Expanding a business requires the implementation of retail expansion strategies to naturally grow a company.
But, it can also be full of challenges.
A business can avoid the perils of failure by avoiding common pitfalls and taking practical steps.
Understanding the factors responsible for a successful retail expansion helps reduce gut-based decisions and the break-even period when opening a new store.
This article will guide you through the process of learning from the successes and failures of others so that you can develop a clear roadmap for your retail expansion.
1. Analyzing and Learning From the Current Retail Landscape
When Aristotle said that knowing yourself is true wisdom, he did not expect his words to be applied to the retail expansion strategies of a burgeoning brand.
A retail business that seeks to advance without first considering its weaknesses is charting a course to its failure.
After all, only by understanding itself can a retail business leverage its strengths to expand into new markets quickly and efficiently.
Therefore, performing a self-reflection is the first step in any retail business expansion strategy.
- Understand the performance of existing stores and identify the reasons behind the success or failure of the store.
- Collect data to validate your store’s performance.
This will lay out a basis for you to replicate that success and avoid failure leading to store closure, if you are an e-commerce DTC brand ready to go offline understand your online sales patterns and insights from other online data to understand the same features as above.
2. Location-first Strategy for Retail Expansion
Location is the factor determining the success of any retail business.
The number of customers in any given catchment area is finite and does not replenish over time. With adequate marketing efforts, a retail store can achieve market saturation.
This means that a store has adequately captured the demand in a given catchment area.
When a retail store has captured a significant share in a given location, that is the prompt for it to consider expanding into new areas.
Expanding into a New Location
The key factor in deciding the success of a retail store is the presence of its target audience in the catchment. Learn about finding your target audience here.
After establishing the presence of the target audience, the retail store can focus on finding the site locations to build a new store. When expanding into a new catchment area, there are a few essential requirements that must be taken into consideration.
- The presence of competing or complementary brands
- Is the trade area frequented by the target audience or not
- Footfall patterns in the street
- Location with positive growth trends
- Location accessibility via the presence of good roads and transport options
- Revenue estimations for specific product categories
- Cannibalization from nearby stores
- Assessment of store closure risk
- A high-footfall area
- Location with positive growth trends
Read: Learn the strategies for determining a profitable location when starting a new retail store.
A Real-World Example of How to Expand into a Location
The image below shares the locations of Zudio store in Bangalore. The strategy team Zudio chose was to build stores in places with low rent but with the presence of their target audience.
The team also ensured the reduction of the cannibalization of their sales by spacing out their stores around the Outer Ring Road (ORR) of Bangalore.
3. Leveraging Location Insights to Acquire Market Share
All successful businesses are sharks; when sharks smell blood in the water, it’s a feeding frenzy.
In a lucrative retail market like India, where retailers try to get ahead of the competition, they need to leverage every available advantage.
A brand that embodies a consistent retail expansion strategy is Reliance Retail. Applying intelligence derived from retail analytics and strategic acquisitions in the retail sector propelled Reliance Retail to become India’s leading retail brand with revenues of more than $23 billion.
The following image represents the scale-up of their operations from their start in 2015.
While not on the scale of Reliance Retail, retailers can employ location models to capture market share in new catchment areas.
For example, a retail brand could first identify the catchment areas with the presence of its target audience in a city.
They could then select areas with low competition to get a first-mover advantage in the location. If the brand can sustain the cost, it can offer discounts greater than the competition to build a loyal customer base.
4. Understand the Total Addressable Market
TAM represents the entire revenue opportunity that exists for a specific product or service within a defined market.
In simpler terms, it’s the maximum revenue a business could potentially generate if it captured 100% of the market demand for its products.
Learn more about TAM and its calculation here
For example, consider the example of a retailer primarily catering to a young demographic opening into a new market.
Now, before you start your expansion into a new catchment area, it is important to first establish the existence of a target audience and a high TAM in the catchment area.
This is a representative TAM map of a retail brand in Bangalore
Learn how GeoIQ empowered the retail expansion strategies of a national fitness chain.
5. Effective Customer Segmentation
The devil is in the details and is not a famous quote for nothing.
The retail store expansion strategy employed by the expansion head of a brand should consider the nuances of a catchment to ensure profitability.
For example, consider that you are now looking to expand your clothing retail store into HSR Layout, Bangalore.
But, now you want better to understand the customer profile of your new product line. Based on the data shared by GeoIQ your team understood the following:
- This is an affluent catchment area with 42% of the population earning more than 10 LPA
- Less than 6% of the population falls in the 15-18 age bracket.
This information allows your brand to craft targeted advertising to reach your target audience for your new product line.
Inferences from such exercises help business heads of retail brands to fine-tune their expansion strategies and select site locations that best meet their exacting requirements.
Analyzing the data displayed in this image might help a brand apply a nuanced approach while segmenting its customers.
6. Moving to an Omnichannel Strategy
Retailers seeking to expand their brand should consider all viable avenues for expansion, including opening stores in both the physical and online space.
Even though only 10% of Indians sampled do not purchase products online, a mammoth trust factor must be scaled to capture the Indian retail market.
Omnichannel retail strategies enable seamless customer journeys from online to offline experiences.
Adopting omnichannel retail strategies helps brands redirect customers to their retail stores to experience the product first-hand, like in the case of Pepperfry, which has witnessed a 45% increase in conversion rate by integrating an omnichannel strategy
Website
This study by GE Retail Bank identifies that 81% of all customers search online before buying a product. Therefore, developing a functioning website should be the priority on a retail store’s checklist of expansion strategies.
With hosting options starting from just ₹58/month, a retailer can connect their offline sales with their online store sales to better understand the customer journey. The granular data derived from this process helps retailers provide their customers with a superior shopping experience.
The retail brand should integrate the website with a marketplace feature, facilitating online purchases for customers seeking physical expertise before deciding.
Social Media
India has 470 million social media users who log into their preferred social media website/application at least once a month. And 30% of users like social media to gather news and information, allowing brands to build an organic product user base.
Brands like Chumbak and The Ustraa have utilized social media to generate positive awareness about their products.
Retail brands lacking a robust social media presence should implement strategies to enhance online visibility. This fosters consumer understanding of products through organic marketing initiatives.
Popup Shops
Retailers who wish to expand into a new market but need further data to substantiate their move can launch pop-up shops in their selected catchment areas to gauge the customers’ interest in their product and brand.
Establishing pop-up shops provides retailers valuable insights to optimize pricing strategies tailored to the specific demographics of each location.
From the tech manufacturer Nothing to beauty brands, pop-up shops are a viable expansion strategy to improve sales and drive engagement.
Factors to Consider When Structuring a Retail Store Expansion Strategy
Every being on Planet Earth wants to expand and get better. This includes the businesses on Earth that want to expand into new territories and take over better places.
However, expansion without a structure will often lead to nose-diving failures from which there is no saving.
Let’s discuss a few factors a retailer should monitor when adopting a retail expansion strategy.
Inventory Management
The success of a retail store hinges on correct inventory management. The existence of a weak supply chain will lead to a cascading effect of revenue losses.
With only 22% of global companies operating an active supply chain, businesses should consider overhauling their existing supply chains before adopting strategies for retail expansion.
Over-expansion
Expansion is good, but over-expansion is a cancerous growth that will sound the death knell of an under-prepared business. For example, consider the case of India’s leading retail chain, which over-expanded without sound financials only to be sold piecemeal to its direct competitors.
Over-expansion is a cautionary tale when even retail leaders can falter and sustain billion-dollar losses.
Financial Health
Adopting a retail expansion strategy when a business is hemorrhaging money due to over-expansion and poor inventory management is not optimal.
Business decisions implemented without data-backed decisions can exacerbate the underlying issues, potentially leading to the eventual failure of the retail business.
Cannibalization
A process occurs when a brand opens multiple stores in a single catchment area whose TAM does not justify the capital investment.
Cannibalization will not only increase the expenditure for the brand but also reduce the potential revenue generated due to the target market getting split between the competing stores.
Conclusion
To recap the various strategies,
- Analyzing current landscape
- Location strategy
- Leveraging insights to acquire market share
- Understand the total addressable market
- Customer segmentation
- Omnichannel retail
There is no one-size-fits-all strategy for retail expansion. Retail requires nuance determined by different factors, including category and target audience. This is why retail brands require data-backed decisions to verify their expansion decisions.
The methods mentioned above serve as a starting point for retailers to start their expansion strategy and tailor it to fit their specific requirements.
Incorporating data-backed decisions into each decision-making process will allow the retailer to predict the problems arising from incorrect management decisions.
Furthermore, data helps reduce the guesswork associated with
- Identifying new catchment areas
- Determining new demographics
- Finding profitable locations for expansion
Collecting pertinent data and developing inferences for the expansion of the business is time-consuming. But what if there existed an AI model that was custom-built to meet the specific business needs of a retailer?
Presenting RetailIQ
RetailIQ is a cutting-edge AI solution revolutionizing offline expansion for the retail section. It is built on top of extensive location data and brand data to give street-level answers to expansion problems.
RetailIQ is a powerful tool providing site recommendations to maximize success at the store level and minimize the risk of closure. It also helps identify the total addressable market, conduct competition analysis, better understand your target audience traits and their presence, and perform detailed site analysis and reports, all adding up to a successful expansion strategy.