Best Place for a Start-Up? Think Inside the Box
BY Minda Zetlin
It sounds counterintuitive, but launching your store inside a giant retail chain store could be a smart business move.
Looking for the perfect location for your new retail business? Consider setting up shop inside a "big box" retail store.
That's what has worked for N-Hance Wood Renewal, a franchise service that renews wood floors and cabinets with polyurethane, refreshing the finish and changing the color, if desired, at a much lower cost than traditional refinishing or replacement. About 40% of N-Hance's business comes from its kiosks inside Home Depot stores. N-Hance first began selling franchises in 2006, and there are now 200 franchises operating kiosks in 1,400 of Home Depot's 1,900 locations.
Setting up shop inside a big box store brings challenges you wouldn't face when opening a storefront: There are commissions, fees for marketing and other details to negotiate; you may have to answer to the retail chain if a customer complains of poor service; and getting there in the first place requires pitching your concept to a large corporate entity that regards its in-store real estate as highly valuable.
It's well worth the effort, according to Ben Davis, president of N-Hance. Here are four reasons why:
1. Customers come to you.
"Eighty percent of Americans who are considering doing something with their kitchens walk into a Home Depot," he says. "We can send our franchisees to set up shop exactly where our customers are. It's like opening a lemonade stand after thirsty kids are already lined up down the block."
2. You get credibility.
"N-Hance is a relatively new company in a relatively new market space," Davis says. "People thinking about doing a remodel rarely think about simply renewing and changing the color of their cabinets. Having our offering within Home Depot gives it great credibility. People who might have wondered about the quality of our service will think, 'I'm sure if they weren't able to delight customers, Home Depot wouldn't let them sell within its stores.'"
3. Raising money is a snap.
Big chains don't like doing things on a small scale. "It's uninteresting to them," Davis says. So if you're a small company, the best approach is to either start with a regional chain and then move up to a national chain once you're established, or start with a few stores within a national chain, but be prepared to ramp up quickly.
Either way, once you've got a big retail chain on board, investors will be too. "Saying, 'We're in 10% of this chain's stores, and they'd be willing to put us into 100% tomorrow if we were ready,' is very compelling," Davis notes.
4. You can get richer faster.
"A couple of carpet installers I know set up in Home Depot a few years ago," Davis says. Last time I talked to them, they had about $50 million in revenue a year. They could not have grown that quickly on their own. You just can't replicate the distribution or foot traffic."