Retail Expansion: Ultimate Guide to Opening a Second Location

You might not have considered retail expansion when you first started your retail business—it can be intimidating to think about growth, operating multiple locations, and even franchising further down the line.

But retail expansion doesn’t have to be overwhelming if you approach it strategically. That’s why we put together this guide to help retailers just starting to think about opening a second location.

When to Invest in Retail Expansion

While retail expansion is a great step to growing your small business, there are a few other avenues worth exploring before making a sizable investment in a new location. Here are some to think about:

Selling online
Pop-up shops
Markets, festivals, and other in-person events
Wholesale to other small business retailers
Social commerce (selling on Instagram, Facebook, TikTok, and Etsy)

However, you might already sell on those channels or have no desire to expand in that way. If you have your mind set on retail expansion via a second storefront, here are a few analytics and benchmarks to consider:

Operating expenses/operating costs: This tells you how much it costs you to run and manage your business on a day-to-day basis. If you have high operating expenses, you may want to find ways to lower those before opening a second location.
Sales and transactions by channel: Look at various sales, revenue, and transactions data broken down by each channel. If your in-store sales are through the roof, this may be a sign for retail expansion.
Customer demographics (location): Just as you may consider retail expansion if you have a lot of in-store sales, lots of online sales concentrated to a certain geographic area could also signal it’s time to open a second store.
New customers: If you consistently have lots of new online customers, especially compared to returning customers, you may consider expanding to allow those shoppers to interact with your brand in person as well.

As far as what benchmarks should be met at your current store, it really depends on your unique business. Check the data from your POS system as a starting point—while you may be up against external competitors, your biggest competitor is yourself.

Estimating Profitability of Your Second Retail Store

Forecasting demand and sales for a new retail store is difficult, but it becomes slightly easier (and more nuanced) when you have your first store’s data as a benchmark. After looking at your first store’s analytics, you’ll want to do some additional research to round out the picture and tell the whole story.

This market research process should reveal the competitive landscape, insight into your target customer, and information about the specific location where you’re opening your second store. From there, you can use different small business analytics tools and demand forecasting platforms to help predict profitability.

How to Choose a Second Store Location

One surefire way to pick a spot for your second store is to look at the demographics of your current customer base. This is especially helpful if you have a decent-sized online customer base. If you notice a large segment of customers concentrated in an area where you lack a presence, this could be a great location to explore.

However, not every retailer has that data available. Or you might not find an emerging market. In that case, you can conduct market research to see where a good place may be. In your market research, pay careful attention to consumer demand in a particular market and your competitive analysis to see where similar retailers operate.

Once you’ve narrowed down a spot, consider testing the market with temporary retail before investing in a permanent storefront. You can do so by hosting a pop-up shop or collaborating with complementary retailers in the area for events; you can also wholesale or explore other ways to put your brand and products in front of these potential customers.

If you know which area or city you want to be in, you then have to determine the actual location for your store. There are many important considerations here as well, including:

Leasing vs purchasing a space
Measuring foot traffic
Other stores in the area
Accessibility, transportation, and parking
Utilities
Rules about the exterior of your store, as well as window displays

Setting a Retail Strategy for Your New Store

Not every store is meant to be the same. When you open a second store, it’s important to think about this new customer. How are they similar and different from your current in-store shoppers, and what changes do you need to make to accommodate their preferences?

For example, if your first retail store location is on a busy block in New York City, you may not have to worry about driving foot traffic to your shop. However, if you’re opening a second location in a warehouse space off the beaten path in Los Angeles, you may need to be more proactive in marketing and promoting your store to potential in-store shoppers.

Here are some other things to think about—and resources to help you plan your retail expansion:

It’s also important to remember that the customer experience should be consistent across both locations and future stores should you choose to continue expanding. You could launch a customer loyalty program that rewards shoppers for purchases at both locations, for example.

That said, it’s OK if the shopping experience differs slightly from location to location. A flagship store, for example, may have more interactive elements and exclusive products than a traditional storefront.

Pros & Cons of Retail Expansion & Opening a Second Storefront

Expanding your retail business comes with its own set of benefits and challenges.

Pros
Cons

Some of the potential advantages to retail expansion include:

Enter new markets: Target a specific customer market with your second store location—perhaps one you don’t already have access to with your first store.
Increase brand awareness: You can reach a new and larger audience with your second store. This drives more brand awareness in local communities and beyond.
Drive revenue and sales: A new location opens you up to do business with new customers, which means a potential increase in sales and revenue.
Open more store locations: Your first venture into retail expansion can lay the path for future expansions and even franchising.
Grow your team: You might be used to doing it all yourself, but retail expansion almost necessitates team expansion. This could broaden your pool of resources and expertise.
Expand your product line: Maybe you have new product ideas that aren’t possible in your first store location for lack of budget or audience.
Improve the customer experience: Some customers might travel far distances to visit your store. Opening a second store in a more convenient location for those customers is a no-brainer for improving the customer experience.
Doesn’t have to be permanent: You don’t need to purchase real estate to expand. Try a pop-up shop or lease retail space to test it out first.

Though retail expansion brings lots of potential benefits for retail businesses, it’s not without drawbacks:

Requires more management and time: Double the storefronts could mean double the work. You have more staff, inventory, customers, and data to handle.
Potential brand identity dilution: When you have multiple locations and a growing team, there are more chances for your brand identity to get lost along the way.
Logistical challenges: Running two locations comes with new operational challenges. Managing stock across multiple stores, for example, gets tricky without the right inventory management software.
Investment and capital that could be allocated elsewhere: It costs money to start a business—and expand it. Retail expansion requires a decent amount of money to pull off, and you might generate a bigger ROI investing that capital elsewhere.
Could hurt profitability: Your operating costs may increase significantly. If not approached strategically, this could cut into your profitability.

Bottom Line

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.