David Barnes, an Entrepreneurs' Organization (EO) member from South Australia, is the founder of Gym and Fitness Australia, a company that helps fit any gym or studio with the most suitable equipment. We asked David about the challenges involved with opening up stores after primarily existing online. Here's what he had to say:
Retail in 2015 was abuzz with a new trend: successful e-commerce companies choosing to open brick-and-mortar stores. The latest was Amazon, who opened up a bookstore in Seattle in November. Smaller companies have said brick-and-mortar space has allowed them to communicate their brand and create a seamless customer experience.
But is setting up shop in a physical space right for everyone? With a thriving e-commerce site, we pursued what appeared to be the next logical step: opening a small chain of storefronts. We were growing quickly and wanted to jump on the opportunity to expand. In business, it seems like you always have to jump on the latest trend -- especially when you have a fickle consumer base. We didn't want to miss our chance to grow while we were riding a wave of online success.
But it didn't work, at least not for us. There were some bumps in the road, and we eventually decided to shutter our stores and go back to our greatest success: online retailing. We, unlike other businesses who have struggled with main street retail, have a happy ending: January 2016 was our best month ever. Our greatest success came after we reverted to our e-commerce roots. It may be painful to share, but here's what we learned from our brick-and-mortar experiment.
1. Expanding Too Quickly. We wanted to grow fast, so we went all out and opened five stores across the country. But ambition doesn't always make up for lack of process knowledge. Going from an e-commerce site to five different locations, all of which required staff, inventory and commercial space, was a huge undertaking. It would prove to be the start of our undoing -- even if we could see the revenue numbers increase compared to our online site.
In our rapid expansion, we forgot one key detail: We needed to offer a consistent and satisfying customer experience in order to protect our brand. We learned as we went, creating a state of utter chaos. Even our smartest, hardest-working employees were confused -- and our business suffered as a result. Although many consumers were excited about our product, this taught us that you can still grow too quickly.
2. Revenue vs. Profit. Reaching more customers means more sales -- right? Maybe. But one of our earliest lessons was that revenue is far less important than profit. We want sustained growth and a great balance sheet at the end of every month. As small business experts often say, the key to growth is profit; increased revenue doesn't always result in a competitive advantage.
Most businesses find ways to increase revenue, but only a healthy profit margin will ensure you have the free cash flow that will sustain you in the long term. That's particularly important for brick-and-mortar businesses, where the rent must be paid and the lights have to stay on in order for you to make sales.
3. Cash is King. Every small business needs cash in the bank and not just for overhead costs. When you're leasing square footage, the shelves need to stay stocked and sales can be unpredictable. Paying your suppliers on time ensures you keep up those positive relationships, which are vital to your business. If your supplier cuts you off, you have nothing to sell.
Good cash management lets you be flexible and responsive to customer demands. You can stock the product people want to buy. But part of good cash management is also knowing where you should resist spending your dollars. An early mistake was empowering our store managers to purchase inventory. Their buying decisions were not always best for the business because they just didn't know what people would buy. That left us overstocked and liquidating product while our cash flow was depleted.
4. People Matter. You can't expand your company without a great team of people -- that goes for e-commerce and brick-and-mortar businesses. We had an amazing team overall, but a few bad apples did serious damage to our business. Product that should have been sold to customers mysteriously went missing, leading to huge losses for the company. It took us years to discover the shrinkage (otherwise known as staff theft), and it added up to more than a few dollars over time. To run a great business, you have to trust your people, but you also have to be on top of what's happening in all aspects of your operations -- especially when you are spread out over five stores in different parts of the country.
5. Know Your Numbers. So what was our main takeaway? To know our numbers. In the exhilaration of quick expansion, we lost sight of some of the most important details -- and they were right there in our bottom line. The books could have alerted us to the purchasing problems and theft much earlier -- and we perhaps could have successfully managed our brick-and-mortar growth.
Despite our bumpy road in brick-and-mortar retail, our company has gone from success to success; we've refocused our energies on our original strength, our e-commerce presence. We haven't ruled out the possibility of opening up another storefront, but we'll take the lessons we learned to heart. In the meantime, our bottom line is only getting bigger.