What’s a Retail Business Worth?

Views: 38 Comments: 0 0 Post Date: September 29, 2020

When was the last time you walked into a store? Neither Nordstrom nor Macy’s. Like a regular business that sells accessories, or clothes, but somewhere around the corner on Main Street.

With the ever-evolving consumer preferences and competition from online warehouses, retail businesses are still holding on to a way to life. A way to shop. With touch and feel.

Let us see how much retail business is worth …

While shopping online at Amazon or watching Netflix, we forget that there is a whole world of brick and mortar retail businesses that still sell $150 billion worth merchandise via 100,000 outlets nationwide, and employing over 600,000 people! It’s called retail. This includes stores that sell  shoes, clothing, accessories, AV equipment to name a few.

They say people do not buy goods or services. They buy relations, stories, and magic. So how is a retail store owner supposed to make magic?

What factors are important for running a profitable retail business  let us examine them.

  1. Technology – I am sure this isn’t a surprise. Technology is the biggest friend and foe for retail. Technology has hurt brick and mortar retail for obvious reasons. But it has also helped for non-obvious reasons by allowing the following – product customizations; inventory management;
  2. Private Label Brands – to cut back on the cost of goods, and creating an in house brand which you have 100% control over, retailers are creating their own niche and private label brands.
  3. Organic and ethical sourcing – buying products from sources that promote self-reliance on energy minimize carbon footprint.
  4. Online advertising — just because a store has a physical location doesn’t mean it cannot have an online presence and marketing.

 

THE BIGGEST VALUE DRIVERS IN RETAILS ARE FIVE THINGS

 

In retail businesses can sell for 0.25-0.35x of revenue, or 2-3x of SDE.

The factors that affect the spectrum the most are 

  • Product niche – premium and niche products allow higher margins and loyal customers
  • Convenience –  easy access location, flexible hours, high foot traffic for new customers, and easy store layout
  • Customer experience – good service, word of mouth, online reviews, and customer loyalty and followership.

If you see there is a pattern here. They say a satisfied customer is the best strategy of all. In no other business is this more applicable than retail….

Bharat Kanodia – Founder and Chief Appraiser

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