Monday, January 31, 2011

Considering organic growth? Retailers don't forget to ...

As confidence heads back into the region, new and suspended growth strategies are reinvigorated and reinvented in attempt to capture market share.

While there are many challenges faced in delivering on any growth plans, a common conundrum often facing the business development directors, CFOs and CEOs is what is the right path to growth – do we take the organic or acquisition route?

In Retail, we often consider scale as a key winning metric and we tend to shoot for the stars when discussing store target numbers for years ahead. The reality is that delivering on these target numbers is often a hurdle too far for many businesses.

Having worked with clients across the region, the following points are not to debate the merits of either taking an organic or acquisitive route to growth but rather to highlight some of the elements that need to be on the radar when looking to expand your retail estate the organic way.

The little things add-up – control your costs
A costly decision on an individual store can be managed, once you roll-out this out over 20, 50 or even 100 stores this mistake can suddenly become a serious financial burden. Among others this could relate to fixtures and fittings or even site layout that impacts delivery of products. One client having procured a number of tailor-made gondola shelving for his estate, only then realized the depth was insufficient for his new product layout.

Location, location, location – do your due diligence
A good location now may not enjoy the same success in 12 months time and as this is always critical to the eventual triumph or failure of the store you need to be sure of the projected returns before investment is made. Understanding future property plans for the area and the possible competition needs to be assessed in depth. In markets across Southeast Asia where new malls and buildings are constantly being developed, it’s even harder to know the sustainability of a location in comparison to the mature western markets.

Be conservative with your numbers
Make sure your financial projections have the breadth that can incorporate all the variables that will have an impact on the overall cost of the store development. We are always keen to see positive returns on our plans and sometimes this can feed directly into the numbers we project; make sure they are given an objective view and all details are captured.
Do the detail, make sure the logic is there; first focusing on understanding the location, the impact of competition, the projected sales – average daily transactions, ticket values, days open etc – and then document all the capital costs and the back office needed to support the growth. With all projections make sure you provide at least 15 to 20 percent downturn on your numbers so that you’re not left high and dry should your sales not hit their intended target initially.

Connections – nurture key contacts
This is obviously country dependent, but we would be foolish to underestimate the influence of the authorities in any growth plans that may involve licensing, property or human capital decisions. Nurture these relationships and be proactive in networking with the right authorities and individuals to prevent those unforeseen time hurdles that will inevitably arise from ambitious growth targets.

Preparation is a key factor to driving a successful organic growth strategy and without the business platform, your targets will stay as targets but they just will not be met!

The points mentioned above are by no means exhaustive and there are many factors that lead to a winning organic growth strategy.

1 comment:

  1. I completely agree with preparation being a key factor to drive a successful Growth Strategy. Great information!