Retail Expansion: What You Need to Know to Grow Your Store
This article is part of a larger series on Retail Management.
Perhaps you didn’t consider expansion when you first started your retail business—it can be intimidating to think about growth when you are just starting. However, retail expansion doesn’t have to be overwhelming if you approach it strategically.
This guide will walk you through everything you need to know when considering retail expansion—from determining when the time is right to expand to choosing a retail expansion strategy to managing and optimizing your expansion.
Deciding When to Expand
Knowing when to expand your retail business can be a delicate balancing act. Expanding too soon can result in financial losses or even business failure. However, waiting too late can lead to missed opportunities and stagnant growth.
When looking at expansion, you will want to consider whether your current business has solid operations. Ask yourself:
- Is my current business strong?
- Is it profitable?
- Are its products/services successful?
- Does it have loyal customers?
- Does it have strong and successful operating procedures?
- Does it have a talented, dedicated staff?
Answering yes to all of these questions indicates that you have a solid foundation and procedural plan to expand.
The last thing you want to do is open a second location or expand into a new product line to save a struggling business. Your current operations must be strong to support your expansion efforts.
Use Metrics to Evaluate the Health of Your Current Business
As you consider the questions above, you’ll want to be aware of the analytics and metrics that best define your business’s success. Check the data from your POS system as a starting point.
Some of these metrics you’ll consider more closely when choosing an expansion strategy, which we will cover in the next section.
- Operating expenses/operating costs: If you have high operating expenses, you may want to find ways to lower those before expanding.
- Revenue, profit, and transaction data: Beyond expenses, look at your other financial and transaction data to understand how much money you are actually making and the performance of your products and sales channels. This will figure heavily into determining where you will get the capital for a retail expansion.
- Customer demographics: Understand who your most loyal customers are and what strategies you use to reach them. How much have you penetrated your target market? Is there room for growth within your existing lines of business before you consider expansion?
- Staffing: Staffing can be a challenge in today’s retail environment. You need to know if your staffing needs are currently being consistently met.
As far as specific benchmarks your business needs to meet before you pull the trigger on expansion, it really depends on your unique business and the scope of your expansion strategy.
Consider Outside Factors
You’ll also do some demand forecasting specific to your business, industry, and area to help you decide if the time is right for expansion. For example, if your business has been meeting your goals the last few years, but you’re now facing headwinds like higher interest rates, tightened consumer spending, or supply chain disruptions, you should factor that into your expansion decision.
Choosing a Strategy
After weighing all the variables and deciding that expansion is viable, the next thing you will need to do is choose the strategy you will pursue. The retail expansion strategy that makes sense for your business will depend on the above mentioned factors. Here are a few strategies to consider.
Best for: Businesses with large in-person customer bases and solid existing store operations.
One retail expansion strategy you can consider is opening a second location. While this is likely the most costly option (and requires a larger staff and more management time), it also has incredible potential. In addition to driving revenue and sales, opening another storefront can increase your brand awareness and lay the groundwork for more stores or even franchises.
Opening a second location might be a smart move if you have done your research and:
- Have enough revenue or can acquire a loan
- Can reach your target market at the second location
- Have enough staff
Check out these resources to help assess whether a second location is the right move for your business.
- How to Determine Foot Traffic to Choose a Location & Drive Sales
- How Much Does It Cost to Open a Retail Store?
- How to Start a Retail Business
Best for: Businesses with loyal customers or looking to drive brand loyalty and recognition.
You can consider introducing new products into your store. For example, if you sell out of candles at your clothing store every time you have them, you might consider introducing a perfume or room spray line.
Alternately, say your business caters to teenage girls, and you learn that athleisure is all they want to wear to school. You might introduce a loungewear or activewear line.
A new product line can range in price, with initial investments starting as low as even $100, depending on the product.
Reviewing your sales data by product category and staying tuned in with your target market is the best way to find where you might have room to add a new product line.
You might even consider swapping a third-party product for a private label option or even manufacturing an original product, which can help build your brand name and recognition.
Best for: Businesses with a strong online presence and customer base or those that sell products with wide appeal online.
Another way that you can expand your retail business is by adding sales channels. The most common way to do this is to add an online storefront, but if you don’t think an online store will work for you or if you already have one, you can explore other sales channels.
You might consider:
Adding a new sales channel can be an extremely cost-effective way to reach wider audiences and expand your retail business, with many options above costing as little as $0.
It is also a great way to reach more of your target market and is a retail expansion strategy that could involve minimal additional staffing.
Beyond online sales channels, you may consider pop-up shops and venues such as farmers markets and community events.
Best for: Entrepreneurial business owners willing to experiment to reach customers in a new way.
Another retail expansion strategy you might consider is introducing a new business model. As we know, there is the traditional retail B2C model where retailers buy bulk goods from wholesalers and then sell them at a profit to their customers. If you think you might benefit from adding or switching business structures for cost, demand, or other reasons, consider the other retail business models listed below:
- Subscription: This is when you sell a product or service for a recurring monthly fee.
- Affiliate: Affiliate retail is when you work with another company to sell your goods in their store/ecommerce site for commission (or vice versa).
- B2B: Otherwise known as business-to-business selling, this is when you sell your goods directly to another business so they can sell them. Typically, this is done through selling products at wholesale markets/fairs.
- Influencer partnerships: Rather than selling your products through ads, you might try selling them through influencer marketing. This is when you work with an influencer to sell your products via their social networks through posts, stories, or long-term partnerships.
Best for: Businesses with a distinct target market that want to leverage that for slow, deliberate expansion.
Your retail expansion strategy doesn’t have to be extreme—it can also be as simple as expanding your target market by adjusting your marketing strategy. That may entail finding more people in your pre-existing target market OR expanding who is included in your target market.
If you aim to reach additional people in your target market, you will maintain your current marketing strategy but expand its reach beyond your current area. If your goal is to introduce a new demographic into your target market, you will develop a new marketing strategy and products that would appeal to them.
When expanding your appeal, ensure you don’t alienate your original customer base. Your goal should be to add new customers, not replace your current ones.
For example, I managed a store that catered primarily to young women between the ages of 14 and 28. We expanded our target market by trying to reach more young women in that group and appealing to a new group—women between 30 and 50.
- To reach additional 14-28-year-old women, we boosted our Instagram and TikTok presence, paid for more online ads, advertised in new neighborhoods, and hosted pop-ups in the towns around us.
- To reach our new target of women aged 30-50, we hosted happy hour events for offices around our store, introduced a workwear line, and bolstered our Facebook page with current info and fresh weekly posts.
Financing & Resourcing Your Expansion
Once you have decided on the retail expansion strategy you will take, you must prepare for its implementation by gathering the necessary resources. That includes acquiring the upfront capital you will need to get the idea off the ground and considering inventory, management tool, and staffing needs.
The first and most daunting resource you will need is money. Depending on your revenue stream and the overall investment you will need, you might be able to fund your retail expansion yourself. However, if you don’t have enough funds, you will need to look for a lender to fund your project. You can pursue either a business or personal loan, depending on your financial situation and the banks or investors you are working with.
Here are a few FSB resources you can use to understand the lending process better and start gathering your retail expansion funds:
- How to Get a Small Business Loan
- Angel Funding: What It Is & How To Get It
- Best Banks for Small Business Loans
- Best Fast Business Loans
The money you gather should not only be enough to get your retail expansion off the ground but should cover the project’s expenses for three to six months or until you anticipate the endeavor being profitable to support itself. These costs might include:
- Corresponding marketing initiatives
- Down payments
- Professional services (real estate agent, legal assistance)
- Software needs
- Construction costs
- Material needs
- Lease payments
- Manufacturing costs
In addition to money, you will also need to acquire your inventory. Whether you are manufacturing a product yourself or acquiring something from a B2B seller, this will take capital and time. Be sure to have frank discussions and sign contracts with your suppliers, so you know when you can expect your inventory to arrive and can hold them to a specific date.
In addition to logistics, you should also be sure you have a firm grasp of the amount of inventory you will need, the pricing strategy you want to implement, and where you are going to store your wares. As we discussed, market research and your previous sales data should guide all of these decisions.
New projects need to be managed somehow, whether with a POS system, another retail software, or a pen-and-paper system. Be sure you consider all the tools you will need to run your retail expansion so you can weigh costs and viability.
A POS system will automate so many of your store operations, from CRM to inventory to sales – a good POS system will manage them all on one convenient system. The best news, our favorite POS system for small businesses, Square, is completely free to use.
Here are a few other expert-reviewed buyer’s guides for the most common retail management tools that you might need to help manage your retail expansion:
Manpower is the other resource that you will need to consider and gather. Most projects will require scheduling additional hours with your existing team or hiring new people. Also keep in mind you’ll need to figure out how you—as the business owner—will take on your new tasks and incorporate the management of your expansion into your current schedule.
To determine your staffing needs, consider:
- How many hours will this project require each week? This will likely change over time and can be difficult to anticipate. Provide yourself with a range here, and always overestimate. When possible, it’s always better to have more help than you need and to let people go home early than not having enough.
- How many hours is my current staff working? Look at your team members’ average weekly hours, and weigh those against their job descriptions. If they are working fewer hours than their JD outlines as an expectation, see if they can help you staff your retail expansion project. If your entire staff is working to full capacity, it’s time to hire new people.
- Will my retail expansion require training? Be sure your employees understand new procedures and tools and provide written training plans for them to reference.
Launching & Managing Your Expansion
With all the resources gathered, you are ready to launch your retail expansion project. You’ll want to market the endeavor until launch day (and, of course, integrate it into your ongoing marketing activities after launch) and measure its success in the weeks, months, and years to come.
Market Your Expansion to the Public
You will need to get the word out so customers know about your new endeavors. You should approach your marketing in stages:
- Stage 1 (one to three months before launch day): Introduce the expansion to your customers. Add a banner to your website, create an Instagram highlight, and put posters up around your store. This stage of your marketing should not reach out to customers directly but just make the information available.
- Stage 2 (one to two weeks before launch day): Create an expansion countdown to drum up excitement. This should take the form of an Instagram post and daily countdown reminders on your stories. You should also reach out to your shoppers directly via text or email, at this stage, with both countdown alerts and daily/every other day reminders.
- Stage 3 (launch day): The time is here, and to keep everyone excited and ready to engage with your new project, you should create an event around opening day. That could mean an in-person celebration, decorations in-store or on your site, a giveaway, or something else. You need to create incentives for people to visit your new store or pop-up location, shop your Etsy or Amazon storefront, or come and see (and hopefully purchase) your new products. You should also send reminder messages via text or email on launch day.
Measure the Success of Your Expansion
While you won’t have a feel for your retail expansion’s success on launch day, you should keep a constant eye on how your new endeavor is doing so you can make adjustments or take notes for future expansions.
The best way to do this is to use your POS system’s data, including
- Sales data: Are you meeting your goals and selling products?
- Inventory data: Do you have the right amount of product? Did you over-order or under-order? Is your sell-through rate competitive?
- Customer data: Are you retaining customers? Are you boosting retention? Is your retail expansion garnering loyalty?
- Staff data: Do you have appropriate staffing? Are there too many associates or not enough for your customers? Do they have enough product knowledge?
- Past data: Depending on your expansion, you can also compare pre- and post-expansion performance.
These metrics can be difficult to measure, but with a POS system like Square, you can reference and explore various automated reports—from sales to staff performance. Plus, Square’s POS is completely free to use.
Retail expansion is a great way to take your business to the next level. If you want to grow your profits, brand, team, product line, or any combination of those, expansion could be the next step to get you there. Take a look at your current retail store and other sales channels, conduct market research, and get ready to launch.