Store Planning for Deep Pockets

This column makes certain assumptions about your business model. One of these assumptions concerns the expected sales volume of your store, based on the most common figures cited by store owners. The lower-level sales volumes are easier to reach with the lesser capitalization most people can achieve. Also, the variables vary to a greater range at higher sales volumes, making predictions about those figures less reliable from situation to situation.

Sometimes somebody comes along with a larger capitalization potential than normal. It could be a retired military officer, a well-paid professional who wants to work in the gaming industry, or a fan with an inheritance or other windfall. It could be a brilliant promoter who began with a business plan that called for $90,000 in capital and raised $400,000 from investors. Now he wishes to re-examine his option. More cash opens up more options. If that’s you, you’ll want to know what options those are and what factors affect your decisions.

Inventory Selection

Instead of starting off with the most popular product lines and adding newer lines as your customers express interest, you can stock your store with secondary product lines, offering a wider selection than your competitors offer. Instead of starting with just D&D and 1-2 of the next most popular RPGs, you could stock D&D fully, stock World of Darkness heavily and carry core books and recent titles for nearly every in-print RPG. Instead of just Magic and the current popular anime-based CCG, you could stock boosters, starters and singles for a dozen games. Your board game shelf can become a board game department. Of all of the places I spent discretionary cash, inventory additions almost always made me happy.

This extra inventory gives you a competitive edge that you can leverage in your marketing. Advertise your store as “the best-stocked” or “the most games in town.” People like success, and you’ll see that even dedicated customers who are happy with their current game store will visit your store.
Such inventory addition costs a relatively small amount in the big picture, however. If you have access to greater amounts of cash, you could invest in additional products lines. Comics and anime are just the start. The “entertainment model”, which includes DVDs and consoles games, becomes a possible addition. Toys, collectibles, costumes, hobby supplies, coins, and other potential revenue streams could all become a part of your company’s income.

Employees

While more inventory is mostly a difference of degree, a bigger store might mean that you have employees right from the start—a luxury (and headache) other stores might not enjoy until later. You’ll need to learn to write a cost-effective schedule that also covers your sales needs. You’ll need to make your plans for how many employees to hire, how much to pay them, who will train them, how you’ll manage payroll, and your employment policies, like time off and employee discounts. It’s a lot of up-front homework.

Better Locations

With better funding than the typical business model discussed in this column, you can widen your location net to include busier intersections, freestanding buildings or mall spaces. A higher-grade commercial shopping center requires little change other than scale, but mall stores change the model at fundamental levels. In brief, mall stores attract more visitors, sell a more public-oriented product mix, and have higher labor and higher losses due to theft. On the upside, they typically achieve much higher sales volumes than outdoor shopping centers.

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Being big is about more than just having more inventory and floor space. Customers associate certain standards with larger stores. While a shoestring look is fine for a shoestring store, that same look is jarring in an anchor suite. You’ll want your crew to wear uniforms, make sure all the light bulbs are working, and generally keep the place clean and maintained to top-notch standards.

Items considered frivolous at lower sales volume might be a necessity for you: shopping baskets, spot lighting, a video surveillance system, an alarm system, and a POS system. Consider each of these things a gain of percentages. In a low-volume store, increasing sales by 1% might not be worth a large capital investment, but in a busier store, the investment repays itself sooner. The same applies to loss. If your security system reduces shoplifting by 10%, it’s worth twice as much at $500,000 per year as it is for a store doing $250,000.

Buying Property

Many retailers scoff at the idea of purchasing the property in which you’ll run your business, but it can be the right choice in the right circumstances. Buying opens up more financing options, including an additional SBA option. Even if you do have your own money, investing somebody else’s money is still a good idea. Ironically, you might find it easier to obtain financing when you’re seeking a larger amount.

While building equity in a small business can have value, you only realize that value if you manage to sell the business. And 50% of small businesses that go on the market fail to sell. Equity in real property rarely decreases (the current market notwithstanding), and in the long run it almost always gains faster than inflation.

A Bigger Store

Putting your money into a single store can generate a higher profit percentage than if you generate the same sales volume out of multiple outlets. A $600,000/year store is a better money-maker than two stores reaching $300,000 each. The biggest difference lies in the overhead reduction: one rent instead of two, one manager’s salary instead of two, etc.

Building a single store to higher sales volume requires a heavier marketing budget, a higher inventory level, and (usually) a broader selection of inventory. It might require a small amount of additional equipment, like a second register station and multiple phone lines. You need the marketing to bring people to the store. You need deeper inventory to reduce stockouts and offer in-brand selection, and you need more product categories to reach a wider audience.

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Catastrophic loss if the store fails
Limited geographic draw
Greater control
Lower costs
Better performance

More Stores

You might look at the financials for a single store and see that you can afford to open 2, 3, or even more locations. Owning multiple stores has its advantages over a single store, but it also has disadvantages. If you decide to pursue multiple stores, make sure you have the right temperament and skills for the different nature of your business and know what hazards threaten your success.

The advantages of having multiples stores include greater sales potential, the ability to reach a wider geographic area, the option to expand through acquisition, and a little bit of inventory control. You have the option to survive if you fail at one location by attempting to recover your customers at the other stores and redistributing fixtures and inventory (or storing it until the next location opens). Having multiple locations in the same market allows you to divide the cost of certain advertising between the stores, while all locations benefit from the same ads.

The risks of opening multiple stores include reduced performance, a lack of connection with your customers, and a lack of control. Hired employees won’t work as hard as you will, nor as wisely, so your figures will suffer. If you delegate ordering authority to others, be prepared to watch your inventory. Loss increases not only through theft but to diminished diligence.

If you plan to open multiple stores, I recommend that, unless you have managed/owned a retail game store in the past, you open a single store at first and run it as owner/operator for at least a year. You have to learn the job before you can teach the job. During that year, lay down the groundwork for your growth. Have a training program in place for your management. Have supporting paperwork for your employees. Plan out your growth so that you’re not trying to open multiple stores on the same weekend.

Most importantly, I urge you to plan to open at least four stores and to open them all under the umbrella of a single phone book or cable TV service area. Opening stores in multiple markets means that you lose one of the principal benefits of multi-unit ownership. Operating 2-3 stores is a primary “danger area” of growing multi-unit owners because your direct attention is spread too thin and the sales volume often fails to justify an additional tier of management.

Multiple Stores Thumbnail Sketch

Failing in one location does not automatically ruin the company
Reach more customers in a wider area
Less control
Rely more on management skills and less on technical skills
Open to growth through acquisitions
Greater upper sales limit

Next time, look forward to “Thinking Really Big”, a pie-in-the-sky store model that dwarfs all other stores.