While the pet industry has proven to be fertile ground for growing successful retail chains, expanding a one-store operation into a multi-unit powerhouse can be quite challenging—and risky—when you’re working with limited resources.
When it comes to growing successful retail chains, there are few environments that have been as fruitful as the pet specialty channel. Even as other retail segments have watched their independent class of chain operators fold under the competitive might of big boxes and online outlets, the pet industry continues to hold ample opportunities for emerging and established retail chains to expand.
And there are great incentives to capitalize on these opportunities for growth. For example, expansion brings with it economies of scale and brand recognition that can provide real competitive advantages—particularly if they are combined with the right mix of products and customer service, which have become hallmarks of great pet specialty retailers.
Still, the ability to take full advantage of growth opportunities is not consistent across the channel’s diverse collection of retailers and often depends heavily on a business’s financial means. While retailers backed by the considerable resources of outside investors find themselves operating from a position of strength and security, expansion can be more challenging for businesses that must fund it from within.
According to Biff Picone and Nadine Joli-Coeur, owners of the Natural Pawz chain, which operates 20 stores (soon to be 23) across Houston and Austin, Texas, the differences between the two sides are stark and have a big impact on chain-building strategy.
“When you’re self-funded, growing is much different than if you have a checkbook from an equity company,” says Picone. “When you’re independent, you have to be much more conscious of where your money is going because you are taking it out of your profits.”
With this in mind, Picone says that every decision needs to be examined closely.
“How much rent am I paying? What are the fixture costs for the store? What are the build-out costs? All of this has to be balanced against what the expected sales are for any new store to ensure you don’t get upside down,” he says. “You don’t want to grow at the expense of your other stores.
“Chains with investors do not have to worry about that—at least until the paybacks start.”
Self-funded expansion can be particularly difficult for single-store operators who are still just taking the first steps toward building a fledgling chain. The resources available to them will typically be quite limited, and the consequences of every mistake will be amplified. In fact, for these retailers, a failed attempt at expansion can potentially be a death blow.
“Are you ready to put your existing business on the line?” asks Michael DiTullio, president of Especially for Pets, which operates seven stores (soon to be nine) in Massachusetts. “Because you probably can’t afford a failure. When you get to store four or five, you can afford a failure, but you can’t afford a failure with No. 2.”
Given what’s at stake, it is imperative that retailers not only hone their approach as they expand, but also avoid burying themselves in debt along the way.
“I feel very strongly that you should not take on a lot of debt, especially if you have just a one- or two-store operation,” says DiTullio. “If your business is profitable, take the time to build up your war chest.”
Make no mistake, having the financial means to grow will be vital to the ultimate success of the business. “One of the biggest mistakes I’ve seen retailers make is trying to expand while [under-funded],” says Deb Wilson, director of business development for All the Best Pet Care, which operates 12 stores in and around Seattle. “You need access to capital. Without it, you can’t make good decisions.”
Testing Your Mettle
Assuming that all of the necessary financial resources are in place, a successful transition from a single store into a chain will depend heavily on the strength of the business model. Before venturing into expansion mode, Wilson recommends that retailers take an honest look within to make sure that their proposition to customers is really something that can drive the growth desired.
“You better have something different and unique to offer,” she says, recommending that retailers look for any apparent holes in how or where pet owners are currently being serviced.
In addition to making sure the retail operation has the right stuff to connect with an expanding customer base, it is also important to ensure that its operational systems are strong enough to sustain growth. “The problem is the more you grow, the more you magnify any inefficiencies or the things you aren’t doing well,” says Joli-Coeur. “It’s very difficult to overcome if you have bad operating processes.”
Even retailers with the best business model should be prepared to make adjustments on the fly. After all, market conditions change, as do customer preferences. “You have to be flexible enough to change with the times,” says Picone.
“You can’t let yourself lose touch with customer,” recommends Joli-Coeur. “And you have to constantly look within to improve and evolve the business.”
When a one-store operation turns into a chain, it’s not just the business model that will be tested, but also the mettle of the business owners themselves. Growing a retail chain takes a great deal of hard work—a lesson that AdreAnne and Andy Tesene learned quickly when they began building their four-store chain, Two Bostons, in the western suburbs of Chicago.
“What no one realizes when they first open a second store is that it’s not double the work, it’s much more,” says AdreAnne. “It’s a great opportunity, but you have to be prepared mentally and physically to basically triple or quadruple your workload.”
Even if they are ready and willing to put in the effort required to build a successful multi-store operation, at some point business owners are also going to have to come to terms with the fact that they simply cannot do everything themselves.
“Multi-unit retail is not a fit for an operator who has a tendency to be a micro-manager,” says Picone. “You need to let go and hire talented people and let them do their thing. This is something not many founders can adjust to and they just burn themselves out.”
According to DiTullio, the fact that business owners will reach a whole new level of dependence on others to help run their growing business requires a different set of management skills than are necessary with a one-store operation.
“It’s much different than being an owner/store manager, even though you may have three or four other people on staff,” he says. “You can’t be that hands-on person you were before, and if you cannot become a manager of managers, you’re going to have an awful lot of problems because you can’t be in more than one place at a time.”
Just like many owners of fledgling pet store chains, letting go of her old role was something that AdreAnne Tesene found quite challenging at first. “One of the biggest hurdles that I had to get over was making myself understand that I couldn’t be on the sales floor much anymore,” she says. “I enjoyed being on the sales floor. I liked the interaction with customers and, quite frankly, I was a good salesperson. But I had to move into a position of coaching my sales team so that I could have a broader impact.”
Elements of Success
Given how much will be riding on them, it is critical that a growing chain has a staff that is talented, reliable and properly deployed. As Wilson says, “You have to have the right people in the right seats.”
For the Tesenes, this process begins with coming to an honest understanding of the business’s needs. “Every step of the way, you have to look for your deficiencies and surround yourself with people who make up for them,” says AdreAnne.
Unfortunately, finding the right employees to continue driving a retail business forward, particularly at the store level, isn’t always as easy at it might seem.
“With the number of stores we have, our No. 1 issue today is finding good employees,” says Picone. “In our market, we have a lot of competition for entry-level people. Not only are we competing with the big-box stores, Amazon is building a million-square-foot warehouse on the outskirts of Houston and will be hiring thousands of people. And then we have grocery stores opening up all over the place. The labor pool just isn’t as plentiful.”
Even when retailers are drawing from a great labor pool, having a strong employee training system in place is essential in creating an effective staff that can drive the business forward. But as with just about every other area of a retailer’s operations, this become more complicated when applied to a chain of stores.
“Training is always a challenge,” says DiTullio. “If you have one store with a staff of four or five employees, it’s easy to do things like keep them abreast of new products—their features and benefits. Once you have multiple stores, that knowledge has to be consistent from one location to the next, which can be difficult.”
Once a good system has been built for staffing multiple locations, however, it becomes much easier to scale up.
“Training is a really big thing for us,” says AdreAnne Tesene. “Our employees go through about 50 to 60 hours of training before they’re on the sales floor. Andy and I used to handle it ourselves, one on one, and it would take weeks of our time. Now our managers handle it, and once we got that down pat, it became much easier to roll out to new stores.”
Another area of adjustment that needs to be made when transitioning from a single-store operation to a chain is the approach to branding. While this is something that any good retailer puts some thought and effort into even for just a single location, it becomes even more important as the business scales up.
“When you get into store No. 2, you really should put a lot of effort and some money into a whole new design that is going to make your business feel like a chain going forward,” recommends DiTullio. “Just having a blank space with some fixtures in it isn’t a strategy that is going to yield success.”
One Step at a Time
Looking at expansion on a more focused level, it is important that retailers understand all of the elements required to successfully add new stores. Luckily, this should get easier as a chain grows, as the business owner will learn through experience.
“The real trick is figuring out the ramp—in other words, when is a new store going to be profitable?” says DiTullio. “You may not know that for the first one, but each additional store will inform your expectations for the next one.
“You should model store three after store two. Look at the cash-flow analysis. Take a detailed look at what you spent on everything, from fixtures to flooring to inventory. All that information you gained with the second store makes it so much easier with the third and subsequent stores.”
When it comes to the most important factors in deciding whether or not a new store will be successful, most pet store chain operators will put location at the top of the list.
“Having a great site selection is going to make a huge difference in how much customer traffic a store is going to get,” says Andy Tesene.
One of the first considerations should be making sure the new store is the right distance from the retailer’s other location(s). While many chain operators indicate that a three to five mile radius is a pretty good rule of thumb, there is always the potential to make exceptions.
For example, when the Tesenes decided to open their second store, they were inspired to do so by the fact that an attractive location in a new lifestyle center was opening up. While the new store was located just three miles away from the original Two Bostons location, according to AdreAnne, it was really in what could be considered “a completely different part of town.”
As the Tesenes’ experience illustrates, analyzing the local market to make sure that it can fuel the performance the retailer is looking to get from the store is more important than setting an ideal distance between locations.
“You want to look at the traffic patterns, population density and demographics,” says Picone, noting that retailers should consider the future development of an area before making a decision. “It’s a mistake just to look at the current situation.”
Of course, retailers will also want to take the presence of local competitors into account. “I am not a big fan of locating a new location near or across the street from an existing retailer,” says Picone. “There is enough opportunity to expand in a market without having to be on top of some other independent.”
Even armed with all the right data, retailers may still find it challenging to secure the right location for a new store, says Wilson. “Real estate can be the trickiest part of expansion,” she says. “Many of the best retail spots are already taken, unless there is a new development underway, and you are competing with other retailers for those few remaining spaces.”
Selecting and securing good locations—and all of the other elements that go into expanding a retail operation—is sure to get easier as a retailer gains experience in growing. However, assuming that success for a new store is a given based on past experience would be a mistake, no matter how big a chain becomes.
“Don’t kid yourself that since your first store was successful any future stores will be as successful,” says Picone. “You need to put the same thought and planning regardless of if it’s store No. 2 or store No. 20.” PB