Yes, they want to increase sales and work at achieving that goal by improving their buying activities; fine-tuning their merchandise selection; and improving how and when they market their store. The second flaw is “critical mass.” A substantial number of independent retailers have no desire or need to reach “critical mass” so long as they can communicate with and offer their customers a selection of carefully chosen merchandise that appeals to those customers.

Having written a book, Retail Superstars on 25 highly successful independent retailers many of them continue to grow and prosper. They do so by constantly improving how they do business rather than increasing the size of their stores or trying to achieve “critical mass.”

Dave Wendland
Guest
9 years 10 months ago

Although I don’t disagree with the definition of “critical mass” highlighted in this discussion, I must admit that there is not a one-size-fits-all approach or pathway. That’s the beauty of independence.

While the large chains struggle to become more “localized” and “community-focused,” independents are already in that space. One of their goals may very well be to accentuate this tie to the community in which they live, work and play. Many success stories exist that have allowed an independent operator to aspire to “critical mass” status through greater penetration, visibility and reach within their local town. In some cases that may involve local events and participation, still others may require online blogs and multi-platform presence, and others may require ‘house calls’ and delivery. It all depends on the community, the retailer and the operator’s goals.

Growth objectives may be best defined in terms of influence and ubiquity within a local community. It will definitely keep the larger chains wondering how to successfully compete.

wpDiscuz

Take Our Instant Poll

Do you agree that becoming ’first choice in their chosen segment for their target customer base in their geographic market’ constitutes reaching ’critical mass’ or sustainable long-term success for an independent retailer?

View Results

Loading ... Loading ...