This advice is specifically for anyone preparing to downsize a retail business. It covers challenges and opportunities we have encountered when doing this in the past. It is not complete. Further, it may contain advice not relevant to your specific situation. Use this as a starting point.
THE CASE FOR THE MOVE.
Any decision to downsize a business must have a business case. It needs to work in terms of projected numbers that take into account revenue, fixed costs, and other factors. You need a business plan that reflects this.
Key to the business case is a clear understanding of what the new business stands for. What type of business is it? What percentage of floor space is allocated to each product category? What are your revenue projections by category? What do you need to make for the space to work? For example, if the rent is $150,000 and you want an occupancy cost of 11%, your total revenue where revenue is product revenue plus commission will need to be $1.363M.
Our view is any new downsized business needs to be bult around a GP target. Today, at the time of writing, the overall business GP target needs to be at least 45%. Anything less will leave you short.
MANAGING CHANGE.
Any move is a big change for a business. It is important you involve all connected with the business from early on. Don’t keep the move a secret.
Suppliers need to know because of the impact on forward orders.
Employees need to know so they have context for roster changes and possible end of employment with you. Not telling employees and them losing hours or a job altogether could have FairWork ramifications for the business.
Customers need to know so they can be part of the journey with you.
Openness with all these stakeholders will help you achieve what you want from the move.
The sooner you let people know the sooner they can be part of the journey.
Map out what you sell today – look at revenue by department and category and brutally cut based on what the new business stands for, the financial model you need and any other factor you think relevant.
Once you work out what you have today that will not be in the new business, be clear in planning to achieve this.
Be realistic about your labour requirements. A new shop layout can mean a more efficient layout and this can save labour costs. Know from the outset what the roster will look like.
Most retail businesses we work with have a higher labour cost than is necessary. $100 saved is worth around $300 in sales if the saving does not hurt sales.
CREATING THE NEW BUSINESS.
Six months out ensure all suppliers have been advised in writing and that your advice includes a request for a review of any forward orders. Be clear on the space allocation changes as they will affect them.
Around eight weeks out from the move start to sell down what you will not take with you. Price the discounts such that you sell out early, enabling you to trash or discard fixtures etc that you will not be taking into the new business.
Do not bring across any stock that is more than six months old. Discount to achieve this.
Leaving the sell down too late will cost you money.
Spend as little as possible on any shop-fit as that could be lost month f you do not get a return within three years.
THE MOVE.
Customers are forgiving. A disrupted store can be helpful when you are discounting.
Do only bring current stock.
Make the move quickly.
Be prepared for change. By not doing an expensive purpose built shop-fit you can change and change again. This flexibility is key as you settle into your new business.
Make sure you stay within your budget for the move. It is easy to spend more. These are costs you will struggle to recover.
By all means ask suppliers for help – but expect the cost to ultimately be borne by you.
The key in all this is the plan: know what the new business will be and look like and trim the old so it fits in the new. And remember, just because you stock it today does not mean you must stock it tomorrow.
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