Thinking of opening a second store?
Knowing when to grow is a tough call.
HFA members offer tips to help make the decision.
Opening a furniture store can be a difficult decision. Opening a second, third, or fourth can be just as difficult. If you’ve been thinking about adding a new location, there are a lot of things you should consider before making the leap. Obviously, there are never any guarantees a location will be successful, even if your existing operation is, but you can feel more confident about pulling the trigger on a deal after you’ve done your due diligence.
Are you really ready to grow?
HFA member Mandy Jeffries of Colfax Furniture in Greensboro, N.C., toyed with the idea of opening a fourth store for years. She pulled the trigger late last year, opening a store about eight miles from Colfax’s flagship location. Jeffries says not all expansions are alike. What a furniture retailer needs to do to add locations depends on their business goals with the expansion.
“If they want to grow and capture more market share, they will need to do some analyzing of their current sales, customers and measures to determine if opening a new store would work toward that goal,” she says.
Your existing store doesn’t need to have sofas flying out the door, but it certainly helps.
“You want to have the operation fairly well-running, because companies trying to expand, especially when it’s out of normal range—in other words, if you’re opening up in another city—is one of the three or four main causes of a company going under,” says Randy Moon, consultant and co-owner of Dallas-based RMoon Consulting. “So it is a big decision.”
The reason for ensuring a healthy first store before considering another is an issue of security. Opening a second location is much more involved than simply “expanding” the first store.
“You really have to look at the second location as a first location,” says Mark Loos, consultant at Consulting Services Methodology in California. “It’s got to be able to stand on its own. A lot of people don’t look at what it takes to actually find the employees to support the location, the right insurance provisions, what kind of zoning they’re going into, there are still a lot of things that are unknowns.”
Loos recommends using the template from the first business to write a completely new business plan for your second location, but carefully checking each item to see if there could be any potential crossover—maybe you can use the same insurance company for both locations—to save more money. Otherwise, keep the books between the two locations separate or else you risk cannibalizing your existing business.
HFA member Shane Spiller, president of Spiller Furniture & Mattress, has 13 locations in Alabama. He feels the most important thing a business should do before expanding is determine who they are and what they want.
“What I mean is, ask yourself what are your core values?” Spiller Furniture has gone through EOS—entrepreneurial operating system—to help them answer such questions. The goal of this process is to help business owners create healthier, stronger businesses and achieve powerful results by developing a vision, instilling accountability and helping to create a more cohesive team.
From that process, Spiller says he walked away with a 10-year vision for his company. He added that the goal is to break your plan down into even smaller units—a three-year plan, a one-year plan and eventually a 90-day plan. “You can then set quarterly tasks and meet and talk about how you’re doing with those four or five things,” he says. “Our business operated for 60 years without that process, but in the past 10 years we’ve experienced some of our best percentage profits. I highly attribute that to having that outside help. So don’t let pride get in the way of hiring someone to show you the way.”
Whether it is having a 10-year plan or a warehouse with extra space, your existing operation needs to be running well before you consider expansion. Jeffries has found that ignoring problems at the “home” store can bode poorly for the future of any store expansions. “You have to have your home ship in order and functioning at 100 percent,” she says. “You cannot focus on a new store and weaknesses in your current operations at the same time.”
Complete a SWOT analysis
If your business hasn’t undergone a SWOT analysis—Strengths, Weaknesses, Opportunities and Threats—in five years, it’s probably time for an open and honest assessment of where you stand. For instance, Jeffries says a retailer needs to ask if their systems and procedures allow them to work among multi-sites. “One of the biggest keys to success is if they can logistically get merchandise to and from the store so that their merchandise levels can stay intact.” The answer will fall into either the strength or weakness category.
Spiller echoes that sentiment. “We like to expand in areas that we have some existing advantage, like distribution overlap. We’ve got 13 locations. The furthest location is about 95 miles from the office, so we can service those stores once a week, send a truck out, and try and hit another store on the way out or the way back.”
HFA member Jason Israels of Klingman’s Furniture & Design in Grand Rapids, Mich., opened a new store in nearby Holland, Mich. last month. Actually, Israels took over Hegg’s Gallery of Fine Furniture, another HFA member, and rebranded the store under the Klingman’s name.
Like Spiller, Israels finds it important to piggyback off existing fixed expenses such as warehouse distribution, computer and software systems, and order processing. A store’s variable expenses will go up when expanding, but the fixed expenses don’t have to increase significantly. More volume allows more to drop to the bottom line faster for an immediate benefit, Israels explains. “Regionally we’re able to fulfill everything out of the same distribution center by adding more trucks and delivery people. There are a lot of efficiencies already there.” You can maximize your opportunities by taking advantage of distribution overlaps and by using existing warehouse space.
If you don’t do it, someone else might. One thing to consider is an opportunity to expand when a local retailer goes out of business. Not choosing to do so could open up the possibility of another retailer entering your market. Spiller recommends that under these circumstances, if you’re interested in taking over the competitor’s location, contact them and look at the real estate and the customer accounts to determine if it’s a good fit for your business.
Recognize common pitfalls
If you’re starting to warm to the idea of expanding your furniture store’s market, there are still some potential hazards you’ll want to avoid. For instance, have you considered how you’ll handle the flow of merchandise?
Israels recommends talking to suppliers about staggering invoices. “If you buy a whole store at net 120 or net 90, all that comes due at the same time. You have to plan your cash flow accordingly with different suppliers.” He suggests asking if you can push an opening order like this into installments, working with the supplier to help that flow of inventory come in when you need it with the initial expenses allocated over a period of time.
A furniture store considering expanding may want to talk to the space’s landlord to see if they can work out a deal on the rent as well. A rent abatement during your start-up period can further help manage your cash flow.
Another pitfall to avoid, according to Spiller, is not having the proper understanding of the market you’re entering. “You have to match up with your customer base and target market, make sure you have enough mailboxes (population) in the area to support the business and pay your people,” he says.
Ask yourself if you’re comfortable ceding some control. Spiller explains, “When you add multiple locations, you have to learn how to juggle more balls, and you have to have a good team around you that can handle those tasks. You have to be comfortable letting some of that control go and letting your management team support that growth.”
Finally, employees must be properly trained before your new location can open. Don’t neglect this step, thinking you can staff with a few existing employees and offer on-the-job training to the new people. Part of Spiller Furniture’s EOS analysis focused on determining what their perfect employee looked like. “We are firm believers that a store is only as good as the people running it,” Spiller says. “One of the biggest mistakes a store can make is not hiring the right people to run it, which brings us back to our core values. We do our best to find someone in the beginning who has the same core values as our store does.”
Ask for help
If you’ve done your due diligence and you truly think your business is ready for expansion, the next step may be asking for help from a qualified real estate professional. Julius M. Feinblum, founder and chairman of Julius M. Feinblum Real Estate, has more than 30 years in the business of finding furniture retailers their ideal locations, and he offers his insights.
He finds it’s currently a good climate for furniture retailers. “The economy for furniture has been good, and the business is strong on a pretty general basis,” Feinblum says. “They survived the rough years, so existing ones have got the grit, the personality and the perseverance. The other thing is we’re getting a tremendous amount of big box downsizing.” In Feinblum’s opinion this is a positive for furniture retailers because the demise of big box locations opens up some larger retail spaces they can grow into.
Finally, while he understands the internet has changed the way all generations shop, he still feels that when it comes to furniture, it’s hard to do that well on the internet. “There are too many problems in handling the product. This still keeps the furniture store retailer alive and important to the consumer,” he says.
No matter where you stand in terms of expanding your furniture store, Feinblum stresses that timing is everything. “Even if you’re not thinking of expanding you should be aware, because you don’t know when your competitor will take a spot. If there are three furniture retailers in town, one wants to retire, one wants to grow and one wants to stand still. The one that wants to grow will beat out the one that wants to stand still.”
Are you ready for a second store?
Every home furnishings store owner wants their business to grow. What’s tricky is when that growth prompts a second desire: Opening a second location. Before taking the financial leap, here are a few questions retailers need to ask themselves:
How’s your flagship store doing?
Your current store doesn’t need sofas flying out the door, but let’s face it, it certainly helps.
It’s all about the security of your business because opening a second store is more than duplicating the steps you took when you opened the first store.
Mark Loos, a consultant at Consulting Services Methodology in California, says the second store needs to survive on it’s own. “You really have to look at the second location as a first location. It’s got to be able to stand on its own. A lot of people don’t look at what it takes to actually find the employees to support the location, the right insurance provisions, what kind of zoning they’re going into, there are still unknowns.”
How are you choosing your second location?
Answering this question requires doing some serious homework, says of Julius M. Feinblum, who specializes in commercial real estate for home furnishings retailers. Look for a neighborhood that lacks — and needs — your furniture, says Feinblum. After all, you’re trying to find new customers who are similar to the ones you already have. Once you’ve identified where your prospects are, look into what’s required to do business in that neighborhood. What is the average rent price? Is there a sign ordinance? Is parking available? What are crime stats? Do your homework.
How will you maintain value and customer experience?
There’s probably two main reasons your first store is successful: value and customer experience. Can you duplicate both of these at the new site?
Before you say yes, plan on putting in a lot of hours because experts suggest retailers run both locations until the desired customer experience is achieved. Only when you’re satisfied should you hire a manager to take over one of the locations.
How will you fund the second location?
The ideal scenario for funding is your own money and stay away from banks or investors.
Investors will typically want a 40% rate of return, but even if you manage to pay them back in full, they still own 40% of your company. Most banks, on the other hand, will only ask for 10% return on a loan.
Don’t forget: If you turn to a bank, they’re going to be looking at your accounts receivable, debt collections—all your financial statements that can be audited.