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 are a whole world of brick and mortar retail businesses that still sell $150 billion worth of merchandise via 100,000 outlets nationwide, and employ 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.
- 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;
- Private Label Brands – to cut back on the cost of goods, and create an in-house brand that you have 100% control over, retailers are creating their own niche and private label brands.
- Organic and ethical sourcing – buying products from sources that promote self-reliance on energy minimizes carbon footprint.
- 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 THINGSIn 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.