You have successfully launched your physical store and managed to overcome the obstacles you face in finding ideal customers and determining your sales and marketing channels.
Very soon, you will start thinking: what comes next?
For many retailers, expanding the business to a second location seems like the logical next step. But that doesn’t mean it’s an easy decision.
4 Reasons to Open a Second Location
Although online shopping is convenient, many consumers still prefer to discover and see products for themselves. Opening a second retail store helps serve more customers who want to see your products in person.
"We’ve seen a great response to our physical stores," explains Ariel Kaye, founder and CEO of Parachute. "Customers love to touch and see home goods—especially bedding, towels, and other fabrics that will be used frequently."
"I think providing an option for customers to interact with these types of products, with no pressure to buy, is a huge value in the long run."
Opening a second store location can be beneficial for any retailer. Some reasons you might consider for expansion include:
1. Increased profits and reduced costs
A second location can help increase operational capacity, with larger product orders leading to lower unit prices. This helps increase profit margins, providing a potential financial boost for your business.
2. Larger customer base
When you enter a new market in a prime location with less competition and high demand, you are likely to attract many visitors and boost brand awareness, leading to increased visibility and more customers.
3. More efficient management
Opening a second location doesn’t have to mean reinventing the wheel. You already know what works (and what doesn’t) and how to manage your store for success. You can build on your previous experiences, focus on what works, and replicate successful strategies.
4. Operational and competitive advantages
If you strategically choose your second location, you can tap into broader pools of talent, vendors, and production equipment, giving you operational and financial advantages. You can double (or more) your production capacity with two locations.
Potential Risks of Expanding a Retail Store
Opening a second location may seem like a no-brainer, but expanding before your business is fully ready can be a risky venture. Be sure to consider these potential risks that come with adding another retail store location.
1. Increased expenses
Doubled commercial space usually means doubled rent, and if you plan to open your store in a prime location like the retail heart of New York, it will be costly: the average commercial rent there is about $57,333 per month. Additionally, you’ll need to pay extra costs for staffing, equipment, software, raw materials, and storage space, meaning you will spend more each month (keep in mind that some equipment may be tax-deductible under section 179).
Before opening a second location, retailers should negotiate lease terms and calculate cash flow. It can take a lot of upfront cash, more than many small retailers realize. – Monish Dutta, Vertical Advertising Solutions, TikTok
2. Supply chain management issues
Operating two locations means ensuring coordination between the individual supply chain management systems for each. With a larger business, you need robust systems that don’t create bottlenecks that lead to delays or lost inventory.
3. Reduced in-store shopping
Since the pandemic, in-store shopping has seen a sharp decline. With everyone holed up at home, consumers turned to online shopping and still prefer it over in-store shopping, even as restrictions were eased. Research shows that 66% of consumers prefer to shop online now, and although e-commerce sales have increased by 35% year-over-year, in-store shopping has only seen a 10% growth year-over-year.
When
Is it the right time to open a second location?
While there is no black-and-white answer to when a company should open a second location, there are some indicators that may suggest you are ready.
Open a second location when your business is ready to grow and can support the expansion. This includes your operations, workforce, and supply chain. – Sean Morrow, Founder, Japtogo
Before you sign on the dotted line and open your second retail store, there are some important questions to consider:
1. What is your goal for the second store?
Define what you want to achieve with the second location. Are you aiming to increase revenue? Gain a larger presence and a diverse customer base? Expand production capacity? Test a new market?
This goal will help you organize the launch plan for your store, guide your team towards the vision, and assist you in executing the steps leading to that ultimate goal.
When Ariel Kaye founded Parachute, she knew that textiles and home goods were a category of products that were heavily purchased in stores rather than online. While she recognized that some customers would easily transition to a digital shopping experience, she was certain that others would benefit from shopping in-store and seeing the quality for themselves.
“Our retail strategy was to provide a new kind of shopping experience compared to what the customer expects,” Ariel clarifies. “Our stores are designed to look more like homes rather than stores, offering design inspiration and allowing customers to touch, see, and interact with products in an authentic environment.”
Parachute saw conversion rates up to 50% higher in cities with stores, and our goal is to have a total of 30 retail locations across the country by the end of 2022. – Ariel Kaye, Founder and CEO, Parachute
2. Do you have access to capital?
While you can raise capital from external sources, it is crucial to have savings or a portion of profits that you can use to fund the expansion. Additionally, you can expect that there will likely be a slow ramp-up in sales with the second store, so your funds should be sufficient to support the second store until it can sustain itself through the revenue it generates.
“Be careful with investors,” Christopher Reiter, Director at CohesiveWhole explains. “Their view of success should align with yours, or you will encounter problems. Traditional retail is a long game, not an instant success.”
3. What legal structure will you choose?
You may have opened your first store as a sole proprietor, but it may be wise to have a different structure for the second location, as it will define your path and future business plan. You can choose to open this second location in partnership with someone who shares a similar vision, or make it something more prominent, like a corporation or LLC.
4. How will this impact your current store?
Opening a new location will necessarily shift your focus from the first location. It’s important to draw a line and determine how involved you will be in building, launching, and managing the second store and how this will affect your role at the first store.
You can choose to be fully engaged and hire another manager for the first store, or be partially engaged and define your role there, or hand it entirely over to another leader (appropriate if entering into a partnership).
“Retailers – especially those who own one location – have a competitive advantage that is hard to compete with: their relationships with customers,” explains Chris Vandercook, Demand Generation at Marsello.
“Retailers have built lasting relationships with their customers by being present in the community, understanding their preferences, having deep product knowledge, and building trust through face-to-face communication.”
It’s tougher
Part of opening a second location is replicating and maintaining customer relationships when the business owners are not behind the counter. Look for ways to create uniformity across all stores. – Chris Vanderkolk, Demand Generation, Marsello
5. How will you hire and train employees?
The second location will require a new set of employees who have no idea how your business operates, your vision, what you aim to achieve, and the overall company culture. Document how to hire and train them so that your processes and procedures become a natural part of them.
Consider these questions: Will the management team from the first store train them? Will you hire an external person to train the new team? How will you document your procedures to provide them as resources and continually empower them?
A strong and reliable management team can be a support pillar for both of your locations, overseeing operations and making decisions as needed.
How to Open a Second Location
Opening a second location requires a planned strategy to eliminate random work and move forward directly.
Here’s a step-by-step strategic plan on how to open a second location for your business:
1. Conduct market research
Many strategies that worked for you at the first location will apply to the second, but some variables like customer demand and the market will be different. It’s important to assess the market conditions before entering a new location to maximize your chances of success. Conduct a site analysis and competitor assessment to evaluate market demographics and current competitors and how you will compete with them and your market positioning. Evaluate the demand for your product at the new location, the age demographics of customers, buying patterns and power, and what drives them.
Know the availability and pricing of the resources you need to operate your business, such as raw materials, transportation, labor, and storage facilities.
2. Write a business plan
If you have a business plan for your first store, leverage that to create a plan for the second location. Consider everything that worked and didn’t work for your business to help ensure consistency with the brand and translate the success of the previous store to this store.
Here’s what your expansion plan should include:
– Clearly define goals and objectives. Gather your team at the first location and discuss the goals you want to achieve and the objectives that will lead you there. Everything you do, from how to launch the second store to how you interact with customers, will hinge on this crucial first step, so gather everyone early with the vision and goals.
– Potential challenges and a plan to mitigate them. Identify things that were failures at the first location and create a plan to address the challenges you may face when opening your new store.
– Systems and processes for management. Decide who will be responsible for various aspects of the business, which team members will transition or manage part of the other store, and what software you will use to streamline operations.
– Funding and financial needs. Project your expenses, profits, and expected revenues for the first six to 12 months to determine how you will fund your business and achieve profitability.
– Marketing. Decide how you will launch your store, spread the word, invest in paid and organic advertising, engage in public relations activities, and attract customers to your store.
3. Find the right location
For a retail store, location plays a critical role in determining success. You already know which elements are most important for running your business from the first location. For example, if you own a beauty brand, you want to be in a location with good electricity and air conditioning.
When opening a second location, brands must consider proximity to the first location, optimizing inventory distribution, and creating synergy between store experiences. This becomes more challenging with the opening of stores. – Rebecca Kondrat, Founder and CEO, Kondrat Retail
Here’s
Some best practices for finding a great second location for your store:
– Check all recent real estate newspapers, online property directories, and magazines to select potential sites. You might post an ad or inquiry in an online real estate group or community. Share on social media and engage influencers to share it – even if it’s at a minimal cost.
– Once you’ve found some potential store locations, evaluate them according to essential needs and choose the ones that best align with your requirements, give you an advantage over the first location, and are suitable for your product and target market.
4. Anticipate expenses and secure capital
Opening a retail store is very expensive – rent and infrastructure alone can add up. For most people, it’s not feasible to open a second store with a small amount of the savings from the previous store. You need a significant cash flow to launch the second location and get things moving.
Make sure to anticipate your expenses, including hidden costs, taxes, and inflation. For a retail store, this means rent, infrastructure, warehouse rental, transportation, production, raw materials, equipment, technology, and employee expenses.
You also need an accounting system, preferably with an accountant or financial officer, to handle payments, manage accounts, and understand how capital intersects with profit and loss.
Once you’ve identified your expenses and set up the accounting system, it’s time to look for funding: liquid cash, investments from angels or venture capital, loans, credit options, crowdfunding, or friends or family. Choose the path that will provide you with the capital needed to successfully launch your business.
5. Hiring employees
Hiring the right group of people is crucial when expanding, as you won’t be actively involved in every aspect of your stores.
Here’s how to proceed with hiring:
– Consider your current workforce. Can you promote and transfer someone internally to the second location as a manager or move some of your team members there? Since these employees have experience operating the first location, their support will help get the second site off the ground.
– Decide which positions you need to fill – operations, inventory management, customer success, and sales. Create hiring criteria for each role to ensure all candidates are evaluated correctly and to build a strong team that will be an asset to your business, especially in your absence.
– Decide how you will train the new team. Since you’ve done this before, you likely have a set of standard procedures to follow. You can bring department heads from the previous store as trainers for the new team to familiarize them with how you operate, the programs you use, and the company culture and values you follow.
6. Purchasing inventory
Make a list of the equipment, supplies, and raw materials you need for production or inventory for sale (if your manufacturing process happens elsewhere).
If possible, look for local vendors who can supply quality materials (at the best possible price). You can ask about local vendors, try searching yourself, or ask vendors from the previous location for references.
7. Launching the second location
Once all of this is completed, it’s time to plan the launch. Set a realistic timeline for the launch to ensure all items arrive at the new location before operations begin. Decide whether you want the launch to be grand and invite media to cover the event or keep it small with a soft opening.
Start generating buzz about your opening by spreading the word in your network, informing your existing customers, posting on social media, running ads, and even announcing it at the first location.
“You must
“Treating the second store with the same attention as the first,” Rebecca explains. “Opening a store is not a set-it-and-forget-it exercise.”
Customer behaviors evolve, as do traffic patterns and market conditions. The more attention a brand can pay and listen to feedback from front-line teams, the higher the likelihood of making the necessary adjustments for success. – Rebecca Kondrat, Founder and CEO, Kondrat Retail
Expanding with a Second Business Location: Is It Worth the Effort?
Business expansion comes with its fair share of challenges, but if the risks you take are worth it, a second store can take your business to a whole new level.
If you plan to expand your business with a second location, continue to consider all the factors mentioned above, weigh the positive and negative aspects, and use our roadmap to embark on this new and exciting journey. Open your second store with Shopify.
Shopify POS is the easiest way to unify selling online and in-store and open more locations with confidence. Get all the tools you need to manage your business, market to customers, and sell everywhere in an easy-to-understand back office. Email address Start the free trial.
Frequently Asked Questions About the Second Business Location
How can I open a second business location?
Conduct market research: Before opening a second business location, it’s important to conduct market research to determine if the area is suitable for your business. Look at demographic information, average income, competition, and potential customers in the area.
Secure financing: You will need to secure financing for the second business location. This may include a loan or other forms of funding.
Choose the location: Once you identify a potential area for the second location, you will need to secure a physical site. Consider factors such as rent, space, parking, signage, and visibility.
Set up the store: Once you secure the location, you will need to set up the store. This may include stocking products, setting up displays, preparing payment systems, and tracking inventory.
Promote the store: You will need to promote the store to attract customers and increase sales. This can include advertising, digital marketing, and in-store promotions.
What are three types of business locations?
Brick-and-mortar stores: Physical stores located in a mall, shopping center, or street.
E-commerce: Selling products through a website or online platform.
Mobile commerce: Selling products through a mobile app or mobile site.
What do you mean by business location?
A business location refers to a store or shop where goods and services are sold directly to customers. It’s the place where customers can purchase items directly from the seller. Examples of business locations include department stores, grocery stores, gas stations, pharmacies, and convenience stores.
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